Government Affairs

Relinquishment of U.S. Citizenship Declines Sharply in 2018

The United States Internal Revenue Service (IRS) recently released statistics on the number of U.S. Citizens and long-term residents who have chosen to relinquish that status for recent periods, showing declines over other recent periods.

For the second quarter of 2018, 1,086 individuals ended their U.S. status, some 40% fewer than in the second quarter of 2017. 

Relinquishment of U.S. citizenship or long-term residency (called “expatriation” under the U.S. Tax Code) has spiked in recent years. Many observers attribute this trend to the advent of the Foreign Account Tax Compliance Act (FATCA), which was enacted in 2010 but has been gradually put into full effect over recent years.

Under FATCA, foreign financial institutions must report to U.S. authorities any accounts of U.S. taxpayers, which includes not only the accounts of U.S. Citizens, but also those of U.S. legal residents (green card holders). As a result, it is speculated that U.S. taxpayers are increasingly expatriating the U.S. to avoid the required reporting. 

Related: U.S. Passport Revocation Could Affect 360,000+ Taxpayers Worldwide

Beginning in 2015, the number of expatrations increased markedly to 4,281. It rose to 5,400 in 2016 and 5,132 in 2017. The number spiked in the 4th quarter of 2016 at more than 2,300, but has begun to decline since then. 

Those who expatriate must file a detailed tax exit form (Form 8854) and pay an exit tax on their assets determined by valuing the assets as of the exit date. The assets are deemed sold on that date, and tax computed.

So far as is known, nothing in the Tax Cuts and Jobs Act of 2017 should lead to any further interest in leaving the U.S. 

Related: U.S. Courts Divide on Penalty for Failing to Report Foreign Bank Accounts

How This Impacts Mobility

Some companies have experienced long-term resident employees or even U.S. Citizen employees electing to leave the U.S. in recent years. This is disruptive and leads to a number of work-related issues. It appears that this trend is now decreasing, and that fewer such events will occur.

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