In recent years, the United States has begun cracking down on overseas banks that allow Americans to hide their money tax-free. In 2010, Congress passed the Foreign Accounts Tax Compliance Act, affecting every foreign bank that does business with the U.S. The act also applies to retirement accounts and mutual funds.
A burst of renunciations in 2010 (over 1,500–doubling the previous year’s numbers) coincided with a new part of the law that requires individuals to report foreign assets worth as little as $50,000. (A separate provision forces Americans to disclose foreign bank holdings larger than $10,000.) Numbers continued to climb to nearly 1,800 renunciations in 2011, then dipped in 2012. By the 3rd quarter of 2013, however, there were a record 2,369–likely due to a new part of the law that is taking effect.
The new provision requires financial institutions to report all foreign accounts held by Americans. This has inevitably prompted some foreign banks drop their American clients altogether rather than risk entanglements with American law enforcement. As a result, Americans wishing to avoid paying American taxes, and/or continue doing business and banking outside of the U.S. have opted to turn in their American passports.
The United States is unique (similar only to the country of Eritrea) in that citizens living and working abroad must continue to pay U.S. taxes on top of taxes to the country in which they live and do business.
High-Profile Individuals Who Gave Up U.S. Citizenship
Eduardo Saverin, the Facebook co-founder who infamously had a falling out with Mark Zuckerberg, conveniently ditched his U.S. citizenship just ahead of the company’s I.P.O. Although born and raised in Brazil before moving to the United States in 1992, he now lives in Singapore. He owes an exit tax on capital gains from stock holdings, even if he doesn’t sell the shares. His chances of being barred from entering the U.S. again? Pretty high.
Tina Turner relinquished her citizenship late last year. She has lived in Switzerland for nearly two decades and recently married her German boyfriend of 27 years. We’re pretty sure, although she has a Swiss bank account, that she has reasons for leaving the country other than evading her U.S. taxes.
John Dorrance III, heir to the Campbell’s soup fortune, cashed out of the family business when he sold his 10.5 percent stake in 1995-1996. Dorrance renounced his U.S. citizenship and moved to Ireland prior to the sale.
Denise Rich, who wrote songs for Aretha Franklin and Jessica Simpson, renounced her citizenship last year, saving tens of millions of dollars in taxes. Her two daughters live in London, which she plans to make her permanent residence.
Sir John Templeton, pioneer global investor who founded the Templeton Mutual Funds, was called “arguably the greatest global stock picker of the century” by Money magazine in 1999. He sold the Templeton Funds in 1992 to the Franklin Group for $440 million. He fled to the Bahamas and took British citizenship in 1968, preferring to give his money to individuals rather than governments. His philanthropic activities in the U.S. have been estimated at over $1 billion.
Ted Arison, Jewish founder of Carnival Cruise Lines and original backer of the NBA’s Miami Heat, renounced his citizenship in 1990, taking his multi-billion dollar fortune to Israel, where he lived out the rest of his life.
Terry Gilliam – the only American in the famous Monty Python comic troupe — renounced in 2006 and became a British citizen. He is quoted as saying, “When I kick the bucket, American tax authorities would assess everything I own in the world—everything I own is outside of America—and then tax me on it, and that would mean my wife would probably have to sell our house to pay the taxes.”
Renouncing citizenship involves interviews, paperwork, and legal procedures, as well as exit taxes, capital gains taxes, and other surprises. Expatriates may have trouble re-entering the U.S. in the future without a visa.