Tuesday, August 13, 2013

Betraying America to Avoid Taxes

People want to use the security of America's laws and courts, and the related infrastructure and economy, to earn lots of money. (Read: Capitalism requires government). But after they do, they don't want to pay the taxes that pays for all these services; and so, some renounce their U.S. citizenship. Just ask people like Facebook's co-founder Eduardo Saverin and the Motown legend Tina Turner.

Although the departing don't always go public with their reasons, taxes seem to be a frequent complaint. Experts attribute the latest surge to tough new measures to be implemented next year by the Internal Revenue Service to locate and tax Americans' assets held overseas.

The U.S. is searching for tax cheats in offshore centers, including Switzerland, as the government tries to curb the budget deficit. Shunned by Swiss and German banks and facing asset-disclosure rules under the Foreign Account Tax Compliance Act (Fatca), a few of an estimated 6 million Americans living overseas are also weighing the choice of holding a U.S. passport or dodging income taxes.

Expatriates giving up their nationality at U.S. embassies climbed to 1,131 in the three months through June from 189 in the year-earlier period, according to the most recent Federal Register figures.

The 2010 Fatca law requires foreign financial institutions to report to the Internal Revenue Service information about financial accounts held by U.S. taxpayers, or held by foreign entities in which U.S. taxpayers hold a substantial ownership interest. Fatca was estimated to generate $8.7 billion over 10 years, according to the congressional Joint Committee on Taxation.

The implementation of Fatca comes after UBS, Switzerland’s largest bank, paid a $780 million penalty in 2009 and handed over data on about 4,700 accounts to settle a tax-evasion dispute with the U.S. Whistle-blower Bradley Birkenfeld was sentenced to 40 months in a U.S. prison in 2009 after informing the government and Senate about his American clients at the Geneva branch of Zurich-based UBS.

The Foreign Accounts Tax Compliance Act was designed to help the U.S. Treasury recover what was estimated to be up to $100 billion a year the government was losing in unpaid taxes on U.S. citizens' overseas assets. The law requires foreign banks to share account information with the IRS that pertains to U.S. taxpayers or risk penalties. Since FATCA was passed in 2010, a number of major banking nations, including Switzerland and the United Kingdom, have agreed to cooperate with the U.S. on such disclosures.

Americans living abroad have a well-established lobbying group to represent their interests in Washington. American Citizens Abroad backs what it calls "residence-based taxation," which the group argues is "the only way to keep America and Americans abroad competitive in a global economy."

For Americans benefiting from tax-free foreign income or assets, however, the Fatca law's implementation date of July 2014 means that time is running out. Meaning...it's time for rich Americans (if they were living somewhere abroad like Switzerland) to pay their fair share of income taxes or renounce their U.S. citizenship.

Meanwhile, people like Eduardo Saverin and Tina Turner should never be allowed to set foot on U.S. soil anywhere in the world, ever again, for any reason.

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