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Why Americans Renounce Their Citizenship

The rare citizen-based taxation laws in the US can make life hell for Americans living abroad, to the point that some cut ties with the United States altogether.

by Serena Solomon
Jul 18 2016, 9:15pm

Photo via Fort George G. Meade Public Affairs Office on Flickr

Daniel Kuettel has vivid memories of the day in 2012 when he renounced his United States citizenship.

A heavy fog hung around the US Embassy in Bern, Switzerland, where he would raise his right hand and swear, "I hereby absolutely and entirely renounce my United States nationality." Right before he entered the embassy, though, Kuettel witnessed a serious car accident right in front of him, which seemed almost like an omen.

"It was really weird, just a really strange day," said Kuettel, 43. "I was sad, happy, scared, relieved, worried, excited, angry, delighted..."

Until that day, Kuettel considered himself both as American as apple pie and as Swiss as an army knife. His distant relatives on his mother's side had come to America on the Mayflower, and Kuettel had spent three years in active service for the US Army. He also had 700 years of family history in Switzerland, where he'd moved to pursue work as a software developer when the tech bubble burst in 2000. While he loved living in Switzerland, he planned to retire to America, the country of his birth.

Now, he can't. Renunciation is a permanent act and, aside from applying for visas like regular foreign travelers, bars ex-Americans from ever residing in the United States.


Daniel Kuettel with his daughter in Switzerland. Kuettel renounced his US citizenship in 2012. His daughter was deemed too young to do so by the US embassy. Photo courtesy of Daniel Kuettel

In 2015, more than 4,000 Americans renounced their citizenship—up 20 percent from the previous year, according to data released each quarter by the IRS.

The State Department does not keep statistics on why citizens renounce. Some say they do it for political reasons or because they cannot maintain dual citizenship. SKL Tax, a US and Canadian tax consultancy firm based in Vancouver, has received about a dozen renunciation inquiries this year with mention of Donald Trump, according to Max Reed, one of the firm's cross-border tax lawyers.

But many Americans renounce their citizenship because of the country's rare citizenship-based taxation laws, which require US citizens abroad to file highly complicated annual tax returns and sometimes even pay taxes to the IRS. They must also pay taxes to their country of residence, whose roads and hospitals they use. The only other country to tax its citizens abroad is Eritrea.

In recent years, these laws have spun off into other requirements that have prompted some foreign banks to stop doing business with local Americans, in some cases preventing them from opening a checking account. Kuettel began considering renouncing when his local bank in Switzerland refused to refinance his $450,000 condominium.

As part of the Foreign Account Tax Compliance Act (FATCA) of 2010, foreign banks must determine which account holders are US citizens—and potentially disclose their assets to the IRS, under threat of huge penalties. Many banks in Europe consider the risk of FATCA compliance too high, so they bar US citizens from even having a checking account. The law was designed to catch those taking advantage of foreign tax havens, but extends to all 8 million US citizens living overseas.

These complications compel some Americans living abroad to cut their ties to the US altogether, according to John Richardson, a Canadian-based lawyer who coaches clients through the renunciation process.

"They can't afford the onerous cost [of tax compliance and taxation]," Richardson told me. "They don't want to live in a state of terror, so that is why they renounce."


The US Embassy in Bern, Switzerland, where Daniel Kuettel renounced his US citizenship. Photo via the US Embassy, Bern, on Facebook

Kehrela Hodkinson, a US-immigration lawyer based in the United Kingdom, told me the first step in renunciation is determining if someone has US citizenship. Anyone born in the US is automatically given citizenship; children born overseas to a US citizen also qualify, if their parent applies for them. One of Hodkinson's UK clients, a so-called accidental American, didn't realize his mother got him a born-abroad US citizenship until he was in his 50s.

Those planning to renounce must prepare five years of US tax returns and settle any debts owed in the United States. Afterward, they must book an appointment at a foreign US consulate or embassy and pay a fee of $2,350 (which was raised from $450 in 2014, in part due to the growing number of citizens expatriating). Finally, the US citizen must then raise their right hand and swear the oath of renunciation before a consular officer. When it's over, they receive a Certificate of Loss of Nationality. All in, Hodkinson says the appointment takes about 45 minutes.

Preparing for the renunciation process, however, can be much more expensive and and time-consuming. Karen Alpert, who gave up her American citizenship in June, told me she paid about $55,000 in total, between the $2,350 fee, legal help in preparing the application, and paying five years' worth of back taxes to the United States.

For some citizens, there's also an expatriation tax, a one-time fee if an individual has $2 million or more in assets. The tax, known as the "Billionaires Amendment," was designed for those at crosshairs with the law—people with wallets like Eduardo Saverin, the co-founder of Facebook who renounced his US citizenship just before the company's $104 billion IPO in 2012. (Saverin denied his decision had anything to do with tax.)

Alpert and her husband, both academics, moved to Australia in 1995 to work at universities. With the IRS's heavy taxation on retirement funds for Americans living in Australia, renouncing seemed like the only option to stay financially afloat.

For the renunciation appointment, Alpert, her husband, and daughter—also a US citizen—flew from Brisbane to the US Consulate in Sydney. They turned the trip into a sightseeing vacation, kicking it off by severing their formal ties to America.

"I thought it was a nice touch, all three of us saying the [renunciation] oath together," she told me.

While some celebrate the renunciation process with a champagne toast, others described it like a painful and expensive divorce. Hodkinson remembers one client who, after his consular appointment, had tears streaming down his face. His father had immigrated to the US and raised his family there. "He said, 'I was just thinking what would my father say?'" Hodkinson told me.

"It is very much an emotional process," said Richardson, who is himself a dual Canadian and American citizen. But in the end, renunciation is often worth it because, as Richardson's website puts it, "US citizenship is a problem to be solved."

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