The U.S. State Department has announced that the U.S.-citizenship renunciation fee is rising more than 400%, from US$450 to US$2,350, as of Sept. 12.
The State Department claims the citizenship renunciation fee hike is needed in order to reflect the “extremely costly” process of consular offices handling renunciations. A recent spike in people dropping their U.S. citizenship is apparently eating up more consular offices’ resources. Last year, almost 3,000 U.S. citizens and green-card holders renounced their allegiance to the United States. That record number is set to be beat again in 2014.
The Wall Street Journal reports that, according to a U.S. State Department spokesperson, three-quarters of U.S.-citizenship renunciations are handled from consular offices in Canada, the UK, and Switzerland.
Forbes reports that a backlog of dual Canadian-U.S. citizens seeking to renounce their U.S. citizenship at the consular office in Toronto apparently stretches into January 2015. Extensive interviews are required for a U.S. citizen to renounce his or her citizenship.
Given the increasingly strict and punitive regulations on Americans’ offshore financial accounts, such as the Foreign Account Tax Compliance Act, the citizenship renunciation fee hike appears to be another attempt by the U.S. government to prevent Americans from avoiding the IRS’ ever-expanding reach.
The United States is the only developed country that collects taxes based on citizenship. The only other country, developed or not, to tax nonresident citizens based on worldwide income in the same way as they do residents is Eritrea.
Many who renounce their U.S. citizenship are not wealthy people looking to hide millions in owed taxes. Instead, many are ordinary folks who were simply unaware of their U.S.-citizen status and their resulting tax obligation and now wish to shed their U.S.-citizen status. The recent hike in the citizenship renunciation fee restricts the accessibility of renunciation to these ordinary people, many of who are middle-to-low-income persons.