Wealthy people are renouncing American citizenship
The number of Americans who renounced their citizenship in favor of a foreign country hit an all-time high in 2020: 6,707, a 237% increase over 2019.
Between the lines: While the numbers are down this year, that's probably because many U.S. embassies and consulates remain closed for COVID-19, and taking this grave step requires taking an oath in front of a State Department officer.
Why it matters: The people who flee tend to be ultra-wealthy, and many of them are seeking to reduce their tax burden. New tax and estate measures proposed by the Biden administration could, if implemented, accelerate this trend.
The big picture: Only the U.S. and Eritrea tax people based on citizenship rather than residency. For most countries, if you are a citizen but don’t reside there, you aren’t taxed in that country.
Where it stands: The IRS publishes a quarterly list of the names of people who have renounced their citizenship or given up their green cards.
- The numbers started swelling in 2010, when Congress passed the Foreign Account Tax Compliance Act, or FATCA, which increased reporting requirements and penalties for expats.
- FATCA "kind of flushed people out of the bushes," says Andrew Mitchel, an international tax lawyer based in Connecticut who tracks the numbers. It "effectively deputized all the banks around the world to tattletale on U.S. citizens."
- But the Wall Street Journal discovered that the lists aren't up to date: A lot of people who were reported to have renounced citizenship in 2020 actually did so years earlier.
- "It’s not as if the latest quarter names that have come out are indicative of the current political environment or anything like that," Mitchel tells Axios.
What they're saying: David Lesperance, an international tax lawyer based in Poland who specializes in helping people renounce U.S. citizenship, says that with coronavirus shutting down interviews for renunciation, the next lists will only contain relinquished green card holders, who can do it by mail.
- "There are probably 20,000 or 30,000 people who want to do this, but they can’t get the appointment," Lesperance said. "There’s not a peak demand — the system’s capacity has peaked."
- "It's a year-and-a-half to get an appointment at a Canadian embassy," he tells Axios. "Bern [Switzerland] alone has a backlog of over 300 cases."
- Lesperance, who has been helping people renounce citizenship for 30 years, says the pandemic has made it hard to help clients navigate the lengthy and complicated process, which involves first getting citizenship in another country.
Be smart: The State Department strongly discourages people from severing themselves from the protections and privileges that U.S. citizenship affords (and that so many migrants, Dreamers and others are seeking to obtain).
- "We usually advise against it," Ashkan Yekrangi, an immigration lawyer based in Orange County, tells Axios. "The bulk of the cases are individuals trying to avoid tax liability."
- A lot of people who take this drastic step are tech zillionaires: Eric Schmidt, the former Alphabet CEO, has applied to become a citizen of Cyprus.
- Some are "accidental Americans," who were born here but didn't live here that much. (U.K. prime minister Boris Johnson was born in the U.S. but only lived here as a small child, and subsequently renounced his citizenship.)
- The State Department is tight-lipped about the numbers and what they mean. "Since embassies or websites offer appointments on a first-come, first-served basis as local conditions permit, we do not track 'pent-up demand' for U.S. citizenship renunciations," an official told Axios.
The bottom line: President Biden has proposed raising the top capital gains tax to 43.4%, and while it's unclear whether that will pass, it did prompt a lot of calls to Lesperance from people wanting to find out which foreign countries might grant them citizenship.
Correction: An earlier version of this article stated incorrectly that the number of citizenship renunciations tracked by the IRS only includes people with a net worth over $2 million; it includes everyone.