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Archive for December, 2015

5th December 2015

In a recent article in the Wall Street Journal a new bill proposed by the United States Congress was discussed:

Under a new law expected to take effect in January, the State Department will block Americans with “seriously delinquent” tax debt from receiving new passports and will be allowed to rescind existing passports of people who fall into that category. The list of affected taxpayers will be compiled by the Internal Revenue Service using a threshold of $50,000 of unpaid federal taxes, including penalties and interest, which would be adjusted for inflation.

Clearly this proposed legislation could have significant ramifications for Americans living abroad. Presently, Americans abroad could only see their passports rescinded or applications for renewals denied where said applicants have outstanding criminal warrants in the United States of America or are delinquent on their child support. The proposed legislation comes after the relatively recent  implementation of FATCA (the Foreign Account Tax Compliance Act) which requires foreign banking institutions to report the financial activities of American citizens making financial transactions abroad. There have been some who disapprove of FATCA and there have been moves made in the US Federal Court to challenge the law’s constitutionality. However, at present the law remains part of the current American legal framework with respect to overseas bank accounts. As a possible consequence, in recent years there have been a growing number of individuals who have opted to renounce their United States Citizenship. It is clear that more and more people are opting to renounce their United States Citizenship. Each individual’s renunciation is likely based upon a different calculus, but it seems clear that recent changes to American tax policy have had a significant impact upon Americans living abroad.

The recent announcement that passports could be revoked as a consequence of tax delinquency seems likely to cause the number of Citizenship renunciations to increase. Although, it remains to be seen if this new policy will have a significant impact upon renunciations. Regardless of the fact that 50,000 USD seems like a substantial amount of money it will be interesting to see if the proposed legislation will allow for a form of COLA (Cost of Living Adjustment) style system whereby the amount of money in tax delinquency which would trigger a passport renunciation would increase year by year in order to track inflation. It is unlikely that such a scheme would be implemented because Foreign Bank Account Reporting (FBAR) requirements have not changed since the late 70′s. Therefore it stands to reason that the passport issuance requirements will stay frozen. Therefore, this legislation, although unlikely to have a significant impact upon Americans abroad anytime soon could have serious ramifications for Americans in 15-20 years time when 50,000 USD is not the representation of wealth that it is today.

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