The 8 million Americans living overseas should “ensure their financial affairs are in order and compliant” before the New Year, or face having their passports revoked, warns a financial advisory organisation.
The company – deVere Group, which has 80,000 mainly expatriate clients globally – said this after it was reported that the US Congress is preparing to bring in a law to take passports from Americans who owe tax. It is likely to pass into law in December and come into effect on January 1.
The measure, which is partly to raise funds for the proposed highway project, would allow the federal government to revoke a passport, or deny an application for one, if the individual concerned has more than $50,000 of unpaid federal taxes that the Internal Revenue Service (IRS) is seeking to collect.
“Whilst this law is aimed at all Americans, it is likely that the 8 million US citizens who live overseas will be disproportionately affected,” said Nigel Green, founder and CEO of deVere Group.
“This is because, due to the cross-border element, their financial affairs are, typically, far more complex than their counterparts back home.
“In addition, the Foreign Account Tax Compliance Act, or FATCA, has added extra layers of complexity – meaning mistakes can be made more easily – and, since September 30, the would-be private financial information of Americans living overseas who have more than $50,000 in accounts is now being sent automatically to the IRS.
“Also, expats are far more reliant on their passports for their work and their everyday lives than those who reside in the US.
“This move underscores the lengths the US government is prepared to go on this issue of tax recovery.
“I would urge US citizens abroad – the ones who, due to complexities, could more easily fall foul of the regulations and who are perhaps more reliant on their passports – to ensure that their financial affairs are in order and compliant by the New Year,” he added.
However, the US State Department could issue a passport in an emergency or for humanitarian reasons.
If this move becomes law and applies to existing tax debts, about $398 million can be raised over 10 years, as per the US Joint Committee on Taxation.
As the new law threatens to take away the passport of many Americans, the number of citizens in the country voluntarily giving up their passports has gone up.
As per IRS/Treasury Department records, the number of Americans choosing to give up their passports hit a record 3,415 in 2014, up 14 per cent from 2013, and 15 times more than in 2008, when only 231 people renounced their citizenship.
Experts report this surge in number is due to an increasing number of expats who no longer want to deal with complicated tax paperwork.
Unlike most countries, all Americans fall in the US tax umbrella, irrespective of their status or where they earned their money from.