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Americans line up in front of the Consulate General in China

4,279 U.S. citizens renounced their U.S. citizenship in 2015. That is a 20 percent increase from 2015, which was also a record breaking year. The trend now suggests that the number will only increase from here on out.

The spike in the number is largely due to the increased reach of the United States’ citizen based tax system. The IRS imposes the reporting duty to all Americans- even the “accidental” Americans who were born in the U.S. but never lived in the U.S. With the increased scrutiny and enforcement of the overseas and banking and reporting laws, many feel that their citizenship has lost its merits.

The American expats are required to report their worldwide income on a tax return every year. They also have to report their foreign bank and financial accounts. For non-compliance, American expats can expect hefty penalties and a possible criminal charge. The Foreign Account Tax Compliance Act, also known as FATCA, in particular placed more pressure on taxpayers and foreign banks. The IRS can fine banks that refuse to disclose the information of its American clients. For instance, Swiss UBS AG was fined over $780 million by the U.S. Treasury Department for its role in “hiding” Americans’ accounts information. Fearing the consequences, some foreign banks are refusing to provide services to American clients.

Contrary to popular belief, renunciation isn’t the magical solution to all these issues. First, in order to renounce, you must pay a $2,350 fee and take a formal oath at the U.S. Embassies or consulates. Then you actually have to resolve outstanding issues with the IRS. The applicants must prove that they have properly filed and paid taxes for the past five years to renounce. In addition, if your assets are worth more than $2 million, you must pay an “exit tax.”

In conclusion, expats are renouncing their citizenship to avoid their U.S. tax obligations; however, what they must realize before making the decision is that the renunciation of the status doesn’t actually solve all the problems. It is advised that expats considering renunciation should consult with tax experts to weigh options.