WASHINGTON — For Ruth Anne Freeborn, it boiled down to a choice between country and family.
Born in Oklahoma, Freeborn has lived in Kingston, Ontario, for more than 30 years as an American expatriate, with a Canadian husband and 22-year-old son.
But a U.S. law passed in 2010 that will require international financial institutions to provide the Internal Revenue Service with information on their U.S. account holders forced her to weigh her citizenship. Her husband, a $51,000-a-year electronics technician and the family’s sole income earner, strenuously objected to having his financial data shared with a foreign nation.
“My decision was either to protect my Canadian spouse and child from this overreach or I could relinquish my U.S. citizenship,” she said. “It was with great sorrow I felt I had to relinquish, but there was no other choice for me and many like me.”
In September, Freeborn formally joined a record number of Americans who are surrendering their citizenship out of frustration and fear of the Foreign Account Tax Compliance Act. The law was created to root out Americans evading taxes overseas by requiring foreign financial institutions to annually report to the IRS on U.S. citizens who hold more than $50,000 at the end of the year.
The reporting requirements are putting a strain on dual citizenship households where a non-American spouse or partner doesn’t want the IRS prying into their bank accounts or financial portfolios, according to U.S. expat advocacy groups and tax lawyers.
The number of citizenship renunciations has surged from 742 in 2009 to more than 1,854 so far this year, according to the State Department. Some U.S. tax experts and expats believe the number is higher, based on foreign media reports of Americans renouncing in other countries and Internet chatter about increased waiting periods at some U.S. consulates for appointments to drop citizenship.
In addition to complaints about the reports to the IRS, expats say the law is prompting several overseas banks and financial institutions to close out longstanding accounts of American clients, refuse to open new ones, and deny loans and mortgages to expats rather than face a U.S. penalty if they don’t comply with the tax law.
The U.S. Treasury Department said the law doesn’t impose a burden that would prompt foreign banks to turn away Americans or force Americans to give up their citizenship.
There are proposals in Congress to repeal or reconsider the law, but none has gone far yet.
“FATCA is a textbook example of a bad law that doesn’t achieve its stated purpose but does manage to unleash a host of unanticipated destructive consequences,” Kentucky Sen. Rand Paul said when he introduced a bill this year to repeal FATCA. “Tax evasion is a problem that should be addressed, but not in an egregious way.”