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Expatriation Costs Increase Again

03/09/2014


News flash: I am quoted in the Globe and Mail on this issue.

More and more Americans are renouncing their citizenship - Almost 8 times as many as were doing it back in the late 90s.

Until 2010, doing this was free. Then the State Department brought in a fee of US$450 to cover the cost of the service. This fee is being raised to $2,350, effective September 12, 2014.

Given the Department has a mandate to charge fees to roughly cover the costs of its services, I suppose this was reasonable. However, the Department at the time indicated that the fee was less than ¼ of the cost.

The Department has indicated that “there is no public benefit or other reason for setting this fee below cost.” Fair enough – what does the U.S. have to gain from more renunciations, except fewer tax returns to process?

But I take issue with the cost being that high. The Department has a “charge-out” rate, similar to that of lawyers and accountants. The rate used to be $231 per hour. It has now been reduced to $135. That means that each expatriation is supposed to take over 17 hours of time. Sure, there’s some back office work, but 17 hours?

The Department says “the demand for the service has increased dramatically.” Normally, when you do more of something, the per-item cost becomes cheaper.

There are a lot of Americans living abroad who find the U.S. tax system oppressively complicated and difficult. It’s already expensive to comply, so many of these who owe no U.S. tax (which is to say most of them) want to get out of the system. This fee has just made it that much nastier. Stay in – get dinged. Leave – get dinged.

It just feels like a kick in the butt on the way out the door.