The one nagging truth that is both common and unique to all of these individuals? They remain effectively fettered to the U.S. tax system.
Unlike almost every other tax regime in the world, the U.S. taxes its citizens no matter where they reside. Thus, even if you expect never to return, you should expect to have to file an annual tax return. There is, of course, the option of renouncing your citizenship, but even this comes with its own potential tax consequences.
While it's true that many Americans have chosen not to stay tax-compliant while living abroad, this choice is becoming increasingly risky and, for some, untenable. The following are five very key reasons U.S. expats should remain compliant with the Internal Revenue Service.
1. With the onset of the Foreign Account Tax Compliance Act, there's nowhere to run and nowhere to hide.
As many expats can attest, it has become more difficult to open or maintain a bank account overseas without having to sign an IRS Form W-9 or other U.S. tax-related documentation. This increasingly common bank procedure is a result of the Foreign Account Tax Compliance Act, which requires foreign banks and other financial institutions, among other things, to gather and report information to the IRS about their U.S. customers or face stiff tax-withholding penalties on U.S. investments.
This strong-arming by the U.S. government has left many expats with little to no choice but to stay compliant or catch up with the IRS if they are behind in their filings. In this sense, the IRS is "banking" on the fact that living without a bank account is so impractical that expats will surely view continued U.S. tax compliance as the less onerous alternative.