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The price of being an American who lives abroad is often an accent that sticks out, jokes about culinary inferiority and sometimes even issues opening a bank account or buying a home.
But for some former citizens, the price to renounce that status has long been steep. Now many of them want refunds, filing a class-action lawsuit Wednesday to try to get their money back.
It marks a new stage in a yearslong battle by “accidental Americans” — U.S. citizens who neither live in the country nor have any real ties to it but must still pay taxes to Uncle Sam — to reduce the costs they face.
The $2,350 that Rachel Heller paid to renounce her citizenship years ago was almost equivalent to her monthly salary.
The State Department announced Monday it would be dropping the fee back down to $450, the amount it used to charge until 2014. Heller, a Netherlands resident and one of the lead plaintiffs in the lawsuit, wants a refund of the difference.
‘Like a divorce’
Heller is one of 30,000 former U.S. citizens, according to the Accidental American Association, which is organizing the lawsuit and calling for a change in the tax system.
Unlike most countries, the United States imposes a citizenship-based taxation system, irrespective of where a person lives or works.
“It was far more complicated for people living overseas. And the threatened fees if you did it wrong or left something off by mistake were so high that I got really paranoid about trying to do it myself,” Heller, 61, told NBC News in a telephone interview.
So in 2015, the former teacher turned travel writer decided she couldn’t keep spending the $1,100 every year on her accountant to file her U.S. taxes and declare her entire personal life to a country she had left in 1997.
She went to her nearest embassy in Amsterdam, near the city she had emigrated to, for a brief but final visit that left her in tears as she gave away her U.S. passport.
“It felt like a divorce, but it was by somebody you love but someone who’s not good for you,” said Heller, who grew up in Connecticut and moved to the town of Groningen, Netherlands.
“Accidental” Americans began coming to the attention of U.S. tax authorities some decades ago.
In 2010, Congress enacted the Foreign Account Tax Compliance Act, or FATCA, to crack down on tax evasion by Americans with financial assets abroad after a Swiss bank scandal showed U.S. taxpayers hid millions of dollars overseas. The law requires foreign banks to report on financial accounts held by U.S. citizens to the IRS.
As a result, many of these Americans learn they may owe taxes in the U.S. for services they’ve never received, after getting contacted by banks in countries where they live and are tax-compliant.