Home   >   News   >   New tax has some Korean Americans wondering: Is U.S. citizenship worth retaining?

New tax has some Korean Americans wondering: Is U.S. citizenship worth retaining?

March 25, 2014

By Jane Han

Last week, a major news bomb was dropped on the Korean community in the U.S.

The dreaded Foreign Account Tax Compliance Act (FATCA) deal has finally been agreed upon between Korea and the U.S., a severe headache for Koreans in the U.S. who have money in Korea.

Under the agreement, the U.S. Internal Revenue Service (IRS) will receive information on bank and other financial accounts held by U.S. citizens, green card holders and residents in Korea. Starting in July, Korea’s National Tax Service (NTS) will automatically send information to the IRS on accounts with a balance higher than $50,000.

The IRS plans to use this information to track down offshore tax evasion. If money owed hasn’t been reported via the annual tax filing, violators may have to pay up to 50 percent of their foreign account balance.

So if someone, for instance, left about 30 million won ($280,000) in his Korean savings account, he may end up having to cough up as much as 15 million won for not reporting this money to the IRS.

Not everyone has this kind of money, but those who do are seriously contemplating: Is U.S. citizenship worth retaining?

”I have money in Korea that has nothing to do with the U.S. This is money that I made before moving here and now the IRS wants to tax that?’’ says Cha Hae-nam, 62, who lives in Connecticut. ”That has to be the most ridiculous thing I’ve heard.’’

Cha, who has about 80 million won in cash, stocks and funds combined, says he is ready to give up his green card any time and move back to Korea if it’s going to cost that much to live in the U.S.

Elderly Koreans seem more outraged by the news and inclined to leave America for good.

”Being old, it’s already tough enough to live in the U.S. Hospitals, customer service and just everyday living in general is so much easier in Korea,’’ says Park Bong-joo, 58, who owns two small businesses in New York. ”This new law is definitely adding to the reason for me to go back to my home country.’’

Law offices in New York, California and other areas with high Korean population density say inquiries regarding the new tax law and renouncing of U.S. citizenship have increased by at least 30 percent in the past three months.

”After a lot of rumors and anxiety about this new tax law, people are finally realizing that the IRS is getting serious,’’ said John Kim, a tax attorney in Los Angeles. ”At this point, I can’t say whether the IRS will aggressively go after these accounts and penalize the violators as it says it would. It’s too early to tell, but Koreans here are definitely becoming more cautious.’’

Kim added that many Korean business owners in the U.S. take advantage of savings banks in Korea since they have a much higher interest rate than banks in the U.S.

”For some people, the amount is more than hundreds of millions of won,’’ he said. ”These are the people who are really contemplating giving up U.S. citizenship.’’

Apparently, Koreans aren’t the only ones mulling renouncing U.S. citizenship.

According to the U.S. Treasury Department, a record 2,999 Americans gave up their citizenship or long-term residency in the U.S. last year. The number went up three times compared to 2012, and many say the tighter tax law is to blame.

Since the FATCA became enacted by the U.S. congress in 2010, the U.S. so far has a similar agreement with 22 other countries.

”We can’t say this is the one and only reason, but it’s certainly a valid cause for people who simply aren’t attracted to the U.S. anymore,’’ say Rick Kim, a tax attorney in New Jersey. ”But people must remember that it takes more than just signing a piece of paper to renounce their U.S. citizenship.’’

Experts say the process is lengthy, which includes numerous paperwork and interviews. High income earners even have an ”exit tax’’ imposed on them, to officially say goodbye to America.

3 Comments

  1. Basil

    April 3, 2014 at 9:31 PM

    Well, ignorance is not an excuse. People should report their assets. By the way, 30 million won is not around $280,000. It’s around $28,000. There’s a huge difference. I can understand some issues over the taxation system like double taxation, but you should report your assets to the IRS. It’s the law. Maybe they should give people a grace period.

    Reply

  2. Charlotte

    April 4, 2014 at 1:21 AM

    It’s about time the tax services worked together to punish those who’ve been hiding assets overseas. That’s right, if you want to be an American citizen then you have to follow American laws.

    Reply

  3. Christine

    June 10, 2014 at 2:19 AM

    One of the big problems here is that the IRS has done a ridiculously poor job of making its greencard holders and citizens aware of their obligations when it comes to reporting account information, which is where the big penalties come in, versus reporting the income on accounts. Even now, when there is a big crackdown going on, the webpage on the IRS website informing immigrants of their tax obligations still does not mention anything about reporting foreign accounts, at least in the Spanish version.

    It should also be mentioned that if someone is not eligible for the Streamlined Program for overseas citizens and greencard holders, there is little way of getting out of this situation legally without paying very high fees and fines (people without legal representation have done poorly in OVDP). Renunciation can only get people out of future filing requirements.

    Reply