‘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.

The State Department started imposing a fee for Americans to renounce their citizenship in 2010, and in 2014 increased it from $450 to $2,350 — one of the highest in the world — citing a “dramatic increase” in applications that required more resources.

The proposed reversal to $450 was in line with the cost of other services provided abroad, it said in a Federal Register notice Monday.

The State Department did not immediately comment on the lawsuit.

“Rather than resolving the causes of what leads individuals to renounce American nationality (FATCA law & Citizenship-Based Taxation), the State Department has preferred to put up barriers to limit the constant increase in renunciation requests,” said Fabien Lehagre, president of the Accidental Americans Association.

But it’s not just the taxes that have forced an increasing number of Americans to quit their citizenship, including Heller’s 25-year-old son, Robert.

A financial burden

“It was becoming clear that the banks were going to make things more and more difficult for us,” Heller said.

Some banks around the world would refuse services such as opening accounts, home loans would become tougher, and the paperwork the diaspora had to endure skyrocketed. Experts say that was because the cost of complying with FATCA ultimately fell on the banks, which became increasingly reluctant to serve Americans.

Any mistake while filing the required forms could come with fines amounting to thousands of dollars, meaning that having dedicated accountants just for American taxes was more and more necessary.

“For a lot of Americans, the hassle of being an American from a day-to-day financial being, it’s just not worth it. You’ve got interest penalties and even criminal penalties,” said David Lesperance, a managing partner at the Gibraltar-based law firm Lesperance & Associates.

“You’ve got full U.S. tax liability. Income, gift, estate, everything,” he said.

Amid these hurdles a record number of U.S. citizens have chosen to become expatriates.

IRS data showed that more than 1,300 people renounced their U.S. citizenship between January and June.

Lesperance said he has seen an unprecedented increase in the number of his clients wishing to give up their citizenship, and sometimes even the process fee is not the biggest hurdle.

The actual costs could balloon up to thousands, he said, as many struggle to even get an appointment with an embassy in the country they live in and are forced to travel to other countries.

Many who finally go through this process do so reluctantly.

Esther Jenke was completing her master’s degree in Nebraska when she met her German husband in 1994. Together they decided to move to Hamburg, Germany, the same year.

But it wasn’t until 2017 that she became fully aware of her tax obligations. She had already started thinking about retirement plans but her nationality got in the way.

“It was extremely difficult because the banks didn’t want me as an American client. Many of them refused to take me. So we put our investments in my husband’s name,” Jenke said.

The house they bought after saving up for years could be taxed too if they sold it, she said.

“I felt so angry that my own country was forcing me to give up my citizenship just to have a financially sound retirement,” Jenke said. She ultimately renounced her citizenship in 2018 at the Frankfurt Embassy.

“I feel much more free now. I can focus on my life in Germany without the U.S. hanging over my head,” she added.