The US State Department has increased the fees to renounce citizenship by 422 per cent due to increased demand from American citizens looking to hand in their passports.

The US State Department has increased the fees to renounce citizenship by 422 per cent due to increased demand following a recent cost of service study. The news comes as an increasing number of US citizens look to hand in their passports, which many observers have attributed to the US government's clampdown on tax evasion.

The State Department said in an interim public rule document published today that it had raised the fee for renunciation of US citizenship from $450 to $2,350 as demand for the service had “increased dramatically” over the past four years, consuming far more processing time and resources.

“Documenting a US citizen's renunciation of citizenship is extremely costly, requiring US consular officers overseas to spend substantial amounts of time to accept, process, and adjudicate cases. The fee for processing renunciation of citizenship, which had previously been subsidized, is now reflective of the true cost,” a spokesperson for the US State Department said.

It has been suggested that the US crackdown on tax evasion has prompted some Americans living abroad to give up their citizenship.

According to Treasury Department figures published in the Federal Register last year, 3,000 US citizens handed in their passports - three times the average of the past five years. While the Treasury has given no reasons for why they handed back their passports and green cards, many observers believe that the dramatic spike over previous years is due to them wanting to avoid paying taxes as a result of the Foreign Account Tax Compliance Act.

In the first quarter of 2014, 1,001 Americans gave up their passports or green cards, an increase of 47 per cent on the same period last year. It is also expected that a record number of US citizens will give up their passports this year, meaning more than 3,000 are forecast to do so before the end of 2014.

FATCA requires all financial institutions outside of the US to regularly submit information on financial accounts held by American citizens and people born in the US, including those with no existing ties to the country, to the US Internal Revenue Service. Those who are not compliant will suffer a 30 per cent withholding tax on income and gross proceeds, as of January 2015.

Earlier this month, two Canadian women with dual US citizenship launched legal proceedings against the Canadian government for its role in the implementation of FATCA, saying it is unconstitutional and violates their privacy.

The lawsuit, filed in the Federal Court of Canada, challenges the constitutionality of the FATCA agreement agreed with the US which came into force on July 1.

The two plaintiffs hope to stop the government from handing over private bank account information from more than one million US residents and their families living in Canada to the US Internal Revenue Service.