The $2350 “relinquishment fee” does NOT mean that people should simply renounce citizenship

 

On September 6, 2015 it was reported on the Isaac Brock Society that the State Department intended to begin charging $2350 for both “relinquishments” and “renunciations”. The proposed rule is to be published on  September 8, 2015. With respect to “relinquishments” the Federal Register states:

The Department is expanding the application of and renaming item 8 in the Schedule of Fees to “Administrative Processing of Request for Certificate of Loss of Nationality.” The fee will be applied to cover not only services to U.S. nationals (i.e., U.S. citizens and non-citizen nationals) who relinquish nationality by taking the oath of renunciation under 8 U.S.C. 1481(a)(5), but also to cover services to U.S. nationals who relinquish nationality under 8 U.S.C. 1481(a)(1) to 1481(a)(4) or any earlier-in-time relinquishment statutes administered by the Department of State and request a Certificate of Loss of Nationality. Currently, the fee is paid by those taking the oath of renunciation under 8 U.S.C. 1481(a)(5) at the time the oath is sworn. The fee would be collected from an individual claiming to have relinquished nationality at the time that person requests the Certificate of Loss of Nationality (that is, after completing Form DS-4079 and signing before a consular officer Part II of Form DS-4079 entitled “Statement of Voluntary Relinquishment of U.S. Citizenship”). The Fiscal Year 2012 Cost of Service Model update demonstrated that documenting a U.S. national’s relinquishment of nationality is extremely costly whether the service is for a relinquishment under 8 U.S.C. 1481(a)(1) to 1481(a)(4) or a relinquishment by renunciation under 8 U.S.C. 1481(a)(5). Both require American consular officers overseas to spend substantial amounts of time to accept, process, and adjudicate cases. The cost of the service is not limited to the time consular officers spend with individuals prior to and at appointments. The application is reviewed both overseas and domestically to ensure full compliance with the law. The consular officer must determine that the individual is indeed a U.S. national, advise the individual on the consequences of loss of nationality, and ensure that the individual fully understands the consequences of loss, including the inability to reside in the United States unless properly documented as an alien. Through documentary review, consideration of the individual’s circumstances, and careful interviewing, the consular officer also must determine whether the individual is seeking loss of nationality voluntarily and with the requisite intent, as required by U.S. Supreme Court case law and by statute (8 U.S.C. 1481). This determination can be especially demanding in the case of minors or individuals with a developmental disability or mental illness.

The consular officer must also ensure that the commission of an expatriating act was as prescribed by statute, which is often an issue in non-renunciation relinquishment cases. The loss of nationality service must be documented on several forms and in consular systems as well as in a memorandum from the consular officer to the Department’s Directorate of Overseas Citizens Services in Washington, DC (“OCS”), in the Bureau of Consular Affairs. All forms and memoranda are closely reviewed in OCS by a country officer and a senior approving officer, and may include consultation with legal advisers. This review entails close examination of whether the requirements of voluntariness and intent are satisfied in the individual case. Some applications require multiple rounds of correspondence between post and the Department. The final approval of the loss of nationality must be done by law within the Department (8 U.S.C. 1501), by OCS, after which the case is returned to the consular officer overseas for final delivery of the Certificate of Loss of Nationality to the individual. In addition, every individual issued a Certificate of Loss of Nationality is advised of the possibility of seeking a future Administrative Review of the loss of nationality, a time-consuming process that is conducted by OCS’s Office of Legal Affairs.

Currently, nationals who renounce nationality pay a fee of $2,350, while nationals who apply for documentation of relinquishment of nationality by the voluntary commission of an expatriating act with the intention to lose nationality, do not pay a fee. However the services performed in both situations are similar, requiring close and detailed case-by-case review of the factors involved in a request for a Certificate of Loss of Nationality, and both result in similar costs to the Department.

In the past, individuals seldom requested Certificates of Loss of Nationality from the Department to document relinquishment. Although the Department was aware that an individual relinquishment service was among the most time consuming of consular services, it was rarely performed so the overall cost to the Department was low and the Department did not establish a fee. Requests for a Certificate of Loss of Nationality on the basis of a non-renunciatory relinquishment have increased significantly in recent years, and the Department expects the number to grow in the future, causing the total cost of this service to increase. At the same time, the Department funds consular services completely from user fees. The Cost of Service Model continues to demonstrate that such costs are incurred by the Department when accepting, processing, and adjudicating relinquishment of nationality cases; therefore, the Department will collect a fee from all individuals seeking a Certificate of Loss of Nationality. Taking into account the costs of both renunciation and non-renunciation relinquishment processes, the fee will be $2,350.

The fee will take effect on November 9, 2015. I have been aware of this impending fee increase for some time. Hence, it comes as no surprise. Furthermore, if you accept the validity of the $2350 fee for renunciations then a similar fee for “relinquishments” is justifiable.

There has been and continues to be extensive discussion of this increase. What does it mean? Why now? Is this to discourage “relinquishments”? What does this say about the character of the U.S. Government?  At a bare minimum, the fee increase is a continuation of a pattern of abuse of Americans abroad. That said …

The purpose of this post is to comment on a question asked by, USXCanada, who is a long time (I believe) blogger at the Isaac Brock Canada. He or she includes an interesting question in this comment:

The best thing about the utterly predictable extension of the $2350 fee to relinquishers?

Not having to endure any more speculations about the convoluted retroactive possibilities for exhuming prehistoric personal intentions to lose U.S. citizenship – especially by extraterritorials who did any such thing as (1) hold a U.S. passport (2) vote in a U.S. election (3) file any U.S. taxes (4) work a week as a temp janitor for a non-U.S. municipality.

How about a Brock contest to see who can do closest guess on (1) when the current fee next increases? (2) how much it goes up by? Here’s mine: September 2016 to a round $3000. Further out? At least $6000 by September 2020.

Off-the-top-of-the-head question:  Is there now any circumstance at all where an exiter will prefer to seek relinquishment because the morass of rules confers some benefit that would be lost through renunciation? (PS – Staying off the name-and-shame list is NOT one.)

The answer is yes! The “relinquishment fee” is an irritation but it is NOT a reason to simply default into a “renunciation”. Now, I am writing this post quickly and I invite others to add their thoughts. But, here are categories  of reasons why those who believe that they have validly relinquished U.S. citizenship, under U.S. law, should insist on a CLN based on a relinquishment.

Category 1 – For at least “citizenship purposes” the relinquishment date is always prior to the renunciation date.

Category 2 – The difference in treatment under other U.S. laws between “renunciations” and other forms of relinquishment.

Let’s examine each category.

 

Category 1 – For at least “citizenship purposes” the relinquishment date is always prior to the renunciation date.

Before, listing reasons I remind you of the difference between a “relinquishment” and a “renunciation”. (There is only “relinquishment” and “renunciation” is just one form of “relinquishment”. The difference is in the timing.) I urge you to read a previous post that describes “relinquishments” and notes “renunciation is one form of relinquishment”. The “take away” from that post is that it’s the time of the relinquishment that is the key and NOT the form of the relinquishment. To be specific:

The issue is NOT the form of relinquishment. The issue is the date of relinquishment.

Why would the “date of the relinquishment” matter? Well there are at least two reasons.

  1. Transmission of U.S. citizenship – Imagine one can successfully argue for a “relinquishment date” prior to your children being born. This would mean that (if you are not a U.S. citizen) that you could NOT transmit U.S. citizenship to your children.
  2. The tax issue – do the “Exit Tax and S. 877A Rules apply to you?” I commented on this issue in the other post as follows:

Since 2004, the U.S. Internal Revenue Code has contained provisions (2004 American Jobs Creation Act and 2008 HEART Act) which mandate that those who:

1. Relinquish U.S. citizenship under the Immigration and Nationality Act;

2. Continue to be treated as U.S. citizens for tax purposes until they notify the U.S. government.

The effective date of the creation of what I will call “The Tax Citizen” was June 3, 2004.

This means that since June 3, 2004 those who relinquished (including by renunciation) their citizenship under the Immigration and Nationality Act continue to be taxed as U.S. citizens until they notify the U.S. government in a prescribed way. To put it simply, there are tax and form consequences to relinquishing U.S. citizenship after June 3, 2004.

The “Tax Citizen” didn’t exist prior to June 3, 2004. Therefore, those who relinquished U.S. citizenship prior to June 3, 2004 may have no further tax obligations to the IRS.

This means that, in terms of tax consequences:

There may be (and likely is)  a difference between a “present day renunciation” and a relinquishment that took place prior to June 3, 2004. The difference is NOT in the kind of relinquishment, but in the date of the relinquishment.

As U.S. tax lawyer Michael Miller suggests:

For persons whose CLN shows a loss of citizenship date that is on or before June 3, 2004, section 877A should not apply. Even if the CLN is received today. I’ve discussed this with people at the IRS and they’ve informally stated that they agree.

In conclusion …

There is NO difference between “relinquishment” and “renunciation” (renunciation is just one form of relinquishment). For tax purposes, there is likely a difference between a “relinquishment” prior to June 3, 2004 and a “relinquishment” (including a “renunciation” after June 3, 2004. When it comes to U.S. tax obligations:

The difference is in the date of the relinquishment. The difference is NOT in the form of relinquishment.

Is a CLN (“Certificate of Loss of Nationality”) a necessary condition for NOT being treated as a “U.S. tax citizen”? Probably not, but this issue has been the topic of much discussion. For those who are truly interested in this, I invite you to read my recent post:
Taxability Freedom Day: On what day does a “U.S. person” cease to be a “U.S. taxpayer”?

Category 2 – The difference in treatment under other U.S. laws between “renunciations” and other forms of relinquishment under other U.S. laws. Here are “some examples”:

(E) Former citizens who renounced citizenship to avoid taxation

Any alien who is a former citizen of the United States who officially renounces United States citizenship and who is determined by the Attorney General to have renounced United States citizenship for the purpose of avoiding taxation by the United States is inadmissible.

This is commonly referred to as the Reed Amendment. It has never been enforced. It is hard to see how it could be enforced. The statute in its plain language imposes a number of hurdles on the U.S. government. See the following interview between Virgina La Torre Jeker and Bill Yates.

The FBI has released the latest monthly report on the number of records in NICS, the National Instant Criminal Background Check System. Alongside hundreds of thousands of records of convicted criminals and the mentally ill, NICS now contains 21,308 records of people who have formally renounced U.S. citizenship, up from 20,830 last month.

As discussed in our earlier post about NICS, this number includes only emigrants who lost U.S. citizenship under INA § 349(a)(5) or (6) by swearing an oath of renunciation — meaning they had lived abroad for many years and were now naturalising in a country whose laws require applicants for naturalisation to renounce all other citizenships prior to being granted a certificate of naturalisation (such as Denmark or Hong Kong), or they were choosing to give up U.S. citizenship after a long period of being dual citizens — which they might choose to do immediately after moving out of the U.S., or decades after their emigration.

NICS does not include records of people who relinquished U.S. citizenship, which normally occurs when emigrants naturalise or enter government service in a country which does permit dual citizenship, but nevertheless choose to have this treated as an “expatriating act” by the U.S. State Department. Based on 1994–1995 State Department data and the Isaac Brock Society’s own collected reports of readers giving up U.S. citizenship, the ratio of renunciants to relinquishers seems to be between five-to-four and six-to-four. That would suggest that roughly eight or nine hundred people gave up U.S. citizenship in one way or another last month.

  • Chuck Schumer’s Expatriot Act – Do you remember this piece of vindictiveness? Assuming this description from Wikipedia is correct, the Expatriot Act was:

A bill to amend the Internal Revenue Code of 1986 to provide that persons renouncing citizenship for a substantial tax avoidance purpose shall be subject to tax and withholding on capital gains, to provide that such persons shall not be admissible to the United States, and for other purposes.

Who knows? Maybe at some point (I doubt it) the United States 0f American will go “Full Schumer”.

Conclusion …

This issue is of concern ONLY if you wish to have a CLN. If you believe that you have “relinquished U.S. citizenship” prior to June 3, 2004, I would think twice before applying for a CLN. (Note that the FATCA IGA does allow for a “self-certification” of non-U.S. citizenship.) Under the Immigration and Nationality Act, relinquishment of U.S. citizenship is NOT and has NEVER been dependent on having a CLN.

That said, if you:

A. Believe that you have “relinquished U.S. citizenship” prior to June 3, 2004; and

B. Feel that you must have a CLN

you should still ask for a CLN that reflects the date of actual relinquishment of citizenship under the Immigration and Nationality Act!

John Richardson

 

 

 

 

 

 

 

 

 

One thought on “The $2350 “relinquishment fee” does NOT mean that people should simply renounce citizenship

  1. Dominic Ferszt

    Dear John

    Firstly, thanks for all your sterling work over the past four years. You’ve been a great help to me and no doubt many others.

    I have a few thoughts on this topic that I’ve independently considered over the years, perhaps some are worthy of your professional consideration.

    You mention at the end that ” FATCA IGA does allow for a “self-certification” of non-U.S. citizenship”. My recent experience with FATCA is that banks’ compliance/risk officers aren’t taking any chances. I have a long standing account that has never exceeded $10 000 – one fifth of the reporting threshold, yet they still want me to sign a W9. I refused and took the matter up with senior management raising the violation of my privacy rights against their non-obligation to report me. They wrote back assuring me that my privacy was of paramount concern to them, then froze my account. Banks are scared of the 30% withholding; they’re going to want to see a CLN. Maybe not every bank, but if you have a US place of birth, going through life without one will be a nuisance.

    You mention June 3, 2004, which is when the concept of a ‘tax citizen’ was created (the ten year rule) Another key date is June 17, 2008, the enactment of s877A, which I believe is the date after which a non-renunciatory relinquishment did not absolve your tax obligations until the relinquishment was formally communicated to (or by) the State Department. Specifically:

    (4) Relinquishment of citizenship

    A citizen shall be treated as relinquishing his United States citizenship on the earliest of—

    (A)the date the individual renounces his United States nationality before a diplomatic or consular officer of the United States pursuant to paragraph (5) of section 349(a) of the Immigration and Nationality Act (8 U.S.C. 1481(a)(5)),

    (B)the date the individual furnishes to the United States Department of State a signed statement of voluntary relinquishment of United States nationality confirming the performance of an act of expatriation specified in paragraph (1), (2), (3), or (4) of section 349(a) of the Immigration and Nationality Act (8 U.S.C. 1481(a)(1)–(4)),

    (C)the date the United States Department of State issues to the individual a certificate of loss of nationality, or

    (D)the date a court of the United States cancels a naturalized citizen’s certificate of naturalization.
    Subparagraph (A) or (B) shall not apply to any individual unless the renunciation or voluntary relinquishment is subsequently approved by the issuance to the individual of a certificate of loss of nationality by the United States Department of State.

    Of these four options, three are exclusively determined by the US, but (B) provides an opportunity for the relinquisher to determine the date of his relinquishment (for tax purposes), perhaps by delivering or couriering the “signed statement of voluntary relinquishment” to your US consulate on a date of your choosing. While you will likely still have to book months ahead to pay your $2350 and apply for the CLN, a strict reading of the act affords the individual the opportunity to comply with the s877A relinquishment requirement at a time of her choosing. This might only benefit individuals subject to the exit tax, but you could for example relinquish just after the stock market had moved into bear territory, and reduce your exit tax burden. Another strategy: imagine you’re planning to move home. The new home costs $300,000, plus $30,000 of land taxes, title fees, realtor commissions etc. By complying with s877A 4(B) on the day after transfer, you could write off the full $30 000 against your exit tax. Waiting a few months for a consulate appointment might erode that benefit. The Dollar rising against global currencies = lower exit tax on non-US assets.

    Another very promising but legally shaky benefit exploits the different meaning of citizenship in various parts of US law. Particularly, if I remember correctly, the tax treaties. Some years ago, I read a paper by Notre Dame law professor Michael Kirsch (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=785425).

    Kirsch is a tax patriot, and this paper was probably written for the benefit of the Treasury Department, to expose the various inconsistencies generated by the creation of a new form of ‘tax citizen’. It was also written in reference to the 2004 legislation, which created a ten year tax citizen, but I’m hoping it might also apply to the relinquisher who hasn’t yet notified the State Department of his relinquishment. To be honest, I haven’t re-read the paper in a long time, but I recall that the US’ Achilles Heel lay in the tax treaties. It’s easy for congress to update all existing US legislation to reflect two types of citizen, but references to ‘citizen’ in the tax treaties is the State Department’s definition, not the IRS’s. I’m aware that the US went to some trouble to update various treaties, but many are still pre-2004. Even those that were amended, it was done with the 10 year rule in mind, and might not have contemplated the relinquished but unrenounced ‘tax citizen’ created in 2008.

    I’m not a lawyer, and it’s possible that I’m imagining loopholes that have long since been closed, but I haven’t seen this issue debated anywhere. One might be able to rely on a treaty to engage in tax planning (gifts, trusts etc.) under foreign tax law which could allow you to fall under the exit tax threshold, before formally advising the State Department of your relinquishment. (Such benefits are, I believe, already available to green card holders through so-called ‘expatriation trusts’).

    It all sounds a bit far fetched, but I’m relying on (my sketchy memory of) Kirsch’s paper, which gives these ideas gravitas. I’m curious if you have any thoughts on these issues.

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