Tag Archives: relinquish U.S. citizenship

“It’s better in the Bahamas – Combining your renunciation with a vacation

For years I have seen the slogan “It’s better in the Bahamas”. It’s a great place to vacation. It’s a short flight from Toronto. It’s relatively inexpensive to visit. It’s was the home of one Sir John Templeton (one of the most famous renunciants of U.S. citizenship). And when it comes to “renouncing U.S. citizenship”, it might be “Better in the Bahamas“, because you can schedule a renunciation appointment on a predictable date!

What follows are some recent reports about the renunciation process in Nassau, Bahamas.

Continue reading

Tax Haven or Tax Heaven 5: How the 1966 desire to “poach” capital from other nations led to the 2008 S. 877A Exit Tax

Title 26, Subtitle A, Chapter 1, Subchapter N, Part II, Subpart A of the Internal Revenue Code is of great interest..

IRC871

IRC8712

The text of S. 871 of the Internal Revenue Code is here. The IRS interpretation of S. 871 along with the requirements for when the non-resident alien is required to file a 1040-NR return are here.

The above subsection of the Internal Revenue Code applies to “NON-RESIDENT ALIENS AND FOREIGN CORPORATIONS”. It contains rules for how those who are not “U.S. Persons” are taxed under the Internal Revenue Code. As is expected, the Internal Revenue Code imposes U.S. taxation only on those “aliens” who have income sources that are connected to the United States. The previous post explained that S. 871 (in its present form) was enacted in 1966. Internal Revenue Code S. 871 also provides strong incentives for “aliens” to bring their capital to the USA.

Interestingly this subsection of the Internal Revenue Code also includes the S. 877A and S. 877 Expatriation Tax provisions. Significantly, both S. 871 and S. 877 were enacted in 1966 as part of the Foreign Investors Tax Act of 1966, Public Law 89-809.

The combination of the inclusion of both Internal Revenue Code sections 871 and 877 suggests that the intent of the Foreign Investors Tax Act of 1966, Public Law 89-809, included:

1. The intent to attract “Foreign” capital to the United States by imposing either no or low taxes on that “Foreign” capital lured to the United States, as expressed in S. 871 of the Internal Revenue Code;

2. The intent to give “non-resident aliens” certain tax benefits that were NOT available to U.S. citizens;

3. A recognition that some U.S. citizens might wish to expatriate to avail themselves of the benefits of NOT being a U.S. citizen;

4. A “penalty” expressed in S. 877 of the Internal Revenue Code for those U.S. citizens who expatriated to receive the same tax benefits enjoyed by “non-resident aliens”.

For a pdf of the 1966 Foreign Investors Tax Act (a massive document), see …

Foreign Investors Tax Act 1966 809

My point is a simple one …

It is clear that the U.S.desire to establish itself as a “Tax Haven”, also resulted in the S. 877 Exit Tax, which gradually evolved into the S. 877A Exit Tax that exists today.

To put it another way: the desire to establish the United States as a “Tax Haven”, eventually evolved into the S. 877A Exit Tax rules that:

1. Impose confiscatory taxation on assets that are outside the United States; and

2. Impose confiscatory taxation on assets that were acquired after a “U.S. Person” abandoned residence in the United States.

To illustrate why this is so, please see:

The S. 877A Exit Tax in Action – 5 actual scenarios with 5 completed U.S. tax returns

You will be shocked by what you see!

Like the 1970 FBAR rules, S. 877 of the Internal Revenue Code has gradually evolved into a mechanism to confiscate the assets of Americans abroad. Think I am kidding? See the examples in the link above!

John Richardson

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.

 

Continue reading

Relinquish or renounce U.S. citizenship – The course

U.S. Citizenship – Where taxation and citizenship intersect

“Relinquish or renounce U.S. citizenship – The Course”

What: Relinquish or Renounce U.S. Citizenship – The Course

Who: John Richardson – Toronto Lawyer – Specializing in “solving the problems of U.S. citizenship” and the relinquishment of U.S. citizenship

When:

Toronto, Canada – Saturday October 1/16 – 10:00 a.m. – 3:00 p.m.

Where: Toronto Downtown – Exact address TBA

Cost: $500 per attendee plus taxes

Enrollment limited to 10 participants!

Why would you participate in this seminar?

Continue reading

Part 7 – Why 2015 is a good year for many #Americansabroad to relinquish US citizenship – It’s the “Exchange Rate”

The purpose of my series of posts on the S. 877A “Exit Tax” has been to explain how the tax actually works. I have provided actual examples. The results have been enlightening and have demonstrated how arbitrary the results have been. In “Part 5” of this series you will find the actual examples and draft tax returns. I provided examples of how much the S. 877A “Exit Tax” could be. The examples were based on one consistent set of financial circumstances and demonstrated how that one set of financial circumstances would apply to five different people. We learned that there were wide variations in the amount of the “Exit Tax” payable. A person who was a “dual citizen” from birth may have paid on “Exit Tax” of $0.00. A person who was born ONLY a U.S. citizen might have paid as much as $365,000. (All amounts are in U.S. dollars.) But, wait the person was born a dual Canadian citizen, but was living in the UK when he renounced would pay an “Exit Tax” of $365,000.

Refreshing your memory

exittaxexamples

and

exit-tax

 

These visual reminders strongly suggest that …

As one commenter observed:

I find this to be a very important study. The inclusion of sample completed Forms 8854 and 1040s is really helpful to understanding how the exit tax can affect people differently. The unfairness of the exit tax under 877A and its dependence on accidents of birth, over which a person has no control, is breathtaking. The article makes a convincing case for calling the exit tax “evil”.

Continue reading

Attn: Former U.S. Citizens: Are you STILL or have you EVER BEEN a U.S. “Tax Citizen”?

Synopsis:

This is a long post. In fact, it is too long for the average reader. Therefore, I wish to summarize the purpose and possible (but not certain conclusion) of the post in a few simple sentences.

Here goes:

If you were born in the United States (and became a U.S. citizen at birth) who moved to Canada and naturalized as a Canadian Citizen prior to June 3, 2004:

1. Without informing the U.S. State Department or applying for a Certificate of Loss of Nationality; and

2. You are hearing from the media and some members of the tax compliance community that you are either still a U.S. citizen and/or are somehow liable for U.S. taxes; then

You should NOT believe that you are still a U.S. citizen and/or are that you are subject to U.S. taxation without getting proper counselling.

In other words you should NOT:

– apply for a Certificate of Loss of Nationality

– file U.S. tax returns

– renounce U.S. citizenship

without a thorough investigation of your situation. You may or may not be a U.S. citizen who is subject to U.S. taxation.

Extreme caution is warranted. Every case is fact specific.

Please note that this post is NOT legal advice of any kind whatsoever. You meed to discuss your specific circumstances with a competent adviser of your choice.

To understand why, read on …

Continue reading

The “plain language” of S. 877A – To whom does the U.S. Exit Tax apply?

The “Plain Language” of the S. 877A Rules – To Whom does S. 877A apply? What is the “Relinquishment Date?

Synopsis:

Many Americans abroad are confused by the difference between “relinquishment” and “renunciation”. I recently wrote a post explaining that:

1. Renunciation is one form of “relinquishment”; and

2. The issue is the “relinquishment date” and not the form of “relinquishment”.

This post will explain exactly why the date of relinquishment matters.

To put it simply:

Those with a “Relinquishment Date” after June 16, 2008 may be subject to the confiscatory provisions of the S. 877A Exit Tax.

This post will make the argument that the “plain language” of the combined effects of S. 7701(a)(50) and S. 877A(g)(4) compel the conclusion that those with a “Relinquishment Date” prior to June 3, 2004 are NOT subject to the S. 877A Exit Tax.

My analysis follows.

Continue reading

The United States of America – One country two citizenships – Introducing the “Tax Citizen”

Dual Citizenship – American style – All Americans are both “Citizens” and “Tax Citizens”

One Country – Two Citizenships

First Citizenship – Citizenship for Nationality Purposes

Americans have always been proud of their U.S. citizenship. Most U.S. citizens regard their U.S. citizenship as the most valuable thing they have. Most Americans will fight for their citizenship. They will die for their citizenship. They believe that their U.S. citizenship gives them rights and privileges that citizens of other nations simply do not have. Whether true or not, this is how U.S. citizenship is regarded. Citizenship for “Nationality” is what gives people the “rights of citizenship”. At present, these rights include: the right to enter the United States (as long as you have a U.S. passport), the right to work and the right to vote (as long as you meet the voting requirements of your State). That’s all. No more and no less (as long as you have a U.S. passport).

Second Citizenship – Citizenship for Tax Purposes

What could be better than U.S. citizenship? Why not a second U.S. citizenship? The United States Congress rewarded U.S. citizens by giving them all a “Second U.S. Citizenship”. On June 3, 2004 the American Jobs Creation Act gave all U.S. citizens a second citizenship. To be specific, on June 3, 2004 all U.S. citizens became U.S. “Tax Citizens”.  Interestingly, the U.S. public never asked for “Tax Citizenship”. The status of “Tax Citizen” was simply conferred on them. “Tax Citizens” have no rights. They have only obligations. The obligation is pay taxes. I recently heard it said that:

“U.S. citizenship is the gift that keeps on taking.”

Continue reading

When it comes to #FATCA there are four kinds of #Americansabroad

Reflecting on my day I realized that there are really four kinds of U.S. Taxable Persons abroad. Each one of them has his own set of problems. Interestingly, my day included discussions with a member of each group.

They can be grouped as follows:

File U.S. tax returns?     U.S. tax compliant?  What is their problem?

Yes                                               Yes                    Inability to live normal life*

Yes                                               No                     Subject to penalties for mistakes**

No                                                Yes                    Don’t have any income***

No                                                No                    OMG moment is coming****

Continue reading

Which U.S. consulate is best for relinquishments of US citizenship?

Once upon a time, before FATCA, before “The FBAR Fundraiser” and before the “Offshore Jihad” people wanted U.S. citizenship. Times have changed.  The U.S. government is making the lives of Americans abroad   (particularly in Switzerland) very unhappy and very uncomfortable. As a result, renunciations and relinquishments of U.S. citizenship are rising. Many more Americans abroad are simply vanishing from the map – AKA informal relinquishments.

The short answer is I don’t know. This can depend on the person and on the consulate itself. The more important consideration is to be very well prepared and understand your grounds for relinquishment well in advance. In general, I am finding that those who put care into the preparation of their material are much more successful than those who don’t. (Who could have known?)

It is clear that the U.S,. government is NOT predisposed to allow people to sever their ties with the U.S. (I honestly can’t understand why).

In any case, the above tweet references an interesting and illuminating comment at the the Isaac Brock Society:

Continue reading