Updated August 2020 with this video where this complex issue is discussed
Q. Is a CLN always required to have lost US citizenship for purposes of taxation? A. It depends on when the relinquishing act took place (unless you believe that S. 877A is retrospective and retroactive) Issue discussed with @IRSMedic and @Keith__Redomond https://t.co/HF4EfloKf3
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) August 16, 2020
Tina Turner: What’s FBAR Got To Do With It?
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) February 21, 2015
Professor Caron writes:
Washington Post, Tina Turner Formally ‘Relinquishes’ U.S. Citizenship:
This item just in via an “activity” report from the U.S. Embassy in Bern, Switzerland, headlined “Soul Legend Relinquishes U.S. Citizenship.”
“Long-time Swiss resident Tina Turner” was in the embassy Oct. 24 to sign her “Statement of Voluntary Relinquishment of U.S. Citizenship under Section 349 (a)(1) of the INA” — the Immigration and Naturalization Act. …
The key word in the embassy report apparently is the term “relinquishment.” That means, a knowledgeable source told us, that she did not “formally renounce her U.S. citizenship under 349(a)(5) Immigration and Nationality Act, but took Swiss citizenship with the intent to lose her U.S. citizenship.” As opposed to formal renunciation — a much more complex process, we were told — there are no “tax or other penalties for loss of citizenship in this fashion.”
For the difference between relinquishing and renouncing U.S. citizenship, see here. As this detailed post makes clear, the tax consequences are the same whether one relinquishes or renounces U.S. citizenship. Previous press coverage suggested that Ms. Turner’s actions may be motivated in part by a desire to escape the new FATCA regime.
Relinquishment under the U.S. Immigration and Nationality Act – Think State Department
This week I have received a couple of emails where people have expressed a preference for “relinquishing U.S. citizenship” instead of “renouncing U.S. citizenship”. They believe that a “relinquishment” is different from a “renunciation. This post is to clarify the “difference”.
I will begin with the conclusion:
Relinquishment of U.S. Citizenship Under The Immigration Laws: For the purposes of Immigration and Nationality law, there is ONLY relinquishment. Renunciation is one of a number of specific ways of relinquishing U.S. citizenship. All forms of “relinquishment” are subject to a $2350 U.S. Government fee. Renunciation is the one form of relinquishment that requires the assistance of a representative of the U.S. government.
Relinquishment of U.S. Citizenship For U.S. Tax Purposes (The Internal Revenue Code): The United States created a second kind of citizen – the “Tax Citizen” on June 3, 2004. Prior to June 3, 2004, U.S. citizenship for tax purposes followed U.S. citizenship for nationality purposes. Therefore, if one relinquished U.S. citizenship under the Immigration laws, one ceased to be a U.S. citizen for the purposes of the Internal Revenue Code.
Relinquishment of U.S. citizenship and having a CLN (“Certificate Of Loss Of Nationality”):
For the purposes of the immigration law: There is not and has never been a requirement of having been issued a CLN to lose U.S. citizenship under the Immigration laws.
For the purposes of the Internal Revenue Code: Since June 16, 2008 loss of Citizenship for U.S. tax purposes has been dependent on a CLN having been issued.
Caution – Therefore the frequent statement to the effect that EVERY U.S. citizen ceases to be a U.S. citizen for tax purposes ONLY if a CLN has been issued is probably wrong. Whether a CLN is required depends on the date of the relinquishing act. (I understand that a number of tax professionals make this claim.)
One Country Two Citizenships – A 2018 Discussion With U.S. Tax Lawyer Virginia La Torre Jeker (Click on the video in her post)
The complications of U.S. citizenship in a #FATCA world lead to: Q. To be a U.S. citizen or not to be a U.S. citizen. That is the question complicated by not having a CLN. A. Comes from @Expatriationlaw and @VLJeker: "USA: One Country, Two Citizenships" https://t.co/EvSIU5GApp
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) February 5, 2020
The above tweet links to a blog post that includes an interview between Virginia and me.
What is a relinquishment of U.S. citizenship anyway?
A relinquishment of U.S. citizenship is to cease to be a U.S. citizen because you have voluntarily performed an “expatriating act” with the intention of “ceasing to be a U.S. citizen”. An “expatriating act” is a specific act found in the Immigration and Nationality Act that the State Department agrees will result in loss of U.S. citizenship.
Therefore, according to the Immigration and Nationality Act one relinquishes U.S. citizenship if one:
B. Performs an “expatriating act”
C. with the specific intention of
D. ceasing to be a U.S. citizen
What are the expatriating acts and where are they found?
The “expatriating acts” are found in S. 349(a) of the Immigration and Nationality Act.
(a) A person who is a national of the United States whether by birth or naturalization, shall lose his nationality by voluntarily performing any of the following acts with the intention of relinquishing United States nationality—
(1) obtaining naturalization in a foreign state upon his own application or upon an application filed by a duly authorized agent, after having attained the age of eighteen years; or
(2) taking an oath or making an affirmation or other formal declaration of allegiance to a foreign state or a political subdivision thereof, after having attained the age of eighteen years; or
(3) entering, or serving in, the armed forces of a foreign state if
(A) such armed forces are engaged in hostilities against the United States, or
(B) such persons serve as a commissioned or non-commissioned officer; or
(A) accepting, serving in, or performing the duties of any office, post, or employment under the government of a foreign state or a political subdivision thereof, after attaining the age of eighteen years if he has or acquires the nationality of such foreign state; or
(B) accepting, serving in, or performing the duties of any office, post, or employment under the government of a foreign state or a political subdivision thereof, after attaining the age of eighteen years for which office, post, or employment an oath, affirmation, or declaration of allegiance is required; or
(5) making a formal renunciation of nationality before a diplomatic or consular officer of the United States in a foreign state, in such form as may be prescribed by the Secretary of State; or
(6) making in the United States a formal written renunciation of nationality in such form as may be prescribed by, and before such officer as may be designated by, the Attorney General, whenever the United States shall be in a state of war and the Attorney General shall approve such renunciation as not contrary to the interests of national defense; or
(7) committing any act of treason against, or attempting by force to overthrow, or bearing arms against, the United States, violating or conspiring to violate any of the provisions of section 2383 of title 18, or willfully performing any act in violation of section 2385 of title 18, or violating section 2384 of title 18 by engaging in a conspiracy to overthrow, put down, or to destroy by force the Government of the United States, or to levy war against them, if and when he is convicted thereof by a court martial or by a court of competent jurisdiction.
Methods (1), (2), (3), (4) and (5) are common ways of relinquishing U.S. citizenship. Methods (6) and (7) are less common. Notice that “renunciation” is a form of relinquishment that does require the assistance of a “consular or diplomatic officer” of the United States. Most of other forms of relinquishment may be performed independently.
Notice that a “Certificate Of Nationality ” is NOT required to make a “relinquishment” complete under the Immigration and Nationality Act. Therefore, under the Immigration and Nationality Act, one can relinquish U.S. citizenship without the U.S. government ever knowing about the relinquishment.
Notice also, that under the Immigration and Nationality Act it is possible to “relinquish” U.S. citizenship without informing the IRS. This was upsetting to the U.S. Congress. As a result, Congress actually created a new kind of U.S. citizen – which I will call the “tax citizen”.
Therefore, when considering how to cease being a U.S. citizen we must consider both:
Exiting the United States for Immigration and Nationality purposes – “Relinquishment”; and
Exiting the United States for tax purposes – Meeting the requirements of the Internal Revenue Code to be free for U.S. citizenship.
Relinquishment (and renunciation) under the Internal Revenue Code – Think IRS
As Professor Caron reminds us:
… the tax consequences are the same whether one relinquishes or renounces U.S. citizenship.
The issue is NOT the form of relinquishment. The issue is the date of relinquishment.
Congress did NOT like people relinquishing U.S. citizenship without notifying the IRS – The creation of the “tax citizen”
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.
There is considerable disagreement in the tax compliance profession over whether those who relinquished U.S. citizenship (think of all those Americans who became Canadians in the 1970s) prior to June 3, 2004 have tax obligations to the United States. A summary of different perspectives is here.
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) August 31, 2016
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.