Two questions that I frequently receive from people who have renounced U.S. citizenship are:
I. An immigration question: What if I attempt to travel to the United States during the period of time between my actual renunciation of U.S. citizenship and actually receiving my CLN (which is my proof of having renounced U.S. citizenship)?
II. A tax question: At what point after I renounce U.S. citizenship do I cease to be treated as a U.S. citizen for U.S. tax purposes? For example, when am I free to sell my house (located outside the USA) and NOT be subject to U.S. capital gains taxes?
Two kinds of U.S. citizenship: How the issuance of a CLN affects (1) U.S. citizenship for Immigration purposes and (2) U.S. citizenship for tax purposes
1. How the issuance of a CLN affects U.S. citizenship for immigration and nationality purposes:
Immigration and Nationality Act S. 349(a) (U.S. Code 1481(a)) make it clear that the issuance of a CLN is completely irrelevant to your status as a U.S. citizen for immigration purposes. A CLN is of value ONLY for the purposes of PROVING that you are not a U.S. citizen.
Therefore, one ceases to a U.S. citizen for immigration purposes on the date of the relinquishing (renunciation) act.
2. How the issuance of a CLN affects U.S. citizenship for U.S. tax purposes
Internal Revenue Code 877A(g)(4) mandates that those relinquishing/renouncing U.S. citizenship after June 16, 2008:
– will continue to be treated as U.S. citizens for U.S. tax purposes until the CLN is actually issued; and
– the date of ceasing to be a U.S. citizen for U.S. tax purposes will be the actual date of the relinquishing act (date of renunciation).
Therefore, (assuming a relinquishing act after June 16, 2008) one continues to be a U.S. citizen for tax purposes until the CLN is issued.
These distinctions are discussed in an earlier post:
“Renunciation is one form of relinquishment – It’s not the form of relinquishment but the time of relinquishment”
Bottom line: One ceases to be a U.S. citizen for immigration purpose before one ceases to be a U.S. citizen for tax purposes.
Generally people are more concerned with travelling to the USA during the time gap between renouncing U.S. citizenship and before receiving a CLN. Fortunately, we have a “guest post” written by someone who has just experienced this issue from the Immigration perspective. He has shared his thoughts as follows:
Travel Limbo? Keep calm and CLN on.
Recently, I found myself in a potentially sticky situation enroute to a holiday in the U.S while at a Canadian airport. My Canadian passport showed a U.S. birthplace and before allowing me
through, the U.S. Border Officer wanted me to show my Certificate of Loss of Nationality (CLN) or an American passport.
Although I had renounced my U.S. citizenship several months earlier, the U.S. Department of State had not yet issued my CLN. Before this experience, I had always been able to cross the border to the U.S. with my Canadian passport (the only passport I’d ever had).
Fortunately, the situation didn’t escalate. I attempted to give the officer a simple explanation that I had renounced at a U.S. Embassy many months before but the approved CLN had not been couriered in time for my trip. If he would permit me, I would show him my email correspondence with the U.S. embassy.
The officer accepted my explanation. Before he waived me through, I asked if he had any advice to share with anyone caught in travel limbo without their CLN.
Hopefully, his comments will help others to navigate a soft landing:
There is a line-up of people behind you. This is not the time to be outraged or to educate agents about the plight of Accidental Americans or dual citizens.
Travel with a copy of your CLN. If you’re still waiting for it, carry a copy of Form DS-4080 (the form you sign when you renounce and swear an oath at a U.S. Embassy). Keep copies on your phone.
Provide a reasonable explanation
If you accidentally forget your documents or booked a trip before your CLN arrives, a simple description of the renunciation process and the long wait times for the approved CLN to arrive will hopefully be reasonable enough to a reasonable officer.
Thanks to our guest blogger for the relaying the above experience!
Introduction: Penalty as a part of American Culture
The above tweet links to a wide range of examples of America’s culture of penalty.
The purpose of this post is to explore how inflation results in the facilitation of enhanced penalty collection in America today.
What is inflation?
In its simplest terms:
“Inflation is defined as a sustained increase in the general level of prices for goods and services in a county, and is measured as an annual percentage change. Under conditions of inflation, the prices of things rise over time. Put differently, as inflation rises, every dollar you own buys a smaller percentage of a good or service. When prices rise, and alternatively when the value of money falls you have inflation.”
Source: Adam Hayes, CFA
(Note his use of the words “goods and services“. Are FBAR penalties and the S. 877A Exit Tax consumer goods or government services?)
Inflation can either be helpful or can be hurtful. Some benefit from inflation and others are hurt by inflation. At a minimum, inflation will always erode the value of cash.
Effect of inflation on owners/lenders of cash: When it comes to cash inflation will hurt the owners/lenders of cash. This is because inflation will erode the value of cash.
Effect of inflation on borrowers of cash: Inflation will help he borrowers of cash. This is because inflation erodes the value of the cash that must be repaid.
Taking a break from our regular programming to congratulate the Toronto based cycling team known as “True Patriot Love” for (1) attempting and (2) completing and (3) placing second (34 minutes behind the winners) in “The World’s Toughest Bicycle Race“.
The Race Across America – starting in Oceanside California and ending in Annapolis, Maryland. Think of it! A group of eight “regular guys” (well perhaps a bit on the fit side) cycled non-stop across America and completed the race in under 6 days. This is faster than some could drive the distance. This is faster than (given the state of Air Travel and time to get to the Airport and through security) that some could fly the distance (well, not really). In any case, a truly amazing achievement. Few people even knew that this was going on. Anyway, spread the word and take a moment to retweet the following tweet.
and this …
and from Facebook …
And hey, if they can manage to do the race, surely you can manage to donate a few dollars to their cause here!
The “Readers Digest” Version …
and now on to the post …
Prologue:U.S. citizenship is not as attractive as it was
One benefit of U.S. citizenship: If one is a U.S. citizen then one cannot be deported from the USA
Some Green Card holders become U.S. citizens. Some do NOT become U.S. citizens. Many of those Green Card holders become U.S. citizens in order to avoid the possibility of deportation. Deportation results in expatriation and can (among other things) subject the unfortunate Green Card holder to the S. 877A Expatriation Tax, which can result in significant confiscation of assets. In fact, the S. 877A Expatriation Tax discourages people from seeking Green Cards in the first place. That said, it is only Green Card Holders who are “long term residents” who are subject to the Exit Tax.
The plight of Mr. Morales-Santana: No U.S. citizenship = the possibility of deportation
The facts as described by the court:
In 2000, the Government sought to remove Morales-Santana based on several criminal convictions, ranking him as alien because, at his time of birth, his father did not satisfy the requirement of five years’ physical presence after age 14. An immigration judge rejected Morales-Santana’s citizenship claim and ordered his removal. Morales Santana later moved to reopen the proceedings, asserting that the Government’s refusal to recognize that he derived citizenship from his U. S.-citizen father violated the Constitution’s equal protection guarantee.
Looking for Mr. FBAR
This is one more in a series of posts discussing the FBAR rules. The FBAR rules were born in 1970, laid virtually dormant until the 2000s and then were then unleashed in their full “ferocity” on U.S. persons. A good review of the history of Mr. FBAR is here. A discussion of how the discovery of Mr. FBAR can lead to larger problems is here. Finally, a discussion of of why people must exercise caution in “fixing problems with FBAR” is here.
Mr. FBAR has not visited Canada, but he has visited Canadian citizens
Mr. Pomerantz returns …
Readers of this blog (particularly those in Canada) may recall that I have previously written about the adventures of Mr. Jeffrey P. Pomerantz (currently of Vancouver, Canada) with Mr. FBAR. At that point (March 2017) it was clear that the U.S. Department of Justice planned to sue Mr. Pomerantz to collect the FBAR penalties to which it felt entitled. It is worth noting that FBAR penalties are assessed under the Bank Secrecy Act (Title 31 of U.S. laws) which is different from the Internal Revenue Code (Title 26 of U.S. laws.) In order to collect FBAR penalties the U.S. Government must sue, and sue it did. The purpose of this post is to tell the story of what happened when the U.S. Government sued Mr. Pomerantz in U.S. District Court in Seattle.
But, before we begin our story, this post is more about “Civil Procedure” than it is about “Mr. FBAR” …
Bottom line: Although the U.S. Government suffered a temporary (probably) defeat, the defeat was because the Government failed to follow the rules of “Civil Procedure”. In other words, whether Mr. Pomerantz actually violated the FBAR statute was NOT the issue in this case. The issue was whether the Government followed the rules that they were required to follow in order to win their case. The Government did NOT follow the rules. Therefore, the Government lost. With that disclosure, we are no ready to begin yet another example of an adventure with Mr. FBAR.
Once upon a time in District Court in Seattle …
It appears that the hearing took place in early June of 2017. In any event, the court’s judgement was dated June 8, 2017.
Interesting fact: Mr. Jeffrey P. Pomerantz appeared “pro se” – he represented himself at the hearing. He may have had “legal advice” prior to the hearing. On the other hand, he may have had the assistance of the judge who recognized that he did NOT appear with a lawyer.
The judgement references the fact that Mr. Pomerantz sought to transfer the venue from Washington State to Washington, DC. Apparently his “lawyer of choice” was in Washington, DC. The court (for various procedural reasons) denied his request for this “change in venue”. In other words, the hearing took place in Seattle.