Individuals, Treasury, The State Department And IRC 6039G: Who has to report what when an individual renounces US citizenship?

Renunciation of U.S. Citizenship triggers a “Reporting Frenzy”!

It’s simply unbelievable. The renunciation of U.S. citizenship triggers more reporting obligations on the part of individuals and government agencies than anything else. More than birth. More than death. More than marriage. More than bankruptcy. More than conviction of a crime (probably). It’s unbelievable.

The purpose of this post is to “slice and dice” what those reporting obligations are.

Let’s Go On A Magical Reporting Tour

The rules governing information reporting when one relinquishes U.S. citizenship are found in Internal Revenue Code 6039G. They impose reporting obligations on “some” individual relinquishers (“covered expatriates”), the State Department whenever a Certificate of Loss Of Nationality has been issued and on U.S. Treasury. (I will comment separately on the situation of Green Card holders at the end of this post.) Most of this is summarized in the following two tweets. But, because this is so confused, I am going to take the time to parse the statute.

It’s all in Internal Revenue Code – 6039G Note that Section 6039G is found in Subtitle F which is the – “Procedure and Administration” – part of the Internal Revenue Code. In other words, it deals only with information reporting. It does NOT impose taxation. Interestingly, Section 6039G imposes reporting requirements on individuals, the State Department, U.S. Treasury (and in the case of Green Card holders) the Immigration authorities.

That pretty much sums it up. For those who want to understand the analysis …

Here is what the statute actually says.

26 U.S. Code § 6039G.Information on individuals losing United States citizenship

(a)In general

Notwithstanding any other provision of law, any individual to whom section 877(b) or 877A applies for any taxable year shall provide a statement for such taxable year which includes the information described in subsection (b).

(b)Information to be providedInformation required under subsection (a) shall include—

(1)the taxpayer’s TIN,
(2)the mailing address of such individual’s principal foreign residence,
(3)the foreign country in which such individual is residing,
(4)the foreign country of which such individual is a citizen,
(5)information detailing the income, assets, and liabilities of such individual,
(6)the number of days during any portion of which that the individual was physically present in the United States during the taxable year, and
(7)such other information as the Secretary may prescribe.

(c)Penalty If—

(1)an individual is required to file a statement under subsection (a) for any taxable year, and
(2)fails to file such a statement with the Secretary on or before the date such statement is required to be filed or fails to include all the information required to be shown on the statement or includes incorrect information,
such individual shall pay a penalty of $10,000 unless it is shown that such failure is due to reasonable cause and not to willful neglect.

(d)Information to be provided to Secretary Notwithstanding any other provision of law—

(1)any Federal agency or court which collects (or is required to collect) the statement under subsection (a) shall provide to the Secretary—
(A)a copy of any such statement, and
(B)the name (and any other identifying information) of any individual refusing to comply with the provisions of subsection (a),

(2)the Secretary of State shall provide to the Secretary a copy of each certificate as to the loss of American nationality under section 358 of the Immigration and Nationality Act which is approved by the Secretary of State, and

(3)the Federal agency primarily responsible for administering the immigration laws shall provide to the Secretary the name of each lawful permanent resident of the United States (within the meaning of section 7701(b)(6)) whose status as such has been revoked or has been administratively or judicially determined to have been abandoned.

Notwithstanding any other provision of law, not later than 30 days after the close of each calendar quarter, the Secretary shall publish in the Federal Register the name of each individual losing United States citizenship (within the meaning of section 877(a) or 877A) with respect to whom the Secretary receives information under the preceding sentence during such quarter.

Now let’s read ONLY the parts of the statute that prescribe reporting obligations with “JR Commentary”. Stripping it down we get:

26 U.S. Code § 6039G.Information on individuals losing United States citizenship

(a)In general

JR Commentary: This applies to individuals. Notice that since June 16, 2008 this applies ONLY to those that are “covered expatriates” as prescribed by Section 877A. So, this suggests that those who are NOT “covered expatriates” are NOT required to comply with section (b).

Notwithstanding any other provision of law, any individual to whom section 877(b) or 877A applies for any taxable year shall provide a statement for such taxable year which includes the information described in subsection (b).

(b)Information to be provided Information required under subsection (a) shall include—

(1)the taxpayer’s TIN,
(2)the mailing address of such individual’s principal foreign residence,
(3)the foreign country in which such individual is residing,
(4)the foreign country of which such individual is a citizen,
(5)information detailing the income, assets, and liabilities of such individual,
(6)the number of days during any portion of which that the individual was physically present in the United States during the taxable year, and

(7)such other information as the Secretary may prescribe.

(c)Penalty If—

(1)an individual is required to file a statement under subsection (a) for any taxable year, and
(2)fails to file such a statement with the Secretary on or before the date such statement is required to be filed or fails to include all the information required to be shown on the statement or includes incorrect information,
such individual shall pay a penalty of $10,000 unless it is shown that such failure is due to reasonable cause and not to willful neglect.

(d)Information to be provided to Secretary Notwithstanding any other provision of law—

JR Commentary: Obligation on State Department – The State Department is required to supply U.S. Treasury with all those who have been issued a CLN. Note that this requirement exists irrespective of whether the INDIVIDUAL has reporting obligations under section (a).

(1)any Federal agency or court which collects (or is required to collect) the statement under subsection (a) shall provide to the Secretary—
(A)a copy of any such statement, and
(B)the name (and any other identifying information) of any individual refusing to comply with the provisions of subsection (a),

(2)the Secretary of State shall provide to the Secretary a copy of each certificate as to the loss of American nationality under section 358 of the Immigration and Nationality Act which is approved by the Secretary of State, and

JR Commentary: – The immigration authorities are required to report to Treasury all those who abandoned their Green Card. Note (see below) Green Card holders do NOT go on the name and shame list.

(3)the Federal agency primarily responsible for administering the immigration laws shall provide to the Secretary the name of each lawful permanent resident of the United States (within the meaning of section 7701(b)(6)) whose status as such has been revoked or has been administratively or judicially determined to have been abandoned.

JR Commentary: Obligations on Treasury – Name and Shame list – Treasury is obligated to publish the names of ALL (whether a “covered expatriate” or not) people for whom a Certificate of Loss of Nationality was issued by the State Department. This is a bit confusing because of the language “(within the meaning of section 877(a) or 877A)”. But, Section 7701(a)(50) makes it clear that since June 16, 2008 that U.S. citizenship is NOT lost for tax purposes until a CLN has been issued.

Notwithstanding any other provision of law, not later than 30 days after the close of each calendar quarter, the Secretary shall publish in the Federal Register the name of each individual losing United States citizenship (within the meaning of section 877(a) or 877A) with respect to whom the Secretary receives information under the preceding sentence during such quarter.

Why then do all people file a Form 8854?

With respect to individuals, I interpret Section 6039G to mean that ONLY “covered expatriates” are required to meet the reporting obligations on Section 6039G. But, in order to avoid being a “covered expatriate”, Internal Revenue Code Section 877(a)(2)(C) specifically says that one will be a “covered expatriate” unless:

(C)such individual fails to certify under penalty of perjury that he has met the requirements of this title for the 5 preceding taxable years or fails to submit such evidence of such compliance as the Secretary may require.

Form 8854 is where people certify that they have met the requirements for the five year period. In Notice 2009-85 Treasury specifically in relation to the compliance test that if an individual:

(3) fails to certify, under penalties of perjury, compliance with all U.S. Federal tax obligations for the five taxable years preceding the taxable year that includes the expatriation date, including, but not limited to, obligations to file income tax, employment tax, gift tax, and information returns, if applicable, and obligations to pay all relevant tax liabilities, interest, and penalties (the “certification test”). This certification must be made on Form 8854 and must be filed by the due date of the taxpayer’s Federal income tax return for the taxable year that includes the day before the expatriation date. See section 8 of this notice for information concerning Form 8854.

So, that’s the reason that those who are not covered expatriates file Form 8854.

John Richardson – Follow me on Twitter @Expatriationlaw

https://www.law.cornell.edu/uscode/text/26/6039G

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