Buying Their Freedom: Toward A More Efficient Process Of US Citizenship Renunciation

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Buying Their Freedom – A More Efficient Renunciation Process – The “Readers Digest” Version Of This Post …

The effects of US citizenship taxation enforced by FATCA are causing great distress to the US citizens who reside in and are tax residents of other countries. They are being constructively forced to renounce US citizenship because of (1) the out of pocket costs of US tax compliance (2) the possibility of double taxation (3) the US taxation of things that are not taxable in their country of residence (4) the “opportunity cost” of their inability to engage in financial and retirement planning and in some cases (5) the threat or reality of bank/financial account closures. In addition, these circumstances are unfair to their countries of residence who are forced to deal with a group of people who are more likely to require “social assistance” in their retirement years. US citizenship is a problem for US citizens who attempt to live outside the United States and for the countries where they live.

Although many people are constructively forced to renounce US citizenship, the US has made renunciation very difficult from both a cost and availability perspective.

The purpose of this post is to suggest that the process of renouncing US citizenship should be facilitated in the US citizen’s country of residence by that government. Renunciation could be achieved more quickly, at lower cost and (under my proposal) partially subsidized by the government of residence (which would justify this as “buying back their citizens” from any US claim of taxation or other regulatory burdens). I believe that this proposal would benefit the individual US citizen, the US citizen’s country of residence and the United States itself. The following post describes how this can be achieved under the existing US laws.

As President Obama once said:

“The circumstances of one’s birth should not determine the outcome of one’s life.”

This post is composed of the following parts:

Part A – Introduction
Part B – The US Government And The Oppression OF Americans Abroad
Part C – The Legal Framework Of Renunciation
Part D – The Logistics – How The New Renunciation Process Would Work
Part E – Reviewing The Benefits Of The New Renunciation Process
Part F – The Revised Renunciation Fee
Part G – Democratizing Renunciation – Making It Available To All – A Financing Proposal
Part H – Sadly this could all be be prevented if the United States were to end citizenship taxation and adopt the world standard of residence taxation. But, …
Part I – Conclusion – “All Roads Lead To Renunciation”

Part A – Introduction

This post is really a thought experiment. I welcome any comments. For many years I have been contemplating the problem of (1) those “US citizens” who are citizens and residents of other countries and (2) are effectively held prisoner by their US citizenship. US citizenship taxation enforced by FATCA has relegated them to (at best) second class citizens in their countries of residence. For many, renunciation is complicated, expensive, may have “exit tax” implications and cannot be achieved in a timely manner. The simple fact is that the circumstance of US citizens living outside the United States, as “tax residents” of other countries, has created problems for: (1) The United States (the fear they might be escaping US taxation (2) Their countries of residence (the base erosion of their tax base caused by the existence of US citizens as part of their tax base) and (3) The individual US citizens themselves (and of course their families). I believe that this is a problem that can be solved in a way that results in a clear win for each of the three groups.

The Solution: The governments of individual countries should negotiate a collective renunciation agreement for their dual citizens who wish to be relieved of the oppression of U.S. citizenship.

Part B – The US Government And The Oppression OF Americans Abroad

Different countries have different relationships to and attitudes toward their diaspora. Ireland celebrates its diaspora which is evident in the Irish Museum Of Emigration. The United States does not celebrate is emigrants. In fact, it has a different approach with two main characteristics:

1. It imposes a punitive system of taxation and reporting that makes it difficult for them to live comfortably outside the United States; and

2. Has created a regulatory regime where the banks of their countries of residence harass them.

All the problems are linked to the US practice of citizenship taxation. I.e. defining US tax residency by citizenship. This means that the only way a person can cease to be regulated by the United States and live “Form Free” is by renouncing/relinquishing US citizenship. The following comment from a US citizen resident in the Netherlands captures this sentiment:

I feel the need to explain again (like I did on Twitter): we Dutch Accidentals are approaching the issues from a Dutch angle. Our gov (minFin) declares “sorry we can’t change US law”, ergo: they refuse to do something and show their teeth, they are basically throwing us under the CBT bus. Moreover, they actually admitted being bullied by US into compliance with their laws (one of the Dutch MP’s actually compared the Netherlands to a tiny cartoon character duck called Calimero). We as Dutch NLAA group continue to pressure our government to protect our fundamental rights as Dutch citizens. So it’s not that we are ignoring the root of all evil; US archaic and idiotic citizenship taxation (not one Dutch person believes such a thing even exists and only a few journalists here understand the complexity of tax compliance and renouncing issues), We expect to be protected from US overreach by our own gov. Again, we are well aware of CBT and most certainly support all the efforts done by others for pureRBT, but we need to fight our fight as Dutch EU citizens. On Twitter you can only post that much…………….

If there is anybody who “believes” that any of this is “imagined” I invite you to read:

Around The World In 192 Pages – Comments Of Americans Abroad In A FATCA And FBAR World

The Criminalization Of The American Emigrant

How To Live Outside The United States In An FBAR and FATCA World

The Biggest Cost Of Being A Canada/US Dual Filer Is The “Lost Opportunity” Available To Pure Canadians

And for those who would reply: “Just Renounce” renunciation of US citizenship requires:

– a $2350 fee which is the issue in a lawsuit filed by the Association of Accidental Americans against the State Department

– long delays which is the issue in a separate lawsuit filed by the Association of Accidental Americans against the State Department

– the possibility of being required to pay an exit tax based on non-US assets and pensions accumulated while the person did not live in the United States.

In short, it’s ugly! Very ugly!

Part C – The Legal Framework Of Renunciation

The legal framework of renunciation is prescribed in S. 349(a) of the US Immigration and Nationality Act (USC 8 1481). The law reads as follows:

https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title8-section1481&num=0&edition=prelim

How To Live Outside The United States In An FBAR And FATCA World

§1481. Loss of nationality by native-born or naturalized citizen; voluntary action; burden of proof; presumptions

(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

(4)(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.

(b) Whenever the loss of United States nationality is put in issue in any action or proceeding commenced on or after September 26, 1961 under, or by virtue of, the provisions of this chapter or any other Act, the burden shall be upon the person or party claiming that such loss occurred, to establish such claim by a preponderance of the evidence. Any person who commits or performs, or who has committed or performed, any act of expatriation under the provisions of this chapter or any other Act shall be presumed to have done so voluntarily, but such presumption may be rebutted upon a showing, by a preponderance of the evidence, that the act or acts committed or performed were not done voluntarily.

(June 27, 1952, ch. 477, title III, ch. 3, §349, 66 Stat. 267 ; Sept. 3, 1954, ch. 1256, §2, 68 Stat. 1146 ; Pub. L. 87–301, §19, Sept. 26, 1961, 75 Stat. 656 ; Pub. L. 94–412, title V, §501(a), Sept. 14, 1976, 90 Stat. 1258 ; Pub. L. 95–432, §§2, 4, Oct. 10, 1978, 92 Stat. 1046 ; Pub. L. 97–116, §18(k)(2), (q), Dec. 29, 1981, 95 Stat. 1620 , 1621; Pub. L. 99–653, §§18, 19, Nov. 14, 1986, 100 Stat. 3658 ; Pub. L. 100–525, §§8(m), (n), 9(hh), Oct. 24, 1988, 102 Stat. 2618 , 2622.)

Let’s pare the statute down to its contextual essentials:

(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-

(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;

So, what does the statute actually require?

Assuming a voluntary renunciation that is accompanied with the intention of relinquishing United States nationality (DS-4081) the formal requirements are satisfied by (1) making a formal renunciation of nationality – DS-4080 (2) before a diplomatic or consular officer of the United States (3) in a foreign state, (4) in such form as may be prescribed by the Secretary of State”. Some comments on each of the four requirements:

(1) A formal renunciation of nationality is easily established. In fact, DS-4080 is the “Oath Of Renunciation”.

(2) Before a diplomatic or consular officer of the United States. Interestingly this does NOT require that the renunciation take place within the confines of a US consulate or embassy. One can easily take an oath of renunciation before a diplomatic or consular officer through video conferencing. I have written a lengthy and extensive post explaining how/why renunciations are not required to take place inside a consulate or embassy.

(3) The requirement of “in a foreign state” must be satisfied. I am proposing that Governments of ALL non-US countries create “US Citizenship Renunciation Centres” that by definition exist in those other countries (and assuming the continuation of the sovereignty of those countries) will guarantee that the renunciation will take place “in a foreign state”. The obvious way to achieve this would be to simply make the “US Citizenship Renunciation Centre” part of the location where individuals naturalize as citizens of the country. Those “US Citizenship Renunciation Centres” will always be open for inspection by the US State Department!

(4) The language “in such form as may be prescribed by the Secretary Of State” gives the State Department the absolute and indisputable authority to adopt this suggestion! As it stands now the State Department Foreign Affairs Manual would have to be changed. The State Department has the complete authority to make these changes.

Part D – The Logistics – How The New Renunciation Process Would Work

I propose starting with Canada, France, The Netherlands, Denmark, Sweden (the five countries with non-collection treaties), the UK, New Zealand and Australia (members of the Five Eyes alliance). The governments of each of these countries would become “Official US Citizenship Renunciation Partners” and “Masters Of The Renunciation Ceremonies”. Because these are all countries that are US allies they will be trusted to certify that the individual renunciants are who they say they are and they are definitely taking the Oath Of Renunciation in a certified “Renunciation Partner Renunciation Centre” that is definitely outside the United States. The program can be gradually expanded to other countries but may never be possible in countries like Eritrea, North Korea or Iran.

The governments of non-US countries would become agents of the State Department for the purposes of creating the legal and factual predicates for a successful renunciation. They would handle all administrative requirements which include but are not limited to: taking inquiries, explaining the requirements of renunciation, explaining the tax consequences of renunciation, ensuring that prospective renunciants are citizens of their country, collecting and supervising the completion of the relevant forms, etc. Interestingly this is not very different from what currently happens in Canada where renunciations are organized by a single office in British Columbia.

In order to facilitate efficiencies and low cost all renunciations would (like US citizenship ceremonies) be group events. They would take place by video conferencing BEFORE a US diplomatic or Consular officer. The “Master Of Renunciation Ceremonies” would be a designated representative of the country organizing the renunciation and certifying that the renunciation was taking place in a country outside the United States. Among other things prospective renunciants would be presented to the “diplomatic or consular officer” and individually (one at a time) take the oath of renunciation. (For reasons of simplicity and cost efficiency all renunciants would “affirm” and there would be NO individual statements accompanying the renunciation.) It would be quick and precise. Furthermore, no lawyers, family members or advisors of any kind would be permitted to observe or participate in the ceremony.

Part E – Reviewing The Benefits Of The New Renunciation Process

Benefits To The Individual Renunciants – The vast US regulatory and extra-territorial tax regime has made it very difficult for US citizens to live outside the United States as tax residents of other countries. The effects of US citizenship taxation are vast, affect different people in different ways but universally make their lives difficult. For Americans abroad who are concerned with compliance with US laws:

“All Roads Lead To Renunciation!”

Benefits To The Countries Where The US Citizens Live – The US tax system does and is designed to result in the erosion of the tax base of their countries. PFIC, Subpart F, Foreign Trust rules, penalties, etc. result in the US siphoning capital from the country where the US citizen lives to the United States. In addition, US citizens who must comply with US tax rules are severely hindered in their ability to effectively plan for retirement increasing the risk of those people needing social assistance in their retirement years. In short: US citizens living outside the United States are “Trojan Horse Soldiers” whose very existence is a threat to the tax base of the countries where they reside.

In addition countries like Canada, Australia, France, the Netherlands and the UK would no longer have to deal with complaints from US citizens who have been “thrown under the bus” by those (their own) countries. Think of it: no more lawsuits to defend and no more letters to answer. Furthermore, those countries would actually do something to help their dual citizens rather than living in a state of denial.

The benefits of reducing the number of US citizens in those countries are enormous!

Benefits To The United States – The fastest growing source of Anti-Americanism is clearly from Americans abroad. It’s not that the United States is overtly hostile to its citizens abroad. It’s that the US is indifferent to them. Indifference is the worst form of abuse. Making it easier to renounce would rid the US of a source of anti-Americanism and possible larger problems as the resentment grows. It would devote fewer precious Consular resources to renunciations. It would facilitate a “cost saving”. The State Department has always resented the huge cost of processing renunciation. The “Group Renunciation Ceremony”, taking place through video conferencing would minimize that cost.

Furthermore, the result of expedited renunciations would mean that those renouncing would immediately become “nonresident aliens” for US tax purposes. This could (depending on individual circumstances) result in the US collecting MORE tax on those with US source income. In effect – imposing a tax increase on them – could be attractive to the United States. In addition, as nonresident aliens, upon their death, certain assets located in the United States in excess of $60,000 would be subject to the US Estate Tax (at a 40% rate of confiscation). To put it simply: there may be revenue benefits to having more individuals renounce US citizenship more quickly. But speaking of revenue …

Part F – The Revised Renunciation Fee

You do NOT leave the “Land Of The Free” for free!

Assuming: The “Renunciation Partner Country” does the administrative work, acts as the “Master Of Renunciation Ceremonies” and generally facilitates a “Group Renunciation” in an approved “US Citizenship Renunciation Centre”, the US should NOT (on moral grounds) collect the full renunciation fee. In addition, economies of scale from group renunciations augur for a lower renunciation fee which should be shared between the United States and the “Renunciation Partner Country”.

It’s also true that this new system of renunciation would result in more renunciations which would mean MORE revenues to the United States. A higher volume of renunciations would more than make up for the reduction in the renunciation fees!

As a starting point in the discussion of fees, I suggest the following ..

1. Reduce the fee paid by the renunciant to $1600 USD (the State Department is relieved of most of the work it is doing now).

2. The United States takes half and the “Renunciation Partner Country” takes half ($800 each).

3. In recognition of the benefits of ridding the country of a US citizen the “Renunciation Parter Country” allows a nonrefundable tax credit to each individual renunciant (reflecting the “Renunciation Partner Country’s share of the renunciation fee).

This strikes me as a “win”, “win”, “win” situation. Both countries benefit and of course the United States still makes $800 from every renunciation (which may be necessary to demonstrate revenue neutrality).

Part G – Democratizing Renunciation – Making It Available To All – A Financing Proposal

In Part F I suggested providing an $800 nonrefundable tax credit to offset the renunciation fee. Nevertheless, there may be people who cannot afford the fee. For those people or for families I propose that all countries establish a “Renunciation Fund” that is for the purpose of providing grants or loans to assist with US citizenship renunciations. The fund should probably be administered separately as an entity that is separate from the renunciation process. Furthermore, in order to avoid any US tax implications (income attribution, etc.) the loans should be made ONLY after the renunciation is complete.

Part H – Sadly this could all be be prevented if the United States were to end citizenship taxation and adopt the world standard of residence taxation. But, …

Neither individual US citizens abroad nor their organizations are prepared to demand that the United States sever citizenship from US tax residency. At most they will advocate for a “more perfect “form” of citizenship taxation”. Given this reality, I propose making renunciation more affordable, more humane and more available than it is under the current system. That is the reason for this proposal.

Part I – Conclusion – “All Roads Lead To Renunciation”

For the individual who resents still having to pay $1600 for renunciation, an old advertisment comes to mind:

Some things are priceless (think renunciation)

There are some things money can’t buy. For everything else, there’s Mastercard (how to pay for it).

In fact I propose that Mastercard become the official payment method for US citizenship renunciations!

What do you think? Is this worth exploring?

John Richardson – Follow me on Twitter @Expatriationlaw

One thought on “Buying Their Freedom: Toward A More Efficient Process Of US Citizenship Renunciation”

  1. Mike Breen

    I think “partner” nations would not be interested, they have no idea there is a problem with the USA tax regime, even if FATCA has pissed them off massively.

    All roads…..

    Reply ↓

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