Part 1 – Why have many U.S. citizens abroad relinquished their U.S. citizenship?
FATCA was passed into law as part of the HIRE Act on March 18, 2010. The implementation began in 2014 in the form of FATCA IGAs (“Inter-Governmental Agreements”). The implementation of FATCA and the IGAs was NOT free from controversy. I – John Richardson – was a witness at a Canadian House of Commons Hearing about FATCA in 2014. The complete text of my 2014 statement is here.
FATCA has caused enormous problems for U.S. citizens living outside the United States. These problems have led to an increasing number of U.S. citizens renouncing U.S. citizenship.
The problems caused by FATCA. leading to citizenship renunciation, fall into at least three distinct categories.
First, many U.S. citizens living outside the United States have difficulty maintaining access to regular bank and financial accounts. This has caused great disruption and inconvenience in their lives. Many people have renounced their U.S. citizenship in order to have the access to the bank and financial accounts needed to live their daily lives.
Second, along with FATCA came an awareness of U.S. citizenship taxation. Prior to FATCA citizenship taxation was neither well known nor enforced. By causing an awareness of citizenship taxation, more U.S. citizens abroad have entered the U.S. tax system. The consequence of entering the U.S. tax system has caused difficulties for many Americans abroad. These difficulties include double taxation, U.S. taxation of retirement planning accounts (example TFSA in Canada). Generally, this has disadvantaged U.S. citizens abroad in their country of residence. It caused many U.S. citizens abroad to relinquish/renounce their U.S. citizenship.
Third, as discussed in Helen Burggraf’s American Expat Finance News Journal, FATCA facilitated the expansion of the U.S. tax base into other countries.
The combination of these circumstances has incentivized (and in some cased forced) many U.S. citizens abroad to relinquish/renounce their U.S. citizenship.
Part 2 – The legal test for relinquishment/renunciation
The Supreme Court of the United States in the cases of Afroyim v. Rusk and Vance v. Terrazas have made it clear that for U.S. citizens born or naturalized in the United States that relinquishment requires (1) a voluntary act of expatriation which is (2) performed with the intent to relinquish U.S. citizenship.
Some of those who have renounced their U.S. citizenship wish to explore whether they can have their U.S. citizenship restored. Restoration of U.S. citizenship is difficult.
Part 3 – The possibility of restoring U.S. citizenship
Although difficult, in some circumstances restoring U.S. citizenship (after relinquishment) is possible as described here.
Because renunciation of U.S. citizenship requires voluntariness and intention, restoration of U.S. citizenship is possible when it can be shown that one or both of these elements was not demonstrated in accordance with the proper evidentiary standard.
As confirmed by the United States Government:
Involuntariness may be demonstrated by evidence of duress, coercion, or undue influence to perform the potentially expatriating act. Lack of the requisite intent to relinquish U.S. citizenship may be demonstrated by evidence that the individual did not have the resolve or intention to lose U.S. citizenship and/or did not comprehend the consequences of loss, usually due to diminished mental capacity.
Immigration and Nationality Act (INA) § 349(b) states that any person who performs a potentially expatriating 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.” There is no statutory presumption regarding intent to relinquish U.S. nationality. https://travel.state.gov/content/travel/en/legal/travel-legal-considerations/us-citizenship/administrative-review-of-loss-of-nationality-determination.html
Restoration of U.S. citizenship is time consuming, complex and NOT a “do it yourself” project.
If you have previously relinquished your United States citizenship and wish to explore the possibility of restoring your United States citizenship …
John Richardson – Follow me on X.com/expatriationlaw
Appendix
As described by the Internal Revenue Service:
With the passage of the Foreign Account Tax Compliance Act (FATCA) on March 18, 2010, foreign financial institutions are generally required to determine whether their customers are U.S. citizens and, if so, report certain information about the customer’s account. Depending on when the account is opened, the customer may be identified by the financial institution as a U.S. citizen based on certain indicia, such as a place of birth in the United States. A customer who is identified as a U.S. citizen based on U.S. indicia must provide to the financial institution either his or her Social Security Number (SSN), or if the customer is no longer a U.S. citizen, documentation to rebut the determination, such as proof of loss of U.S. citizenship. A customer opening a new account with a foreign financial institution is generally required to provide a self-certification upon account opening, which includes the customer’s name, address, and SSN.
An adult U.S. citizen may relinquish U.S. citizenship consistent with requirements under Section 349 of the Immigration and Nationality Act, 8 U.S.C. 1481. See U.S. Citizenship laws and policies. The process of relinquishing U.S. citizenship abroad is administered by the Department of State. Citizens wishing to relinquish their U.S. citizenship abroad must commit one of the potentially expatriating acts, listed at 8 U.S.C. 1481(a)(1)-(5), voluntarily and with intent to relinquish U.S. citizenship. One such expatriating act is taking an oath of renunciation of U.S. citizenship under 8 U.S.C. 1481(a)(5). In accordance with the relevant statutes and regulations, such persons must appear in person before a U.S. diplomatic or consular officer at a U.S. Embassy or Consulate in a foreign country to complete the required steps. The persons renouncing their U.S. citizenship must then take the prescribed oath of renunciation before the U.S. diplomatic or consular officer. See renunciation of U.S. nationality abroad.
Set by the Department of State, the U.S. consular fee for “Administrative Processing of Request for Certificate of Loss of Nationality” is $2,350, and the fee cannot be waived. Compliance with all U.S. income tax filings or obtaining a Social Security number is not a pre-condition to relinquishing citizenship under the Immigration and Nationality Act.
Individuals who seek to renounce or relinquish U.S. citizenship should be aware that expatriating may have U.S. tax consequences. To comply with existing tax law and to avoid significant tax liability under the U.S. Internal Revenue Code, U.S. citizens who renounce or otherwise relinquish their citizenship must comply with Federal tax requirements for the year of expatriation and for the five tax years prior to their expatriation, which includes using their SSN as their identification number on Federal Tax Returns. IRC 877A contains a special set of rules for U.S. citizens who relinquish their U.S. citizenship, whether by taking an oath of renunciation or otherwise. Under IRC 877A, individuals who are “covered expatriates” are treated as having disposed of all worldwide assets on the day before their expatriation date, are required to pay a mark-to-market exit tax on the gain (subject to an exclusion amount) resulting from the deemed disposition of their worldwide assets, and are subject to additional tax consequences with respect to certain deferred compensation items and trust distributions. With some exceptions that are not applicable in the context of these procedures, IRC 877(a)(2) will treat an individual as a “covered expatriate” if:
1. The individual has an average annual net income tax liability of the five years preceding the year of expatriation that exceeds a specified amount adjusted for inflation (for example, $161,000 for 2016, $162,000 for 2017, $165,000 for 2018, and $168,000 for 2019) (“average income tax liability test”),
2. The individual has a net worth of $2 million or more as of the expatriation date (“net worth test”), or
3. The individual cannot certify, under penalties of perjury, on Form 8854, Initial and Annual Expatriation Statement, that the individual is compliant with all Federal tax obligations for the five tax years preceding the tax year that includes the expatriation date (“certification test”).https://www.irs.gov/individuals/international-taxpayers/relief-procedures-for-certain-former-citizens