Category Archives: Little Red Exit Tax Book

All U.S. citizens relinquishing U.S. citizenship are required to be reported in the Federal Register “Name And Shame” list

Purpose of this post:

The following is a description of the reporting rules that apply to the State Department and U.S. Treasury when a U.S. citizen relinquishes U.S. citizenship. This discussion applies to individuals relinquishing after June 16, 2008. This brief description does NOT discuss Green Card holders who abandon their Green Cards or any reporting rules that may have been different prior to June 16, 2008*. (For practical purposes U.S. citizens who relinquish and fail to file Form 8854 will become “covered expatriates“. “Covered expatriate” status means that are subject to the 877A Exit Tax rules and the Section 2801 “covered gift” rules.) The term “relinquishment” includes “renunciation”.

The confusion continues over whether ONLY “covered expatriates are reported on the Federal Register. The names appearing in the Federal Register are here.

Commentary from Helen Burggraf and others reveals that:

– some individuals renouncing citizenship have been reported more than once
– some individuals renouncing citizenship have NOT been reported at all
– some individuals renouncing citizenship who were reported were NOT “covered expatriates”

With respect to U.S. citizenship relinquishment:

– IRC 6039G imposes specific requirements on the State Department to notify the Treasury Secretary of ALL Certificates Of Loss of Nationality issued;

– IRC 6039G requires the Treasury Secretary to publish the names of ALL relinquishers in the Federal Register. (Whether a “relinquisher” is a “covered expatriate” is NOT relevant.)

The statutory reasoning – conclusions:

1. The State Department is required to report to U.S. Treasury the names of ALL people who have been issued a Certificate of Loss of Nationality.

2. U.S. Treasury is then required to publish in the Federal Register the names of all people who the State Department has reported were issued CLNs in that quarter.

3. Individual relinquishers: (i) 6039G requires that all “Covered Expatriates” file a Form 8854. (ii)The “Secretary” requires ALL individuals to file Form 8854 in order to order to certify that because they have met their tax compliance obligations they are NOT “covered expatriates”. (Therefore form 8854 is required either by statute or by demand from the IRS.)

The statutory reasoning – tracking the relevant provisions in the Internal Revenue Code:

1. IRC 7701(a)(50) – provides statutory test for when an individual ceases to be a U.S. citizen:

“(50) Termination of United States citizenship
(A) In general

An individual shall not cease to be treated as a United States citizen before the date on which the individual’s citizenship is treated as relinquished under section 877A(g)(4).”

https://www.law.cornell.edu/uscode/text/26/7701

2. IRC 877A(g)(4) – provides the date of relinquishment of U.S. citizenship under the IRC:

“(4) Relinquishment of citizenship A citizen shall be treated as relinquishing his United States citizenship on the earliest of—
(A) the date the individual renounces his United States nationality before a diplomatic or consular officer of the United States pursuant to paragraph (5) of section 349(a) of the Immigration and Nationality Act (8 U.S.C. 1481(a)(5)),
(B) the date the individual furnishes to the United States Department of State a signed statement of voluntary relinquishment of United States nationality confirming the performance of an act of expatriation specified in paragraph (1), (2), (3), or (4) of section 349(a) of the Immigration and Nationality Act (8 U.S.C. 1481(a)(1)–(4)),
(C) the date the United States Department of State issues to the individual a certificate of loss of nationality, or
(D) the date a court of the United States cancels a naturalized citizen’s certificate of naturalization.
Subparagraph (A) or (B) shall not apply to any individual unless the renunciation or voluntary relinquishment is subsequently approved by the issuance to the individual of a certificate of loss of nationality by the United States Department of State.”

https://www.law.cornell.edu/uscode/text/26/877A

3. State Department: IRC 6039G – imposes obligation on State Department to notify the Secretary of all CLNs issued under INA 358:

“(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,”

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

4. Treasury Secretary: IRC 6039G -Imposes obligation on Secretary to report names of ALL relinquishers in Federal Register:

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.

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

The reporting on the name and shame list has never been accurate!

Conclusion: All people relinquishing U.S. citizenship are required to reported on the “Name and Shame” list. For reasons unknown, not everybody ends up being reported.

*On June 16, 2008 Internal Revenue Code 877A (the exit tax rules) was enacted. In addition to creating 877A, there were other changes to the expatriation rules. My impression is that the “6039G reporting regime” prior to June 16, 2008 applied to fewer people. Hence, I have restricted the above discussion to U.S. citizens relinquishing U.S. citizenship after June 16, 2008.

John Richardson – Follow me on X.com/ExpatriationLaw

Considering renunciation Part 1? The Problem is HOW To Make The Renunciation Decision

For Americans U.S. citizenship is an asset that depreciates with age. U.S. citizenship is more valuable for younger people beginning their careers than for older people moving toward retirement. The United States is a large market with many career and employment opportunities. In addition, older people often live off capital, (which if “foreign” to the United States) comes with punitive U.S. taxation and reporting.

There are many reasons to retain U.S. citizenship or to renounce U.S. citizenship. It is a “circumstance dependent” decision. To be clear, the process of renunciation is relatively easy. Renunciation is a process that takes place under the Immigration and Nationality Act. That said, the fact of renunciation has consequences that extend well beyond the Immigration and Nationality Act.

What follows is a list of “some” specifics people should consider as part of making the renunciation decision. This is a “quick and dirty” post. I make no attempt to detail the specific reasons why these considerations may be important. This list is intended only to “raise your level of awareness” about a decision that has long term implications in your life.

The renunciation decision requires a tolerance for uncertainty.

Deciding whether to renounce is a decision made in an uncertain environment. Where there is uncertainty one must think in terms of “better vs. worse” outcomes. Not “right vs. wrong” outcomes.

On the one hand one never knows what the future could hold.

On the other hand U.S. citizenship carries many present and future costs.

The process of renouncing U.S. citizenship is easy.

The process of understanding the implications that renunciation may have on your life are neither easy nor well understood.

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Biden 2024 Green Book: Message To Accidental Americans – Either comply or renounce!

Part I – Summary of post:

The proposals for Americans abroad include:

1. A provision to (and presumption of) heighten enforcement of the 877A exit tax through changes in the Internal Revenue Code

2. A possible “carve out” from the 877A exit tax for certain Americans abroad with limited ties to the United States (under rules prescribed by the Treasury Secretary)

3. NO RELIEF whatsoever from U.S. citizenship taxation and the way that the rules apply to Americans abroad. This assumes a continuation of U.S. citizenship taxation with no evidence of change.

In other words: Either comply or renounce!

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Renunciation/Relinquishment, The US Exit Tax And The Confiscatory Case Of NON-U.S. Pensions (U.S. Pensions Avoid This!)

Part I – Prologue – A Tweet Worth A Thousand Posts

For a “Readers Digest” version of the post that is to follow, simply click on the link in the above tweet!

To see examples of the deemed income inclusions and the U.S. tax owing click on the links to Appendices, B, C and D below.

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Outline And Structure

This post is for the purpose of alerting Americans abroad and their advisors to a particularly difficult and unjust aspect of renouncing U.S. citizenship. The punitive treatment of the non-U.S. pension is a reason for many Americans abroad to consider renunciation earlier (when they are not “covered expatriates”) rather than later (when they may be subject to the confiscatory rules applied to “covered expatriates”).

Part I – Introduction – The General Message
Part II: Renunciation/Relinquishment and the confiscatory case of the “ineligible” (non-U.S.) pension … A Deeper Dive
Part III: Renunciation/Relinquishment and the retention of the “eligible” (U.S.) pension … A Deeper Dive
Part IV – Conclusion
Appendix A – How Internal Revenue Code Sections 877A and 877 Lead To The Confiscation Of The Non-U.S. Pension
Appendix B – Dual Status tax return with a 1 million USD income inclusion on the day before expatriation
Appendix C – Dual Status tax return with a 1 million USD income inclusion on the day before expatriation with a $100,000 tax credit carry forward
Appendix D – Dual Status tax return with (1) a full actual distribution of the pension in Canada on the day before expatriation (generating a foreign tax credit in the current year)

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Part I – Introduction – The General Message

The warning! Some Americans abroad who renounce U.S. citizenship can expect to have punitive taxation imposed on the value of their non-US pensions. This is a tax imposed by a “deemed distribution” (not actual) of the the pension. Because there was no “actual distribution” those affected will need to find another source of funds to pay the tax. Significantly, the tax does NOT apply to U.S. pensions. Those renouncing who have U.S. based pensions may NEVER be taxed on the value of those pensions.

Once an individual’s net worth reaches 2 million USD, that individual is generally subject to this tax. This means that renunciation may become very costly. Americans abroad with non-US pensions and their advisors should be aware of (and plan around) this problem.

In this post I am joined by CPA Olivier Wagner who has generously provided excerpts from mock U.S. tax returns which demonstrate how confiscatory the U.S. Exit Tax rules are when applied to non-U.S. pensions (and therefore to Americans abroad). You will find his returns in Appendixes B, C and D at the end of this post.

The mock tax returns show that a U.S. citizen living outside the United States who:

– is a “covered expatriate”

– has a non-U.S. pension with a present value that includes a taxable amount of $1,000,000 USD

will be subject to an immediate tax of $344,963 triggered by renunciation of U.S. citizenship.

Because this tax is NOT imposed on those with U.S. based pensions, this tax applies disproportionately to Americans abroad, who earned their pensions while living outside the United Sates.

Of course, if he had renounced before reaching the 2 million USD net worth mark, he could possibly renounce and pay no exit tax on the value of his pension. Financial planners and other advisors take note!!

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To Renounce US Citizenship Or Not To Renounce – That Is The Question

In May of 2021 John Richardson participated in this podcast with 4 The Now Media.

It has become increasingly difficult for US citizens living outside the United States to comply with the US tax and regulatory regime. Unfortunately Americans abroad are being constructively forced to renounce US citizenship.

People are NOT renouncing US citizenship because they want to! They are renouncing because they have to!

The following podcast discusses many of the issues surrounding the renunciation decision. The discussion includes a discussion of several profiles, the applicability of the 877A Exit Tax and the dual citizenship from birth exemption.

Follow me on Twitter @Expatriationlaw

A Simple Regulatory Fix For The FATCA problems of Accidental Americans and other dual citizens from birth

Update – Podcast July 17, 2022

Prologue

It is clear that the US extraterritorial tax regime, which imposes taxation on the non-US source income of US citizens living outside the United States, is an outrageous violation of the sovereignty of other nations. It is also an extreme injustice inflicted on US citizens living outside the United States. The US has successfully exported the extraterritorial tax regime to the world through a combination of (1) The US Internal Revenue Code (2) the FATCA IGAs (hunting down US citizens) and (3) the saving clause in US tax treaties (Country X agrees that the US can impose tax on any individual who has been identified as a US citizen and is tax resident of Country X). To understand the interplay between (1), (2) and (3) above see the following article I wrote for the American Expat Finance News Journal.

The three groups most visibly impacted by the US Extraterritorial tax regime (in different ways) and its enforcement outside the United States include:

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

Updated on June 29, 2024

The confusion over this topic continues on. With respect to U.S. citizenship relinquishment IRC 6039G imposes the following three specific requirements:

1. The State Department is required to report to U.S. Treasury the names of ALL people who have been issued a Certificate of Loss of Nationality.

2. U.S. Treasury is required to publish in the Federal Register the names of all people who the State Department has reported were issued CLNs in that quarter.

3. Individual relinquishers: 1. 6039G requires that all “Covered Expatriates” file a Form 8854.2. The “Secretary” requires individuals to file Form 8854 in order to order to certify that because they have met their tax compliance obligations they are NOT “covered expatriates”.

Explanation – tracking the relevant provisions in the Internal Revenue Code:

1. IRC 7701(a)(50) – provides statutory test for when an individual ceases to be a U.S. citizen:

“(50) Termination of United States citizenship
(A) In general

An individual shall not cease to be treated as a United States citizen before the date on which the individual’s citizenship is treated as relinquished under section 877A(g)(4).”

https://www.law.cornell.edu/uscode/text/26/7701

2. IRC 877A(g)(4) – provides the date of relinquishment of U.S. citizenship under the IRC:

“(4) Relinquishment of citizenship A citizen shall be treated as relinquishing his United States citizenship on the earliest of—
(A) the date the individual renounces his United States nationality before a diplomatic or consular officer of the United States pursuant to paragraph (5) of section 349(a) of the Immigration and Nationality Act (8 U.S.C. 1481(a)(5)),
(B) the date the individual furnishes to the United States Department of State a signed statement of voluntary relinquishment of United States nationality confirming the performance of an act of expatriation specified in paragraph (1), (2), (3), or (4) of section 349(a) of the Immigration and Nationality Act (8 U.S.C. 1481(a)(1)–(4)),
(C) the date the United States Department of State issues to the individual a certificate of loss of nationality, or
(D) the date a court of the United States cancels a naturalized citizen’s certificate of naturalization.
Subparagraph (A) or (B) shall not apply to any individual unless the renunciation or voluntary relinquishment is subsequently approved by the issuance to the individual of a certificate of loss of nationality by the United States Department of State.”

https://www.law.cornell.edu/uscode/text/26/877A

3. State Department: IRC 6039G – imposes obligation on State Department to notify the Secretary of all CLNs issued under INA 358:

“(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,”

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

4. Treasury Secretary: IRC 6039G -Imposes obligation on Secretary to report names of ALL relinquishers in Federal Register:

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.

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

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

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

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 …

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FATCA @Citizenshiptax and Wealth taxes: Laura Snyder Engages @Gabriel_Zucman In The Twittersphere

Introduction

Citizenship-based taxation, FATCA and how the interact can best be understood by Americans abroad.

The professors (who have clearly never lived under a citizenship taxation regime and have limited understanding of FATCA) explain the relationship between U.S. citizenship-based taxation and the success of a – “Made In The USA” wealth tax – in the article which includes:

The situation in the United States is different. You can’t shirk your tax responsibilities by moving, because U.S. citizens are responsible to the Internal Revenue Service no matter where they live. The only way to escape the IRS is to renounce citizenship, an extreme move that in both Warren’s and Sanders’s plans would trigger a large exit tax of 40 percent on net worth.

Some people tweet. Some people tweet for fun. Some people tweet to educate.

The purpose this post is to collect the series of tweets that Laura Snyder complied to provide a higher level of education to the professors.

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The 2019 IRS "expatriation" compliance campaign: Getting ahead of the fear mongering

On July 19, 2019 the IRS announced six new compliance initiatives.
Of particular interest to U.S. citizens and permanent residents (Green Card holders) is what is described as:

Expatriation
U.S. citizens and long-term residents (lawful permanent residents in eight out of the last 15 taxable years) who expatriated on or after June 17, 2008, may not have met their filing requirements or tax obligations. The Internal Revenue Service will address noncompliance through a variety of treatment streams, including outreach, soft letters, and examination.

What is expatriation?
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