Category Archives: Relinquish U.S. citizenship

Recent economic upheaval creates expatriation opportunities for “US Persons” living abroad

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This post was motivated by a thread on Reddit …

At the end of this post, I have included the Reddit thread. (Note that I am trying to develop a “RenounceUSCitizenship” thread on Reddit – you will find it here.)

As you know the US Section 877A Expatriation Tax applies to U.S. citizens and “Long Term Residents”. A “Long Term Resident” is an individual who has had a Green Card (as defined by the rules in Internal Revenue Code Section 7701(b)(6) for at least eight of the fifteen years prior to expatriation). This has become a serious problem for Green Card holders who simply move from the United States and and don’t take formal steps to sever their U.S. tax residency. (They must either file the I-407 or use a tax treaty tie breaker election to expatriate. Otherwise they may be in a situation where they have no right to live in the United States (having lost the immigration status) but are taxable on their worldwide income (still being tax citizens).

That said, whether you are a U.S. citizen wishing to renounce U.S. citizenship or a Long Term Resident wishing to sever U.S. tax residency, you do NOT want to be a “covered expatriate“. Generally, (unless one is subject to two exceptions – dual citizen from birth or expatriation between 18 and 181/2 – that are beyond the scope of this post), one is treated as a “covered expatriate” if one meets any one of these three tests:

1. Net worth of 2 million USD or more (which this post will focus on)

2. Average U.S. tax liability of more than approximately $165,000 USD over the five years prior to expatriation

3. Failure to certify U.S. tax compliance for the five years prior to expatriation.

The COVID-19 Panic – Falling asset values – more favourable exchange rates -2 million USD net worth test

The last couple of weeks have changed and continue to change our world. We are experiencing human misery on an unprecedented and global scale. This includes physical illness, fear of illness and social distancing. I live in a large city and I am beginning to see less variety in the food available. Self-employed people are seeing disruptions to their revenue streams, etc. I don’t want to keep listing examples. But it is very bad. On the economic front, we are seeing unprecedented and incalculable damage to the world economy. This includes (but is not limited to) falling asset values – how is your stock portfolio doing? We see currencies that are weakening relative to the U.S. dollar. (This means that a higher Canadian or Australian dollar net worth would equal 2 million USD.) As I write this post I just received a message, from someone advising me that the shares in a certain cruise ship stock, have fallen from $136 to $22. (My advice would be: Don’t spend money on the cruise. Instead buy the shares in the company.)

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IRS Relief Procedures For Former Citizens Update – Relief For Former Green Card Holders Coming!

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Introduction

On December 17, 2019 Gary Carter published a post on Tax Connections, which outlined the “Options Available For U.S. Taxpayers With Undisclosed Foreign Financial Assets“. It contained an excellent overview and analysis which included a discussion of the IRS definition of “non-willfulness” under the Streamlined Program. In commenting on the definiton of “non-willful” he noted that:

The IRS definition of non-willful covers a lot of territory. Negligence, for example, includes “any failure to make a reasonable attempt to comply with the provisions of the Code” (IRC Sec. 6662(c)) or “to exercise ordinary and reasonable care in the preparation of a tax return” (Reg. Sec. 1.6662-3(b)(1)). Further, “negligence is a lack of due care in failing to do what a reasonable and ordinarily prudent person would have done under the particular circumstances.” (Kelly, Paul J., (1970) TC Memo 1970-250). The court also stated that a person may be guilty of negligence even though he is not guilty of bad faith. So the fact that you ignored the FBAR filing requirements for many years, and failed to report your foreign income, might be negligent behavior, but it’s probably not willful. That means you likely qualify for one of the new streamlined procedures. On the other hand, if you loaded piles of cash into a suitcase and lugged it over to Switzerland to conceal it from the IRS, you don’t qualify, because that is willful conduct. If you believe your behavior may have been willful under these guidelines, consult with an attorney before submitting returns through one of the streamlined procedures. We work with attorneys who are experts in this field and we would be happy to provide a referral, free of charge or obligation.

Notably, the definition of “non-willfulness” for the Streamlined Program is the same as the definition for the new “IRS Relief For Former Citizens Program”.

Part A – IRS Relief For Former Citizens Who Relinquished U.S. Citizenship After March 18, 2010 (the date FATCA became law)

The program was announced on September 6, 2019.

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#Citizide? Letting Go And Moving On – Online Renunciation Discussion

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The situation for many Americans abroad has reached the boiling point. On Saturday November 9, 2019 I will be hosting an online discussion about renunciation generally and HOW TO DECIDE WHETHER IT MAKES SENSE FOR YOU SPECIFICALLY. The time will be 7:00 a.m. EST (Toronto time). This means that it should work for people in most parts of the world. Although, general in nature, I will attempt to answer as many individual questions as time permits. I recognize that this is a very difficult issue for people – spanning the emotional, financial, identity, etc. That said, the U.S. Government is forcing Americans abroad to consider renunciation as a defensive measure to protect themselves and their families.
See the announcement on Twitter below.

If you are not on Twitter feel free to email me at: expatriationlaw at outlook dot com for registration.

The discussion will last approximately one hour.

John Richardson – Follow me on Twitter at @Expatriationlaw

If you are not on Twitter feel free to email me at: expatriationlaw at outlook dot com for registration.

Naomi Osaka does NOT automatically relinquish US citizenship by choosing Japanese citizenship

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Citizenship is becoming more and more interesting. In my last post I wrote about Canada’s Conservative leader Andrew Scheer’s U.S. citizenship. Theoretically, on October 21, 2019, Canada could have it’s first U.S. citizen Prime Minister. (Think of the extra pressure that the United States could bring to bear on Canada.)

The newsworthiness of U.S. citizenship continues. There has been much discussion of citizenship as a prerequisite to compete for countries in the Olympic games. This week, it is being reported that tennis star Naomi Osaka , a dual Japan/U.S. citizen is complying with a Japanese law that requires her to choose either U.S. or Japanese citizenship. A number of media outlets are reporting that Ms. Osaka is relinquishing U.S. citizenship. Is this really true? Interestingly the Toronto Globe and Mail initially reported that:

The Globe later (presumably realizing their error) changed the title of the article to:

“Naomi Osaka set to represent Japan at Tokyo Olympics”

Note that there is no U.S. law that requires her to choose one citizenship over the other. Ms. Osaka is apparently linking her “choosing Japanese citizenship” to a desire to represent Japan in the upcoming Olympics. A number of media sources are reporting that by choosing Japanese Nationality (under Japanese law) that Ms. Osaka is relinquishing/renouncing U.S. citizenship under U.S. law. This is probably incorrect. The act of “choosing Japanese nationality” under Japanese law does NOT automatically mean that Ms. Osaka has relinquished U.S. citizenship under U.S. law. As a matter of U.S. law:

Unless Ms. Osaka’s “choosing Japanese Nationality” meets the the test of voluntarily and intentionally relinquishing U.S. citizenship under Section 349(a) of the U.S. Immigration and Nationality Act, then “choosing Japanese Nationality” will NOT result in the relinquishment of Ms. Osaka’s U.S. citizenship. The act of “choosing Japanese citizenship” under Japanese law does NOT automatically result in the loss of her U.S. citizenship.

Every country is free to decide who it’s citizens are or are not.

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IRS provides limited tax relief for certain individuals renounced(ing) after March 18, 2010

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Update – My thoughts “The Morning After” – September 7, 2019:
After having digested this for a day (it was announced the afternoon of September 6/19), I offer the following additional thoughts:

Practical value: I think that this IRS announcement/program has value. It may be that those who have renounced would NOT want to come into compliance (although there are certainly some who would – just to bring closure). But, the IRS announcement makes clear that this procedure is available to those who have not yet renounced/relinquished and wish to do so in the future. The point is that these future relinquishers can:

1. Come into tax compliance and have up to $25,000 USD in tax forgiven; and

2. Come into tax compliance without getting a Social Security number. This has the potential to be enormously helpful to a lot of people (but this is a minority view). It’s a way to make the compliance/renunciation process easier and less expensive (tax forgiveness) than it has been to date.

Of course, this will anger the thousands who have previously come into compliance, paid taxes and gone to the trouble of getting a Social Security number.

IRS Motivation: Much of the discussion in social media has revolved around the question of: “Why would the IRS offer this program at all? What’s in it for the IRS (especially if they are forgiving taxes)? I don’t know and nobody outside Treasury/IRS knows. But, my guess is that this is a political response from US Treasury to the problems that FATCA is causing with foreign banks. Viewed prospectively, this provides a clearer path for accidental Americans (living outside the USA) to renounce U.S. citizenship. Although renunciation (which does have tax consequences) does NOT require tax compliance, most people seem to think that it does. Also, this is a clear response from Treasury/IRS to the problems that foreign banks are having with FATCA compliance. In other words: I do NOT think that this has anything to do with helping accidental Americans. I do think that it to assist foreign banks with the problems they are having with accidental Americans. Note that the relinquishment date – March 18, 2010 – is tied to the date that FATCA was enacted. But, what do I know?

Now on to the post as originally written …

Breaking news – just released today – September 6, 2019

Background:

In what appears to be a response to how FATCA issues affect “accidental Americans” living outside the United States, the IRS has introduced a procedure providing limited tax relief, penalty relief and certainty for accidental Americans who need to renounce U.S. citizenship in a FATCA world. The problem is described in this recent article by Helen Burggraf at American Expat Finance. Note that March 18, 2010 was the date that the HIRE Act (of which FATCA was a revenue offset) was enacted – making it clear that this relief is tied to FATCA and NOT to “citizenship-based taxation” per se.

In a nutshell, it appears (I will read this in more detail again) to say that:

Individuals who:

1. Have NEVER filed a 1040 U.S. tax return
2. Have relinquished/renounced U.S. citizenship after March 18, 2010
3. File the five tax years in the year prior to relinquishment
4. File a tax return in the year of relinquishment
5. Have a net worth of less than 2 million USD at the time of relinquishment AND at the time of filing*
6. Have a total of less than $25,000.00 in U.S. tax liabilities over the five year period
7. Have an average U.S. tax liability of less than approximately 165,000 USD for the five preceding years*
8. Certify that their failure to file was non-willful.

can file, avoid paying the U.S. taxes owed and NOT be a covered expatriate.

*These mirror the general requirements to not be a covered expatriate.

This is of value for a limited (but probably numerically large) group of people. The benefits appear to be:

1. Forgiveness of tax up to $25,000.00
2. The opportunity to exit the U.S. tax system cleanly and avoid covered expatriate status.

This is likely to upset those who previously went to the trouble of coming into compliance to expatriate. Note that the procedures are not available to anybody who has EVER filed a 1040.

I will write more on this later. But, for the moment here is the announcement from the IRS News Room:

09 | 6 | 19
IRS announces new procedures to enable certain expatriated individuals a way to come into compliance with their U.S. tax and filing obligations

IR-2019-151

WASHINGTON – The Internal Revenue Service today announced new procedures that will enable certain individuals who relinquished their U.S. citizenship to come into compliance with their U.S. tax and filing obligations and receive relief for back taxes.

The apply only to individuals who have not filed U.S. tax returns as U.S. citizens or residents, owe a limited amount of back taxes to the United States and have net assets of less than $2 million. Only taxpayers whose past compliance failures were non-willful can take advantage of these new procedures. Many in this group may have lived outside the United States most of their lives and may have not been aware that they had U.S. tax obligations.
Eligible individuals wishing to use these relief procedures are required to file outstanding U.S. tax returns, including all required schedules and information returns, for the five years preceding and their year of expatriation. Provided that the taxpayer’s tax liability does not exceed a total of $25,000 for the six years in question, the taxpayer is relieved from paying U.S. taxes. The purpose of these procedures is to provide relief for certain former citizens. Individuals who qualify for these procedures will not be assessed penalties and interest.
The IRS is offering these procedures without a specific termination date. The IRS will announce a closing date prior to ending the procedures. Individuals who relinquished their U.S. citizenship any time after March 18, 2010, are eligible so long as they satisfy the other criteria of the procedures.

These procedures are only available to individuals. Estates, trusts, corporations, partnerships and other entities may not use these procedures.

The IRS will host an on-line webinar in the near future providing additional information and practical tips for making a submission to the Relief Procedures for Certain Former Citizens.

Relinquishing U.S. citizenship and the tax consequences that follow are serious matters that involve irrevocable decisions. Taxpayers who relinquish citizenship without complying with their U.S. tax obligations are subject to the significant tax consequences of the U.S. expatriation tax regime. Taxpayers interested in these procedures should read all the materials carefully, including the FAQs, and consider consulting legal counsel before making any decisions.

See the following link for more information:

https://www.irs.gov/individuals/international-taxpayers/relief-procedures-for-certain-former-citizens
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The 2019 IRS "expatriation" compliance campaign: Getting ahead of the fear mongering

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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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Why tax compliant #Americansabroad are under great pressure to renounce US citizenship #citizide

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Introduction …
Many individuals (Solomon Yue, Keith Redmond, and MANY others) have been working very hard on tax reform for Americans abroad. Many groups (ACA, AARO, DA, etc.) have also been working. The basic goal is to support Congressman Holding’s bill which would provide some tax relief. This has been a long and difficult process (which will eventually succeed), it is very hard for individual legislators to understand the issues. This motivated me to tweet the following:


A response to this tweet included: “So the only resolution is to renounce citizenship. Correct?”
My thoughts to this response …

Part 6 of series: Why this Toronto based International Tax specialist always asks whether there are any U.S. taxpayers in the family

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Before moving to the post, if you believe that Americans abroad are being treated unjustly by the United States Government: Join me on May 17, 2019 for a discussion of U.S. “citizenship-based taxation” as follows:

You are invited to submit your questions in advance. In fact, PLEASE submit questions. This is an opportunity to engage with Homelanders in general and the U.S. tax compliance community in particular.

Thanks to Professor Zelinsky for his willingness to engage in this discussion. Thanks to Kat Jennings of Tax Connections for hosting this discussion. Thanks to Professor William Byrnes for his willingness to moderate this discussion.

Tax Connections has published a large number of posts that I have written over the years (yes, hard to believe it has been years). As you may know I oppose FATCA, U.S. citizenship-based taxation and the use of FATCA to impose U.S. taxation on tax residents of other countries.
Tax Connections has also published a number of posts written by Professor Zelinsky (who apparently takes a contrary view).
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This is the sixth of a series of posts that reflect views and experiences of Americans abroad who are experiencing the reality of living as an American abroad in an FBAR and FATCA world. (The first post is here.) The second post is here. The third post is here. The fourth post is here. The fifth post is here. I think it’s important to hear from people who are actually impacted by this and who have the courage to speak out. The “reality on the ground” is quite different from the theory.
I hope that this series of posts will give you ideas for questions and concerns that you would like to have addressed in the May 17, 2019 Tax Connections – Citizenship Taxation discussion.
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The last post in this series made the point that U.S. “citizenship-based taxation” impacts people who are dual citizens and tax residents of other countries. Many of of these people do NOT view themselves as U.S. citizens at all. The suggestion that they are U.S. citizens is not welcome and is (because U.S. citizens are subject to a vast regulatory scheme) an intrusion in their lives. Fair enough.

Most of the posts in this series describe the effect of U.S. regulation on those who ARE U.S. citizens. What about the effect of “citizenship-based taxation” on those who are NOT U.S. citizens? The marriage of Meghan Markle to Prince Harry has generated an awareness of the regulatory requirements on U.S. citizens who live outside the United States. This is only part of the problem. To focus on how U.S. citizenship-based taxation affects ONLY U.S. citizens is selfish and misguided. After all, by marrying Prince Harry, Meghan Markle is now part of a family which includes non-resident aliens. As I recently suggested on Twitter:

My thinking along these lines began with:

What about Internal Revenue Code Section 318? This would deem “Baby Sussex” to be (for IRS purposes) the owner of any the shares of any U.K. corporations that Harry might own. This is only one of many instances where (to put it simply) the U.S. citizenship of one family member can become a problem for the whole family. In any event, this series really needs a post, describing what could happen, when a U.S. citizen becomes part of what is otherwise, a family of “non-resident aliens”.

In order to assist with this, I realized that I needed the input of a “U.S. Tax Anthropologist”. I turned to Peter Megoudis who is the director of the expat tax division at Trowbridge. Peter astutely recognised that the United States invented the concept of the “expat”. See the following video clip.

I asked Peter if he would share the results of his research on how one U.S. citizen family member could impact the whole family. In other words: How do the rules of U.S. “citizenship-based taxation” affect people who are not U.S. citizens, but have chosen to interact with U.S. citizens?

Peter replied to me with the following …

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Part 5 of series: What does U.S. "citizenship-based taxation" actually mean and to whom does it actually apply?

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Before moving to the post, if you believe that Americans abroad are being treated unjustly by the United States Government: Join me on May 17, 2019 for a discussion of U.S. “citizenship-based taxation” as follows:

You are invited to submit your questions in advance. In fact, PLEASE submit questions. This is an opportunity to engage with Homelanders in general and the U.S. tax compliance community in particular.

Thanks to Professor Zelinsky for his willingness to engage in this discussion. Thanks to Kat Jennings of Tax Connections for hosting this discussion. Thanks to Professor William Byrnes for his willingness to moderate this discussion.

Tax Connections has published a large number of posts that I have written over the years (yes, hard to believe it has been years). As you may know I oppose FATCA, U.S. citizenship-based taxation and the use of FATCA to impose U.S. taxation on tax residents of other countries.
Tax Connections has also published a number of posts written by Professor Zelinsky (who apparently takes a contrary view).

____________________________________________________________________________
This is the fifth of a series of posts that reflect views and experiences of Americans abroad who are experiencing the reality of actually living as an American abroad in an FBAR and FATCA world. (The first post is here.) The second post is here. The third post is here. The fourth post is here. I think it’s important to hear from people who are actually impacted by this and who have the courage to speak out. The “reality on the ground” is quite different from the theory.

I hope that this series of posts will give you ideas for questions and concerns that you would like to have addressed in the May 17, 2019 Tax Connections – Citizenship Taxation discussion.

Laura Snyder has graciously contributed the first four posts of this series. In her series of four posts, she has outlined the origins and requirements of U.S. citizenship-based taxation.

Ms. Snyder grew up in the United States and moved to Europe as an adult. The tone and pain reflected in her writing suggests that she truly identifies as being a citizen of the United States.

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Considering renouncing citizenship? #citizide: Non-citizens can be be inadmissible to the United States by statute

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Only U.S. Citizens The right to enter the United States


U.S. citizenship has its privileges and its obligations
Privileges:
As the message in the above tweet indicates, ONLY U.S. citizens have the right to enter the United States.
Obligations:
Because U.S. citizens have the right to enter the United States, U.S. citizens are required to enter the United States on a U.S. passport. (The U.S. passport tells the border guard that the individual has the right to enter the United States.) The Immigration and Nationality Act states:

(b)Citizens
Except as otherwise provided by the President and subject to such limitations and exceptions as the President may authorize and prescribe, it shall be unlawful for any citizen of the United States to depart from or enter, or attempt to depart from or enter, the United States unless he bears a valid United States passport.

The border guard does not have the authority to deny entry to a U.S. citizen.
Non-citizens and admission to the United States – Tell me who you are and I will tell you whether you can enter
Non-citizens do NOT have the right to enter the United States. For non-citizens, entry into the United States is governed by the Immigration and Nationality Act and an apparatus of rules and regulations. Different rules and regulations apply to citizens of different countries. When you cease to be a U.S. citizen, you will be treated according to your citizenship/nationality.
Let’s consider four categories of individuals.
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