Buying Their Freedom – A More Efficient Renunciation Process – The “Readers Digest” Version Of This Post …
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) January 3, 2018
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”
I recently was alerted to this article written by Boris Johnson in 2006. Most people are aware of the tax problems. Fewer are aware of the problems of travel as a US citizen.
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) June 27, 2022
To be clear:
US citizens are required to both enter and leave the United States on a US Passport!
Update April 13, 2022 …
Here is yet a seventh way – the treatment of gifts as capital gains – that the Biden Green book would impact Americans Abroad
It’s The System Not The Parties!
As long as the United States employs @citizenshiptax and #FATCA, changes in US tax laws will continue to have dramatic (intended and unintended) effects on #Americansabroad – regardless of which political party is in power. https://t.co/t6N4zyLIBQ
— Care about #Americansabroad? Join @USVotersAbroad! (@USVotersAbroad) March 11, 2022
As long as the United States employs citizenship taxation any proposed changes to the US tax system will have an impact (some intended and some unintended) on Americans abroad.
The Biden Green Book for fiscal year 2023, released on March 28, 2022, contains a number of proposals to both increase tax rates and increase the tax base by increasing the number of activities that are taxable events. Generally the proposals include a number of provisions to create and enhance taxation on both income from capital and capital itself. These provisions continue to generate discussion in the mainstream media including: The New York Times, Washington Post and Wall Street Journal. This is certain to generate much discussion in the tax compliance community.
The 2023 Green Book is available here.
Much will be written about how the proposals would affect resident Americans. Far less will be written about how the proposals would affect Americans abroad. The US rules of citizenship taxation steal from Americans abroad (and the countries where they reside) in hundreds of ways. Some are intended and foreseeable. Others are the unintended consequences that result from tax changes that apply to people who are not considered in the political process.
Significantly the Green Book does not suggest a move away from US citizenship taxation toward resident taxation as embraced by the rest of the world. In their totality, the proposals (particularly those that create income realization events when a gift is made) suggest a worsening of the situation for Americans abroad. That said, one proposal “might” (depending on Treasury) allow for the relaxation for the 877A Exit Tax rules, for a narrow group of Americans abroad under certain circumstances.
The purpose of this post is to identify six ways (and I assure you that there are more) that the Green Book would impact Americans abroad. The “Group Of Six” includes:
1. Raising The Corporate Tax Rate To 28 percent – Creating Subpart F Income and Making More Americans Abroad GILTI – Page 2
Verdict: This will have the effect of increasing the number of Americans abroad subject to taxation on income earned by their small corporations but not received by them personally.
2. An increase in the Corporate rate would increase the GILTI rate (suggesting to 20 percent) – Page 2
Verdict: More Americans abroad will be GILTI and will possibly (depending on a combination of country specific factors and their specific circumstances) be subject to GILTI taxes at a higher rate).
3. Reducing Phantom Gains And Losses: Simplify Foreign Exchange Rate And Loss Rules For Individuals And Exchange Rate Rules For Individuals – Page 90
Verdict: This in interesting. While reinforcing that Americans abroad are tethered to the US dollar it does suggest a recognition of the unfairness of how the phantom gain rules harm the purchase and sale of residential real estate outside the USA). Imagine how this would interact with the proposed rules converting gifts to taxable capital gains?
4. Strengthening FATCA: Provide For Information Reporting by Certain Financial Institutions and Digital Asset Brokers For the Exchange Of information – Page 97
Verdict: This is an attempt to reinforce the core principles of FATCA which are about the identification of US citizens outside the United States.
5. Expatriation – The Stick: Extend The Statute Of Limitations For Auditing Expatriates To Three Years From The Date From Which 8854 Should Have Been Filed (Possibly Forever) – Page 87
Verdict: This is theoretically very bad. It means that those who renounce without filing Form 8854 would be subject to a lifetime of risk. Practically speaking these provisions are not understood on the retail level. Hence, I doubt this will influence many people.
6. Expatriation – The Carrot: Exempting Certain Dual Citizen Expatriates From The Exit Tax – Page 87
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) March 29, 2022
Verdict: This is good news for the narrow group of people impacted by this – mainly “Accidental Americans”. It is bad news for the rest because the existing rules will continue to apply to those “who are left behind”.
I assure you that the Green Book contains a large number of ways that Americans abroad will be impacted. I will leave it to others to add to this list.
The principle is:
Citizenship taxation can steal from Americans abroad at least a thousand ways. If you can understand even one hundred of them you are doing well!
Summary: Once again this shows how all proposed changes to US tax law impact Americans abroad in a world of citizenship taxation. There is nothing in this that suggests a move toward residence taxation. There are few crumbs which might make citizenship taxation easier to live with (example relaxing phantom gains). But, on balance these provisions are a “doubling down” on the problems of citizenship taxation. The provision to allow easier expatriation for “Accidental Americans” does nothing to make life easier for the rest.
If you have seen enough you can stop here. For those who want more of the details and explanation, continue on …
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) January 1, 2022
In 2018 I had a discussion with Buffalo Immigration Lawyer Joe Grasmick about a number of issues including renouncing US citizenship. The discussion was videoed as part of my “Retain Or Renounce” series. It was a very interesting and balanced discussion. (We also discussed some of the dos and don’ts of Green Card abandonment.)
I wanted to share Joe’s LinkedIn post today (December 31, 2021). His post reinforces the reality that (although Americans abroad are clearly suffering from the tax and regulatory regime) US citizenship does have value.
I completely agree with Joe that the consequences of renouncing US citizenship (notwithstanding the problems) should be fully understood and appreciated.
Renunciation of US citizenship has evolved into a routine matter that is taken less and less seriously by the US Government. "Reflections Of An Expatriation Lawyer: From The Solemn Occasion of 1988 To The Non-event of 2021" https://t.co/l5Aq2moYJx via @expatriationlaw
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) December 30, 2021
Guest Post by UK based New York lawyer Diane Gelon
Diane is a London, UK based New York lawyer who specializes in issues affecting Americans abroad including renunciation. What follows are her thoughts on how the renunciation process has evolved since 1988. The message is that in 1988 the renunciation of US citizenship was a serious and solemn event that was taken very seriously by the US government (it was also free of charge). By 2021 it had become a routine matter, of little concern to the US government (and cost $2350). This is one more reason why the State Department should process renunciations of US citizenship through video conferencing!
Over to Diane …
This post has been co-authored by Diane Gelon* (see “Reflections Of An Expatriation Lawyer“) and John Richardson
From @HelenBurggraf: "As AAA announces its new legal challenge to go ahead, expats echo its call for renunciation to be made easier" – AAA also argues that renunciations need not take place inside a US Consulate or Embassy https://t.co/s74Lqh0tJr pic.twitter.com/3nyKbjoWEO
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) December 30, 2021
In September of 2021 the Paris based “Accidental Americans Association” filed a lawsuit against the US State Department. The lawsuit was brought in an attempt to force the State Department to allow individuals to renounce their US citizenship. (A prior lawsuit by the “Accidental Americans Association” was based on the excessive $2350 renunciation fee.)
The lawsuit is evidence of the extreme frustration that many Americans abroad are experiencing because they (1) are unable to renounce US citizenship and (2) justifiably feel that they are prisoners of the circumstances of their birth.
It was recently announced that “The US Department of State (DOS) is suspending in-person interview requirements at local consulates for a year for numerous non-immigrant work visa categories and their families (spouse and dependent children“. In London the US Embassy is conducting telephone meetings to deal with Social Security issues. (Prior to Covid this would have required an in person meeting at the Embassy.) The State Department is clearly reducing the number and kinds of services that require “in person” Consulate visits.
The purpose of this post is to argue that renunciations of US Citizenship need not take place through in person interviews at a US Embassy or Consulate. Rather renunciations of US citizenship can and should take place through video conferencing. The backlog in processing renunciations is explained as being related to the Covid-19 pandemic. A response to the pandemic has been that more and more legal proceedings are taking place through video conferencing. Both Canada and the UK (and certainly other countries) are conducing citizenship ceremonies by video, entire court cases are held via video conferencing, and documents can be witnessed and certified by video. We have discussed various aspects of this issue with each other over a long period of time as well as benefiting from discussions with Dubai based lawyer Virginia La Torre Jeker and Esquire Founder Jimmy Sexton.
There is no law that requires that renunciations of US citizenship take place inside a US Consulate or Embassy!
This post is composed of the following seven parts leading to the following conclusion:
Americans abroad and their representatives should pressure the State Department to use their statutory authority to allow renunciations by video conferencing. The State Department has the statutory authority to do so. The fact that the State Department does not currently allow renunciations through video conferencing doesn’t mean that it cannot allow renunciations through video conferencing!
Part I – Introduction: Why Americans Abroad Are Renouncing US Citizenship
Part II – An appointment to renounce US citizenship is hard to find
Part III – Why there is NO legal requirement that renunciation appointments must take place inside a US Embassy or Consulate
Part IV – The State Department website does not specifically state that renunciations must take place inside the US Consulate or Embassy
Part V – Americans abroad and their organizations must push the Biden administration to allow renunciations of US Citizenship through video conferencing
Part VI – Interesting Bobby Fisher anecdote supporting the view that renunciations are not required to take place inside US Consulates
Part VII – Diane Gelon and John Richardson update their November 29, 2020 podcast with a December 29, 2021 podcast
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
US @CitizenshipTax AKA #Extraterritorialtax is greater than the self-interest of any one person. It affects you in ways that may not be obvious now. It affects your neighbours. It affects the sovereignty of your country of residence. It affects the future value of US citizenship
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) June 3, 2021
This is the third of a series of posts focussing on the need to end US citizenship-based taxation (practised only by the USA) and move to a form of pure residence-based taxation (practised by the rest of the world). The first post was titled “Toward A Definition Of Residence-based Taxation For Americans Abroad“. The second post was titled “Toward A Movement For Residence-based Taxation For Americans Abroad“. This third post is “Toward An Explanation For Why Some Americans Abroad Are Complacent About Citizenship Taxation“.
Why are some Americans Abroad not concerned about citizenship-based taxation? Why will many Americans Abroad continue to vote for the same political party that continues to damage them? What does this imply for unifying Americans Abroad in support of a movement toward residency-based taxation? This post will explore these issues.
In The Life Of Many Americans Abroad: Citizenship-based taxation is not a problem until it is!!
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) January 27, 2021
In 2016 I first made the suggestion that citizenship-based taxation could be changed through Treasury regulation. In October of 2020 John Richardson, Dr. Karen Alpert and Dr. Laura Snyder completed a paper titled “A Simple Regulatory Fix For Citizenship Taxation”. The idea advanced is that:
Although Congress and the Internal Revenue Code created the problem of “citizenship-based taxation”, Treasury has the authority and moral duty to fix the problems of citizenship-based taxation.
In 1924 the Supreme Court of the United States considered U.S. citizenship-based taxation in the case of Cook v. Tait. Of course in 1924, the laws of both citizenship and taxation were very different. I have previously explored the evolution of citizenship, taxation and citizenship-based taxation.
This article explains the simple regulatory actions that United States Department of the Treasury can take that would, in the absence of legislative change, improve the lives of Americans living overseas and permit the IRS to better focus its limited resources to more effectively administer the U.S. tax system.
The article can be read at SSRN here.
The 2020 article can be at Tax Notes here.
I welcome your comments.