Tag Archives: Certificate of Loss of Nationality

Presumptions, tax residency and presumptions of tax residency: Nonresident alien status in a FATCA world

Introduction – All The World Is A Multiple Choice Test
Q.1 – A tax resident of the United States is taxable on his worldwide income. According to the Internal Revenue Code of the United States, which one of the following is NOT a tax resident of the United States of America?
(A) A Congresswoman “Born In The USA”, head of her household, who does not and has never had a U.S. Passport
(B) An unmarried Green Card Holder who has never filed an FBAR who lives in El Paso Texas
(C) A fifty year old U.S. citizen who is divorced has never set foot in the United States, doesn’t have a U.S. Social Security Number and lives in and pays full taxes in Germany
(D) A citizen of only Canada who lives four months a year in Florida with his U.S. citizen wife, in a house he owns where he parks a car he owns with Florida license plates
(E) A citizen of Grenada who lives full time in the USA with an E1 visa operating a fast food franchise
For help in finding the answer see …
https://www.law.cornell.edu/uscode/text/26/1
https://www.law.cornell.edu/uscode/text/26/2
Q. 2 – A tax resident of Canada is taxable on his worldwide income. According to the Income Tax Act Of Canada, which one of the following is a tax resident of Canada?
(A) A Canadian citizen who lives in the United States but has no business, family, social or residential ties to Canada
(B) An individual with a house and family living in Toronto who works and lives in the banking industry in the Middle East
(C) A Massachusetts resident with a summer home in Ontario, Canada in which he visits 180 days every year
(D) An individual who is a legal permanent resident of Canada but actually lives in Hong Kong
(E) A rich Canadian who buys permanent residency in Portugal and uses a tax treaty tie breaker provision to deem himself to be a tax resident of Portugal
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Q. Is a CLN necessary to relinquish US citizenship for tax purposes? A. It depends on the date of relinquishment

In a recent post, I discussed your “Taxabililty Freedom Day“. This is the day when you cease to be a taxable U.S. person. From that day you begin life free of the U.S. tax system. That post discussed the role of Form 8854 (noting that between June 3, 2004 and June 16, 2008 one had to file Form 8854 to no longer be a U.S. tax citizen). During the period between June 3, 2004 and June 16, 2008:

IF [you relinquished U.S. citizenship under the Immigration and Nationality Act)] THEN
[You continued to be treated as a “U.S. person” for tax purposes UNDER THE INTERNAL REVENUE CODE until you gave “notice” of your “relinquishment” to a government agency.] For this period part of the “notice” was filing Form 8854 with the Internal Revenue Service. In other words, there was no way to cease to be a “U.S. person” for tax purposes until you had notified the IRS.
In order to STOP being a “U.S. citizen for tax purposes” Form 8854 had to be filed with the IRS. Without filing Form 8854, you simply continued to be treated as a “U.S. citizen” for tax purposes.

The purpose of this post is to discuss the relation between the U.S. Certificate of Loss of Nationality (“CLN”) and loss of U.S. citizenship for tax purposes. This is an anxiety inducing and  confusing area. If you don’t want to read the analysis go straight to the bottom which provides the following answer to the question:

Is a CLN required in order to cease to be a U.S. citizen for either immigration or tax purposes?
Putting it all together – is a CLN necessary for relinquishment of U.S. citizenship?

  1. Prior to June 3, 2004 – NO for either immigration or tax purposes
  2. June 3, 2004 – June 16, 2008 – NO for either immigration or tax purposes.
  3. After June 16, 2008 – No for immigration purposes – Yes for tax purposes. A CLN  is necessary as a confirmation of having met the “notice requirement” to end U.S. citizenship for tax purposes.

Therefore, a CLN (for practical purposes) is necessary for relinquishment of U.S. citizenship, for tax purposes,  for expatriating acts after June 16, 2008.
And finally, a disclaimer …
These issues are complex. They are not well understood. There is some disagreement in the legal and accounting professions about these issues. I am not your lawyer. Nothing on this site is  legal advice. Get yourself competent counsel.

The rest of the post is explanation which is tedious and technical. You are welcome to it if you want.
 
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The above tweet references the following insightful comment at the Isaac Brock Society.
The comment appeared on a post discussing the new $2350 fee that applies to (non-renunciation) “relinquishments” of U.S. citizenship. Those who are entitled to “back dated” relinquishments should still attempt to seek “non-renunciation relinquishments“.

@Eido, @Allison Christians, You (Eido) state “they are now charging the same amount of money for relinquishing U.S. nationality as they are for renouncing it” and “This means that it costs ALL American nationals thousands of dollars to change their nationality.”
Let me punch some holes in what you wrote as it will improve the arguments that we from the “Borg Collective” will make.
I have argued on this board that a CLN is NOT a requirement to lose ones US Nationality if an appropriate action was taken in accordance with 8 US Code. I relinquished a decade ago, do not have a CLN but do have documentation from the US Government recognizing my relinquishment and that I am no longer a USC. That said, I do believe a CLN can be a pretty handy piece of paper to have in ones pocket!!
I would argue that this regulation further supports my argument that a CLN is not in fact required to have lost US Citizenship hence the reason I believe the above quotes by the author are incorrect.
The State Department is now acutely aware of the Expatriation Act 1868 and cites the act in 7 FAM 1200, “That any declaration, instruction, opinion, order, or decision of any officers of this government which denies, restricts, impairs, or questions the right of expatriation, is hereby declared inconsistent with the fundamental principles of this government.”
http://www.state.gov/documents/organization/120536.pdf
So how do you complete the circle between the left hand and the right hand? It is very clear that charging $2,350 to relinquish ones USC clearly runs foul to the Expatriation Act 1868 which the State Department clearly acknowledges!!
What is State charging for? They are not charging for “relinquishing” they are charging for “Documentation for Loss of Nationality.” They are charging those persons that want the State Department to issue them a piece of paper just as they charge for issuing an affidavit or notarial service.
They also state “In the past, individuals seldom requested Certificates of Loss of Nationality from the Department to document relinquishment.”
This is important for several reasons. First, it highlights in writing for those giving an FI a reasonable explanation as to why they do not have a CLN is simply that prior to the date of this notice “individuals seldom requested Certificates of Loss of Nationality.”
Second, it is not a fee for the act of relinquishment rather it is a fee to “document” same. There is a major difference between an action and documenting said action.
Now here is where Allison is on to something in stating “certainly relative to resisting the tax jurisdiction.”
I think Allison understands my above argument or if not will understand it now, but a CLN is a requirement dependent on relinquishment date to escape “tax jurisdiction.”
Effectively the IRS is now requiring the payment of an administrative fee of $2,350, circuitously through State, in order for a person to file a Form 8854 because a CLN date is required as part of that form!!
Is this action a good thing? Yes, I believe that the USG has provided another path forward for our cause. They have now confirmed in writing that CLNs were “seldom requested” which means most people that relinquished will NOT have a CLN!!! So when a FI asks a person for their CLN they can provide a reasonable explanation with their own written proof along with the State Departments own written word that such documents were “seldom requested.” The proof of not getting such a document now is the cost!!!
I do believe that State has perfected their argument on this matter but I also believe that they still need to be challenged based on the argument that this does violate the Expatriation Act 1868 and the UN Declaration. Such a challenge may force them to either back down on the fee which is good or it forces them to admit in stronger terms that the CLN is an “optional” document to have and that is good too! Arguing the case with State is a win/win for our cause.
The “bonus” in all this is that charging a fee to get a CLN, I think flies in the face with tax expatriation and Form 8854. I think if State lawyers had talked with Treasury lawyers they would not have gone down this route. It also muddies the water on the IGA agreements that were signed because many were signed when a CLN was free for to “document” a relinquishment.
OK Brockers fire back at me because iron strengthens iron. I know my argument sounds like a cheap lawyer talking but lessons were learned from the Summary Trial and the Bopp injunction. I believe that State was very careful in their choice of words.

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Renunciation is one form of relinquishment – It’s not the form of relinquishment, but the time of relinquishment

Updated February 2020:

Tina Turner: What’s FBAR Got To Do With It?

Professor Caron writes:

Washington Post, Tina Turner Formally ‘Relinquishes’ U.S. Citizenship:

This item just in via an “activity” report from the U.S. Embassy in Bern, Switzerland, headlined “Soul Legend Relinquishes U.S. Citizenship.”

“Long-time Swiss resident Tina Turner” was in the embassy Oct. 24 to sign her “Statement of Voluntary Relinquishment of U.S. Citizenship under Section 349 (a)(1) of the INA” — the Immigration and Naturalization Act. …
The key word in the embassy report apparently is the term “relinquishment.” That means, a knowledgeable source told us, that she did not “formally renounce her U.S. citizenship under 349(a)(5) Immigration and Nationality Act, but took Swiss citizenship with the intent to lose her U.S. citizenship.” As opposed to formal renunciation — a much more complex process, we were told — there are no “tax or other penalties for loss of citizenship in this fashion.”
For the difference between relinquishing and renouncing U.S. citizenship, see here. As this detailed post makes clear, the tax consequences are the same whether one relinquishes or renounces U.S. citizenship. Previous press coverage suggested that Ms. Turner’s actions may be motivated in part by a desire to escape the new FATCA regime.

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