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Mistakes In Renouncing In U.S. Citizenship: Not Knowing Your Net Worth At The Time Of Renunciation

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In the last week I have had discussions with two people who reached out to me AFTER renouncing U.S. citizenship. In both cases they went to their renunciation appointment and renounced U.S. WITHOUT understanding their net worth. Specifically, they never considered whether their net worth was above or below 2 million USD. Unless they were able to avail themselves of the “dual citizenship from birth” exemption from “covered expatriate status”, knowing their net worth on the date of renunciation was critical. In fact, this is the single biggest mistake one can make.

In both cases their net worth was well above two million USD making them:

1. Subject to the 877A Exit Tax; and

2. Subject to the Internal Revenue Code 2801 “Covered Gift” rules

In both cases they claim that they were advised that they should first renounce U.S. citizenship and then deal with the tax situation (the worst possible advice imaginable)!

In both cases the consequences were “life altering” (sorry no exagerration).

As Benjamin Franklin is reported to have said:

“Those who fail to plan, plan to fail.”

John Richardson – Follow me on X.com @ExpatriationLaw

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

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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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