Introduction – The S. 877A(g)(b)(B) “born a dual citizen” defense to being a “covered expatriate”
2023 Update: Introduction and summary
“Covered expatriates” are (1) subject to the 877A Exit tax and (2) subject to the 2501 “Covered Gift” problem. U.S. citizenship taxation makes the 877A Exit tax particularly brutal for Americans abroad – possibly resulting in the confiscation of their non-US pensions. But, “citizenship” is also used to create an exemption to “covered expatriate” status for those who meet the dual citizenship requirements found in Internal Revenue Code 877A.
Former U.K. Prime Minister Boris Johnson was a dual American/British citizen from birth. His renunciation of U.S. citizenship is a public record. I suspect that he was able to avoid “covered expatriate” status by using the dual citizenship from birth exemption.
Let’s start with the text of Internal Revenue Code 877A
(g) Definitions and special rules relating to expatriation For purposes of this section—
(1) Covered expatriate
(A) In general
The term “covered expatriate” means an expatriate who meets the requirements of subparagraph (A), (B), or (C) of section 877(a)(2).
(B) Exceptions An individual shall not be treated as meeting the requirements of subparagraph (A) or (B) of section 877(a)(2) if—
(i) the individual—
(I) became at birth a citizen of the United States and a citizen of another country and, as of the expatriation date, continues to be a citizen of, and is taxed as a resident of, such other country, and
(II) has been a resident of the United States (as defined in section 7701(b)(1)(A)(ii)) for not more than 10 taxable years during the 15-taxable year period ending with the taxable year during which the expatriation date occurs,
Think about it:
U.S. citizenship taxation means that the circumstances of one’s birth determine the outcome of one’s life (as long as one remains a U.S. citizen).
Citizenship-based non-taxation and the new “caste” system of American citizenship
The dual citizen exemption to the Exit Tax is a form of citizenship-based “non-taxation”. The dual citizenship exemption to the Exit Tax has created a “preferred class” of U.S. citizens which is in effect a modern day “caste” system of citizenship.
The “Gift” of dual citizenship from birth
Multiple citizenships are generally a benefit. Because of U.S. citizenship taxation, those U.S. citizens who are “dual citizens” from birth have a “preferred” kind of U.S. citizenship. They are always able to avoid “covered expatriate status” and the associated difficulties.
Four possible ways of acquiring “dual citizenship” at birth (and there may be more):
1. Citizenship of parent: A child may be born a dual citizen by being born in the United States to a parent who is a citizen of another country. For example, a child born in the US to a Canadian citizen parent would be a dual citizen from birth.
2. Ancestry: This is based on the family lineage. Commonly associated with Ireland and Italy. The issue here is whether the citizenship is automatic at birth or is dependent on a later registration. There is a difference between automatic citizenship at birth and the right to a citizenship.
3. Child born abroad to U.S. parent(s): For example, some U.S. citizens see the value of having their children born in Mexico (a country that confers citizenship at birth).
4. Surrogacy: This is a new and interesting topic.
Note that these four ways can overlap.