Introduction – The S. 877A(g)(b)(B) “born a dual citizen” defense to being a “covered expatriate”
The “dual citizen” exemption to the S. 877A “Exit Tax” rules is not well understood. It is also not as simple (who could have known) as it initially appears. The focus of this discussion will be on being born both a Canadian citizen and a U.S. citizen. Although the post is “Canada centric” (hey, I am a lawyer in Canada), it will help anybody hoping to benefit from this wonderful “defense”. For the benefit of those born before February 15, 1977 (the date of the second Canada Citizenship Act), I am required to explore some of the history and difficulties of the the 1947 Canada Citizenship Act. This will lead me into a discussion of the “Lost Canadians” citizenship issue – pioneered by Don Chapman.
This is the 1st of seven posts analyzing the “dual citizen exemption” to the S. 877A Exit Tax which is found in S. 877A(g)(1)(B) of the Internal Revenue Code. Please remember that the “dual citizen exemption” is available ONLY to those who meet the “five year tax compliance test”.
1. What is the S. 877A(g)(1)(B) “dual citizen exemption” and why does it encourage those “born dual citizens” to not renounce U.S. citizenship?
2. The history of Canada’s citizenship laws: Did the 1947 Canada Citizenship Act affirm citizenship or “strip” citizenship and create @LostCanadians?
3. The S. 877A “dual citizen” exemption – I was born before the first ever Canada Citizenship Act? Could I have been “born a Canadian citizen”?
4. The S. 877A “Dual Citizen” exemption: The 1947 Canada Citizenship Act – Am I still a Canadian or did I lose Canadian citizenship? (The “Sins Of The Father”)
5. The S. 877A “Dual Citizen” exemption: The 1947 Canada Citizenship Act and the requirements to be “born Canadian”
6. “The S. 877A “Dual Citizen” exemption: I was born a dual citizen! Am I still “taxed as a resident” of Canada?”
7. The S. 877A “Dual Citizen” exemption: “MUST certify tax compliance for the five years prior to relinquishment”
Here, we go, Post number 1 …
— Citizenship Lawyer (@ExpatriationLaw) February 16, 2016
U.S. Senator Ted Cruz and London Mayor Boris Johnson are “high profile” examples of people who have the “unwanted citizenship” of the countries of their birth. Each of them has found the citizenship of the country of his birth to be inconvenient.
Ted Cruz was born in 1971 in Canada. He was therefore born a Canadian citizen. He claims to have been born to a U.S. citizen mother and was therefore a U.S. citizen by birth. (Whether he qualifies as a “natural born citizen” is a different question.) As a Canadian citizen he had the right (prior to renouncing Canadian citizenship) to live in Canada. Had Mr. Cruz, moved back to Canada, he could have avoided the U.S. S. 877A Exit Tax. Incredible but true. It will be interesting to see whether Mr. Cruz regrets renouncing his Canadian citizenship. As you will see, by renouncing Canadian citizenship, Mr. Cruz surrendered his right to avoid the United States S. 877A Exit Tax.
Here is why …
The S. 877A Exit Tax rules in the Internal Revenue Code, are the most punitive in relation to U.S. citizens living outside the United States (AKA Americans abroad). To put it simply, with respect to Americans abroad, the S. 877A Exit Tax rules:
– operate to confiscate assets that are located in other nations; and
– operate to confiscate assets that were acquired by U.S. citizens after they moved from the United States.
There is not and has never been an “Exit Tax” anywhere else that operates in this way. The application of the S. 877A Exit Tax to assets located in other nations, is both an example of “American Exceptionalism” at its finest and a strong deterrent to exercising the right of expatriation granted in the “Expatriation Act of 1868“.
But, the “Exit Tax” applies ONLY to “Covered Expatriates” and “dual citizens from birth” can avoid being “Covered Expatriates” …
As has been previously discussed, the Exit Tax applies ONLY to “covered expatriates“. There are two statutory defenses to becoming a “covered expatriate”. This post is to discuss the “dual citizen from birth” defense to being treated as a “covered expatriate”. I have discovered that this defense is NOT as well known or understood as it should be.
The statute granting the “dual citizen from birth” defense to “Covered Expatriate” status reads as follows: