A renunciation report and explanation of what happened
Hi, it’s Phil Hodgen—here’s a sampling of what you’ll find in our Friday Edition newsletter. We cover expatriation, trusts, and a whole ton more. This week is about renunciation of US Citizenship.
Success Story
This episode is a report from one of my correspondents about her successful expatriation. Here is her email:Mission accomplished! I uploaded 6 F*BARs Monday night, FEDEXed 5 years worth of amended tax returns on Wednesday morning (with a date and time stamp and a photo) and went to the Embassy on Wednesday afternoon. The process was a bit surreal – two different people asked me the same questions. I was asked if I wanted to ‘swear’ or ‘affirm’, but they could not tell me the difference so I said I’d affirm as it was a nicer word than ‘swear’. They asked if I wanted to make a written statement – I said no. They took my money. After I read the oath I was given a letter addressed to me to confirm that I’d taken the oath of renunciation but would remain a citizen until I received the CLN. I asked the Consul what I might want the letter for – he said I may need it to show my bank (so clearly they are aware of the situation long-term expats are being put in with their banks). All in all, I was in and out in half an hour.I then met up with my son and daughter-in-law to celebrate! It felt really good to have all gotten the paperwork out of the way before going to the Embassy, so thanks for encouraging me to do it that way. One last question for you – is there any reason I have to wait for the CLN to arrive (which they said could take up to 6 months) before I file my final return, form 8854 and 2015 FBAR – or could I just go ahead and get these out of the way in January? Thanks again for your blog and newsletter – without them I would have found all of this so much more difficult than it has been.
The Certification Test
Go find Form 8854 and look at Part IV, Section A, Line 6. It is on page 3, at the bottom. Here is the question:Do you certify under penalties of perjury that you have complied with all of your tax obligations for the 5 preceding tax years (see instructions)?You either check the “yes” box or the “no” box. Let’s talk about two things this person did prior to her renunciation, in order to make sure she could check the “yes” box.
Pre-Expatriation Tax Filings: FBARs
Note that she cleaned up six years of FinCen 114 (“FBAR” is what most people call this paperwork) filings immediately prior to expatriation. The expatriation process does not require this, though common prudence suggests that it is a good idea. Failing the certification test makes you a covered expatriate. The certification test requires you to be up to date with all of your tax obligations under Title 26 of the United States Code. (We mortals call this the Internal Revenue Code.) IRC §877(a)(2)(C). The Form Formerly Known as FBAR (“FFKF” heh) is a filing requirement driven by requirements in Title 31 of the United States Code. Therefore, my correspondent could have answered the question for the certification test with a truthful “yes” even if she had not cleaned up her FBAR filings. Common prudence says “file this form anyway”. There is a legal requirement to file the form, and a variety of severe penalties if you screw this up. Your Most Important Objective is to exit the United States cleanly and completely, with no residual open loops. Cleaning up FBAR filings is a good idea. The particular strategy will be selected carefully. I did not advise my correspondent on the strategy she chose, but it is frequently the best way to go.Pre-Expatriation Tax Filings: Amended Tax Returns
My correspondent also fixed the previous five years of tax returns (i.e., 2010 – 2014) and filed them before her expatriation date. She did this because she (presumably) discovered errors in the tax returns she had filed before. The Instructions for Form 8854 do not say exactly when you must be all up to date with your tax obligations (paperwork and payment) in order to pass the certification test. The two choices are:- As of your renunciation date; or
- As of the date you sign and file Form 8854.
Remain a Citizen?
The next point is interesting to me. The Consul told my correspondent that she will still be a U.S. citizen until she receives a Certificate of Loss of Nationality (“CLN”). From a tax law point of view, this (at best) highlights a way in which the law is broken. At worst, the Consul, shall we say, mis-spoke. From an immigration law point of view . . . really? For expatriation tax purposes, the Internal Revenue Code defines your expatriation date as the date that you “relinquish United States citizenship.” IRC §877A(g)(3)(A). In order to figure out the date that you “relinquish United States citizenship”, the Internal Revenue Code gives you a method for picking a date, based on the earliest occurence of a few different events:A citizen shall be treated as relinquishing his United States citizenship on the earliest of—IRC §877A(g)(4). From a tax point of view, my correspondent will fit into IRC §877A(g)(4)(A) and (C). Her expatriation date (remember, this matters for tax purposes only) will be the earlier of:(A) the date the individual renounces his United States nationality before a diplomatic or consular officer of the United States pursuant to paragraph (5) of section 349(a) of the Immigration and Nationality Act (8 U.S.C. 1481(a)(5)), (B) the date the individual furnishes to the United States Department of State a signed statement of voluntary relinquishment of United States nationality confirming the performance of an act of expatriation specified in paragraph (1), (2), (3), or (4) of section 349(a) of the Immigration and Nationality Act (8 U.S.C. 1481(a)(1)–(4)),(C) the date the United States Department of State issues to the individual a certificate of loss of nationality, or (D) the date a court of the United States cancels a naturalized citizen’s certificate of naturalization.Subparagraph (A) or (B) shall not apply to any individual unless the renunciation or voluntary relinquishment is subsequently approved by the issuance to the individual of a certificate of loss of nationality by the United States Department of State.
- the date on which she went to the Consulate and renounced her citizenship. IRC §877A(g)(4)(A).
- the date on which she receives her Certificate of Loss of Nationality. IRC §877A(g)(4)(C).
Subparagraph (A) or (B) shall not apply to any individual unless the renunciation or voluntary relinquishment is subsequently approved by the issuance to the individual of a certificate of loss of nationality by the United States Department of State.In other words, the sale is not final until the cashier has given you the receipt. This is dumb. I have had email correspondence with many, many people whose Certificates of Loss of Nationality have been delayed for months. This creates tax return filing problems. What if you renounce citizenship in late November, 2015 (as my correspondent did) but for some reason out of your control the State Department does not issue your Certificate of Loss of Nationality for 15 months — in early 2017? You are supposed to file your Form 8854 in a timely fashion for the year in which your expatriation date occurs. That should be a late November, 2015 date, which means that you file Form 8854 for the 2015 year sometime in 2016. But if you do not get your Certificate of Loss of Nationality until 2017, you cannot use IRC §877A(g)(4)(A) to claim a late November, 2015 expatriation date when you are supposed to file your 2015 Form 8854 sometime in 2016. And when you receive your Certificate of Loss of Nationality in early 2017, IRC §877A(g)(4)(A) and the flush language at the end says that your expatriation date is that moment in late November, 2015 when you renounced your citizenship. But of course now, in 2017, it is too late to file a timely 2015 Form 8854. Does this make you a covered expatriate? Notice 2009-85 seems to say so. In short, the system is broken. Hope and pray that the State Department processes your Certificate of Loss of Nationality promptly.
‘Therefore, my correspondent could have answered the question for the certification test with a truthful “yes” even if she had not cleaned up her FBAR filings.’
That is absolutely true. US Tax Court explicitly refused to take jurisdiction over an FBAR question because FBAR is Title 31 not 26.
‘Common prudence says “file this form anyway”. There is a legal requirement to file the form’
I agree, where “legal” means statutory and case law but not constitutional. Jack Townsend reported a number of cases where US circuit courts uniformly overturned the Fifth Amendment, but to the best of my understanding, the victims in all of those cases only sought to protect themselves from US law. Where a victim needs protection from other countries that the US contracts to share information, US courts have evaded the question, as far as I can tell.
‘The Consul told my correspondent that she will still be a U.S. citizen until she receives a Certificate of Loss of Nationality (“CLN”). […] From an immigration law point of view . . . really?’
Tax law is broken as you pointed out, but the consul might be right about immigration law. When I had to go to Tax Court in between renunciation and CLN, a US immigration officer stamped my Canadian passport and wrote “NC” with no expiry date (vs. going to Tax Court again after CLN, when a US immigration officer stamped my Canadian passport and wrote “B2” with an expiry date). However, I’ve read that some US embassies return uncancelled US passports for use until the CLN arrives.
‘It is impossible to receive a Certificate of Loss of Nationality before renouncing her U.S. citizenship.’
I wonder about that. I asked some questions through your site’s contact form and hope that you might find them interesting. For example can a US non-citizen national, resident of American Samoa, renounce US NATIONALITY without first acquiring US citizenship?
As far as I can tell, US non-citizen nationals, resident of the Philippines, did lose their US nationality without their consent, by act of Congress — but they didn’t receive CLNs. In order to obtain exemption from FBAR, do they need CLNs?
‘In other words, the sale is not final until the cashier has given you the receipt.’
That’s an unfortunate metaphor in this situation. The cashier did give a receipt when the fee was paid. The CLN is pending.
I think you could have explained something to your correspondent:
“I was asked if I wanted to ‘swear’ or ‘affirm’, but they could not tell me the difference so I said I’d affirm as it was a nicer word than ‘swear’[…] After I read the oath I was given a letter addressed to me to confirm that I’d taken the oath”
Since she chose ‘affirm’, she read the affirmation and was given a letter that should confirm that she’d taken the affirmation, not oath.
An oath means that the swearer asks God to punish them if they make a mistake. An affirmation means that the affirmer asks courts to punish them if they make a mistake.
I was misled by wording at the bottom of Form 1040, “under penalty of perjury”, so I used to write honest declarations. For example when a US company issued a falsified W-2 or when I knew an estimate of Canadian income tax was an estimate because the payer refused to supply information to separate Canadian taxable income from Canadian non-taxable income (where both were taxable by the US but only the Canadian part taxable by Canada), I did not commit perjury. But after the IRS informed me that I have to sign the jurat without modification, I did commit perjury on every US return after being informed. 26 USC section 7206 punishes willing perjury but not unwilling perjury. I paid penalties for telling the truth before being informed but was not penalized for perjury after that.
Tax Court agreed with the IRS. The judge explained that IRS employees are poorly trained so honest declarations confuse them, and that’s why the jurat has to be signed without alteration.
Had the preprinted jurat asked for punishment from God instead punishment from courts, I guess I’d have been penalized a few more times for returns filed after being informed that honesty was illegal.
‘Therefore, my correspondent could have answered the question for the certification test with a truthful “yes” even if she had not cleaned up her FBAR filings.’
That is absolutely true. US Tax Court explicitly refused to take jurisdiction over an FBAR question because FBAR is Title 31 not 26.
‘Common prudence says “file this form anyway”. There is a legal requirement to file the form’
I agree, where “legal” means statutory and case law but not constitutional. Jack Townsend reported a number of cases where US circuit courts uniformly overturned the Fifth Amendment, but to the best of my understanding, the victims in all of those cases only sought to protect themselves from US law. Where a victim needs protection from other countries that the US contracts to share information, US courts have evaded the question, as far as I can tell.
‘The Consul told my correspondent that she will still be a U.S. citizen until she receives a Certificate of Loss of Nationality (“CLN”). […] From an immigration law point of view . . . really?’
Tax law is broken as you pointed out, but the consul might be right about immigration law. When I had to go to Tax Court in between renunciation and CLN, a US immigration officer stamped my Canadian passport and wrote “NC” with no expiry date (vs. going to Tax Court again after CLN, when a US immigration officer stamped my Canadian passport and wrote “B2” with an expiry date). However, I’ve read that some US embassies return uncancelled US passports for use until the CLN arrives.
‘It is impossible to receive a Certificate of Loss of Nationality before renouncing her U.S. citizenship.’
I wonder about that. I asked some questions through your site’s contact form and hope that you might find them interesting. For example can a US non-citizen national, resident of American Samoa, renounce US NATIONALITY without first acquiring US citizenship?
As far as I can tell, US non-citizen nationals, resident of the Philippines, did lose their US nationality without their consent, by act of Congress — but they didn’t receive CLNs. In order to obtain exemption from FBAR, do they need CLNs?
‘In other words, the sale is not final until the cashier has given you the receipt.’
That’s an unfortunate metaphor in this situation. The cashier did give a receipt when the fee was paid. The CLN is pending.
I think you could have explained something to your correspondent:
“I was asked if I wanted to ‘swear’ or ‘affirm’, but they could not tell me the difference so I said I’d affirm as it was a nicer word than ‘swear’[…] After I read the oath I was given a letter addressed to me to confirm that I’d taken the oath”
Since she chose ‘affirm’, she read the affirmation and was given a letter that should confirm that she’d taken the affirmation, not oath.
An oath means that the swearer asks God to punish them if they make a mistake. An affirmation means that the affirmer asks courts to punish them if they make a mistake.
I was misled by wording at the bottom of Form 1040, “under penalty of perjury”, so I used to write honest declarations. For example when a US company issued a falsified W-2 or when I knew an estimate of Canadian income tax was an estimate because the payer refused to supply information to separate Canadian taxable income from Canadian non-taxable income (where both were taxable by the US but only the Canadian part taxable by Canada), I did not commit perjury. But after the IRS informed me that I have to sign the jurat without modification, I did commit perjury on every US return after being informed. 26 USC section 7206 punishes willing perjury but not unwilling perjury. I paid penalties for telling the truth before being informed but was not penalized for perjury after that.
Tax Court agreed with the IRS. The judge explained that IRS employees are poorly trained so honest declarations confuse them, and that’s why the jurat has to be signed without alteration.
Had the preprinted jurat asked for punishment from God instead punishment from courts, I guess I’d have been penalized a few more times for returns filed after being informed that honesty was illegal.