This Week

I received an email from an anonymous reader.  Let's call him Max, since that's not his name.

Hi Phil,

So let's say we get an appointment on Monday, just saying.. 🙂

Renounce on November 3rd, 2014.

It will take what 4-6 months (?) for the CLN so date of CLN maybe March 3rd 2015 but date of loss of citizenship would be Nov. 3rd 2014, right? Has there ever been a case of a CLN not being issued in the case of renouncement?

So here's the stupid question – when should one send off any W-8BENs if required? Within 30 days of issuance of CLN, or 30 days from date of renouncement? Or ??

And if receiving Social Security benefits when should they be notified?

Short Answer

The renunciation date is the date that you care about.  I have never seen a situation where a Certificate of Loss of Nationality was denied.  It could happen, I guess, but I have not seen it. And the delay between the renunciation date and receiving the Certificate of Loss of Nationality usually does not create any practical problems–except possibly for travel to the United States.

Renunciation Date

The date that you swear the renunciation oath and complete Form DS-4080 is the date that your U.S. citizenship terminates as a matter of immigration law.  The Certificate of Loss of Nationality is issued by the State Department to confirm the loss of citizenship, but the Certificate is proof of an event, not the event itself.

Think of it like going to the store.  You select something to buy and you hand the clerk some money.  You get your change.  That is the event–you bought something.

Then the clerk hands you a receipt.  This proves that you paid the money and got the thing you bought.

The Certificate of Loss of Nationality is like the receipt you get from the clerk.  Uncle Sam hands you the receipt to prove you renounced your citizenship.  Unfortunately he does this months after the event.

Renounce But No Certificate?

I have seen long delays in Certificates being issued.  But I have never seen a situation where the Certificate has not been issued after someone has formally renounced citizenship.

Renunciation can be refused if one of two facts is true:  the individual

Practical Problems, Temporarily

Your status after the renunciation date but before you receive the Certificate of Loss of Nationality is "former citizen of the United States".

Until you receive the Certificate of Loss of Nationality you may experience some practical problems.  But your status as a human on the planet is unambiguous.

The practical problems are all due to U.S. law.  I have seen banking issues, U.S. tax issues, and travel issues pop up.  All of these problems disappear once the individual gets the Certificate of Loss of Nationality.

Banking

Many people are expatriating in response to letters received from their banks.  Our friend Mr. FATCA is to blame for this.  The U.S. government wants all foreign banks to flush their U.S. customers out into the open and report them to the IRS.  

If you receive a letter from your foreign bank after you renounce, you will want to report that you are not a U.S. person.  (Foreign banks have a proclivity for ejecting their U.S. customers in many countries.)  

The forms usually just ask you a simple question and you answer the question.  No proof is required.  I have seen banks threaten to close accounts of U.S. persons.  These people then quickly renounced citizenship and the banking relationship continued smoothly.

I have not seen banks demand proof of termination of U.S. citizenship.  Banks might theoretically do so, but my interactions with foreign banks have revealed a sufficiently high level of antipathy for FATCA that the bankers wouldn't urinate on Uncle Sam's shoes if his feet were on fire.

A delay in receiving the Certificate of Loss of Nationality should not cause a hiccup in banking relationships.

Travel

Travel to the United States, on the other hand, can be a problem. If you were born in the United States and renounced your U.S. citizenship, you will have a foreign passport showing a place of birth in the United States.

U.S. law requires citizens to enter the United States using their U.S. passports.  Your friendly friend at the border will look at your foreign passport, see a U.S. birthplace, and ask you questions.

Your answer, of course, is that you renounced your U.S. citizenship and are therefore eligible to enter the United States using a different passport.  And yes, you will be able to travel to the United States after you renounce your citizenship.  If you meet all of the conditions for an entry visa, you will enter the United States.

But without a Certificate of Loss of Nationality, you will be in the position of someone trying to return a purchase to a store for a refund, without a receipt.  You are trying to prove — to an immigration official in a uniform — that you are no longer a U.S. citizen. Some people have succeeded with this. The fact that you have a foreign passport that has a U.S. place of birth and a visa issued by a U.S. Embassy somewhere should be somewhat believable, right?  Embassies and Consulates routinely issue visitor visas to people who renounced citizenship there.  It happens to our clients again and again.

Nevertheless, the safer assumption is that you will not be able to return to the United States until after you have the Certificate of Loss of Nationality in hand.

IRS

The final source of potential delay for you–if you're waiting for a Certificate of Loss of Nationality–is the IRS.  You're a nonresident.  You may need to take action on some tax matters.

I don't worry about this at all.  We go ahead and file stuff with the IRS.  If the Service wants proof of status (and they never do) by the time we get a letter the Certificate of Loss of Nationality will be in hand.

The only potential hiccup here is applying for an ITIN.  We have an increasing number of people expatriating who have never received a Social Security Number.  This, of course, means that they have never filed a U.S. tax return.  Renouncing citizenship for them means that they are covered expatriates.  They fail the Certification Test.  (See Form 8854, at the bottom of page 3–the last question at the bottom of the page).

Despite this, they want to accelerate their renunciation.  They are willing to tolerate covered expatriate status and deal with the implications, just to get out of the U.S. tax system.

In order to prepare and file a final year income tax return and Form 8854, they need an identification number. They have renounced citizenship, so they are no longer eligible to get a Social Security Number.  They must get an Individual Taxpayer Identification Number (ITIN).  Form W-7 is used.

The primary impediment to getting an ITIN issued is the fact that you need to either give your original passport to the IRS (heh! good luck!) or provide a certified copy along with your Form W-7.

Getting a certified copy of your passport means going to a U.S. Embassy to get the proper rubber stamps and signatures on a piece of paper.  If you go back to the same Embassy where you renounced, this should be easy enough.  But if you go somewhere else, it may be difficult to get your foreign passport (with a U.S. birthplace) properly authenticated.

Again, this is a more theoretical than actual problem.  There is usually enough time for the Certificate of Loss of Nationality to arrive. In addition, the Embassies have tended to be helpful and cooperative in authenticating photocopies of passports.

When Do You Deliver Form W-8BEN?

The second question has to do with giving Form W-8BEN to various parties after renunciation. How soon should this be done? Let's assume that our anonymous questioner, code name Max, is not a covered expatriate.

This is a tax withholding problem. As a nonresident you are taxed at a default 30% of gross income received on passive income. The person or entity making the payment to you is required to withhold tax from the payment made to you.

If the tax withheld from your U.S. source passive income is equal to your actual tax liability, then no Form 1040NR is required. That is an incentive to get the amount of tax withholding correct. 🙂

You might live in a country that has an income tax treaty with the United States. That income tax treaty might cause the U.S. source income paid to you to be taxed at a rate lower than 30%. Dividends and pensions are the two categories of income that I see most frequently.

To get the reduced U.S. tax rate because of the treaty, you must give Form W-8BEN to the person or company making the payment.

Getting the Form W-8BEN delivered as soon as possible means that the correct tax is withheld from your U.S. source income. This is a benefit to you, so my suggestion is to deliver the Form W-8BEN as soon as you can.

For Social Security, the tax withholding will need to be adjusted. Give the Social Security Administration your Form W-8BEN and the default withholding rate will be 25.5%. Out of every $100 you will receive $74.50 and Uncle Sam will keep $25.50. Again, income tax treaties might be your friend, reducing the U.S. tax on Social Security even further.

Not Legal Advice

This isn’t legal advice to you, of course.  Would you make life-altering decisions based on a random email you got from some guy you found on the internet?  Nope.  Me neither.  Go hire someone.  March through the analysis and figure out what is best for you.