UPDATE: Michael J. Miller made a further comment based on a conversation with an IRS employee knowledgeable about expatriation (emphasis mine):
As a follow-up to my prior posts, I spoke today with someone at the IRS who is knowledgeable in the “expatriation” area to discuss the issue of someone who renounced prior to enactment of the American Jobs Creation Act in 2004 but never obtained a CLN. While the advice I received was not a formal expression of the IRS’s position on this subject, both she and the colleague that she consulted were of the view that it would be crazy for the IRS to treat such an individual as subject to the expatriation rules. I hope that those of you for whom this is a huge issue will take some measure of comfort from this update.
In an earlier post, Michael J. Miller made the following comment (my link to IRC 877A):
For those who properly ceased to be US citizens (e.g., by naturalizing in Canada with the requisite intention to no longer be US citizens) prior to enactment of the American Jobs Creation Act of 2004, the expatriation rules should not apply (notwithstanding the very poor manner in which section 877A of the Internal Revenue Code is drafted).
2004 is when the idea was first introduced that a person who had otherwise relinquished US citizenship could nevertheless continue to be treated as a US citizen for tax purposes until some “notice event” (my own, inarticulate term) took place. This new rule was set forth in former Code section 7701(n) and it is 100% clear that it was purely prospective in application. Thus, for example, as of 12/31/07 it was perfectly clear that a person who properly relinquished US citizenship in the 1970s, 1980s, 1990s, for example, was (quite properly) “grandfathered” and not affected by section 7701(n) in any way.
In 2008, section 7701(n) was removed and the rule providing for a person relinquishing citizenship to continue to be treated as a US citizen for tax purposes, until some “notice event” occurred, was incorporated into then-new section 877A. While section 877A is worded very poorly in terms of its effective date, I (and other specialists in the area) find it inconceivable that the provision was intended to take people who relinquished US citizenship many years prior to 2004, and who were quite intentionally grandfathered by 7701(n), and convert them many years after the fact into US citizens once again.
Even for the US, that would be outlandish (and this is said fully in the context of the many other notable events of the last several years). I note in particular that, if such an outlandish thing truly had been intended, there would have been some discussion of it in the legislative history — and yet there is none. If your CLN says 1776 (or even 2003) on it, rest easy. You’re not a citizen.
I did a Google search of 7701(n) and found the following information on an IRS webpage, agreeing (I think) exactly with Michael’s point (emphasis mine):
Expatriation after June 3, 2004 and before June 16, 2008
The American Jobs Creation Act (AJCA) of 2004 amends IRC section 877, which provides for an alternative tax regime for certain, expatriated individuals. Amended IRC 877 eliminates the tax avoidance criteria for imposition of the expatriation tax on certain types of income for 10 years following expatriation, and creates objective criteria to impose the tax on individuals with an average income tax liability for the 5 prior years of $127,000 for tax year 2005 ($131,000 for 2006; $136,000 for 2007; $139,000 for 2008) or a net worth of $2,000,000 on the date of expatriation. In addition, it requires individuals to certify to the IRS that they have satisfied all federal tax requirements for the 5 years prior to expatriation and requires annual information reporting for each taxable year during which an individual is subject to the rules of IRC 877.
Further, expatriated individuals will be subject to U.S. tax on their worldwide income for any of the 10 years following expatriation in which they are present in the U.S. for more than 30 days, or 60 days in the case of individuals working in the U.S. for an unrelated employer.
Finally, even if they do not meet the monetary thresholds for imposition of the IRC 877 expatriation tax, the new law (per IRC 7701(n)) provides that individuals will continue to be treated as U.S. citizens or long-term residents for U.S. tax purposes until they have notified the Secretary of the Department of State or of Homeland Security of expatriation or termination of residency. The implementation date of this provision is retroactive and applies to expatriations occurring after June 3, 2004. The expatriation is not effective until the notification and tax satisfaction certifications are filed with the IRS and the Department of State or of Homeland Security.
However, the devil is in the details. The following requirements remain in place:
Expatriation on or before June 3, 2004
The expatriation tax provisions (prior to the AJCA amendments) apply to U.S. citizens who have renounced their citizenship and long-term residents who have ended their US residency for tax purposes, if one of the principal purposes of the action is the avoidance of U.S. taxes. You are presumed to have tax avoidance as a principle purpose if:
Your average annual net income tax for the last 5 tax years ending before the date of the action is more than $124,000, or Your net worth on the date of the action is $622,000 or more.If you meet either of the tests shown above, you may be eligible to request a ruling from the IRS that you did not expatriate to avoid U.S. taxes. You must request this ruling within one year from the date of expatriation. For information that must be included in your ruling request, see Section IV of Notice 97-19. If you receive this ruling, the expatriation tax provisions do not apply.
The expatriation tax applies to the 10-year period following the date of the expatriation action. Individuals that renounced their US citizenship and long-term residents that terminated their US residency for tax purposes on or before June 3, 2004 must file an initial Form 8854, Initial and Annual Expatriation Information Statement. For more detailed information refer to Expatriation Tax in Publication 519, U.S. Tax Guide for Aliens.
To make this all the more clearer, Publication 519 states:
Expatriation Before June 4, 2004
If you expatriated before June 4, 2004, the expatriation rules apply if one of the principal purposes of the action is the avoidance of U.S. taxes. Unless you received a ruling from the IRS that you did not expatriate to avoid U.S. taxes, you are presumed to have tax avoidance as a principal purpose if:
- Your average annual net income tax for the last 5 tax years ending before the date of your action to relinquish your citizenship or terminate your residency was more than $100,000, or
- Your net worth on the date of your action was $500,000 or more.
The amounts above are adjusted for inflation if your expatriation action is after 1997 (see Table 4-1).
Reporting requirements. If you lost your U.S. citizenship, you should have filed Form 8854 with a consular office or a federal court at the time of loss of citizenship. If you ended your long-term residency, you should have filed Form 8854 with the Internal Revenue Service when you filed your dual-status tax return for the year your residency ended. Your U.S. residency is considered to have ended when you ceased to be a lawful permanent resident or you began to be treated as a resident of another country under a tax treaty and do not waive treaty benefits.
Penalties. If you failed to file Form 8854, you may have to pay a penalty equal to the greater of 5% of the expatriation tax or $1,000. The penalty will be assessed for each year of the 10-year period beginning on the date of expatriation during which your failure to file continues. The penalty will not be imposed if you can show that the failure is due to reasonable cause and not willful neglect.Expatriation tax. The expatriation tax applies to the 10-year period following the date of expatriation or termination of residency. It is figured in the same way as for those expatriating after June 3, 2004, and before June 17, 2008. See How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008) in the next section.
This seems to clear up whether all people who expatriated before June 3, 2004, had to file Form 8854: the current version of the form is only for people who expatriate after that date. Before that date, the so-called Reed Amendment was in effect but it was not applied systematically, and I would think that the IRS is not going to focus its ire on those who have an expatriation date on their CLN of earlier than 3 June 2004, but on those whose expatriation date is after June 16, 2008. As Miller says, those who expatriated before 3 June, 2004 (i.e., the expatriation date on the CLN) are properly grandfathered and don’t have to do a “notice event” (i.e., informing the Consulate of their expatriation). The provisions for making such people pay taxes or barring them from the United States (i.e., the Reed Amendment) were ineffective and that is why the law changed drastically in 2004. I open this to further discussion, because I myself am not an expert but am only trying to understand the requirements properly.
This post was original posted on June 15, 2012
@Michael
Bless you, Michael. Isaac Brock Society is lucky that you found us. Having ‘relinquished’ as long ago as 1972 but with no formal CLN, you have eased my mind greatly. I know there are many others on this site who also really appreciate your input.
Thanks again!
Belated thanks to Michael J. Miller for stepping up with multiple well qualified responses to the Form 8854 question. While this unofficial confirmation of pre-2004 immunity, so to speak, may result in a surge of relief, it seems very unlikely that the IRS will ever provide official clarification on this situation. No advantage to them. So, nothing but de facto abeyance, which feels a lot like (1) early decades of FBAR (2) previous relative unconcern for tax filing by extraterritorials (3) nonenforcement of REED amendment. The core issues are intention at the time, preponderance of evidence, whatever the current regime happens to become, and ability and willingness to litigate.
Persons without a CLN remain indeterminate on a go-forward basis. Their mystical historical “intention” to depart has been muddied by US court decisions, so that the door must be left open to their return, absent any formal notice from a person who has engaged in a potentially expatriating action. It seems clear that preponderance-of-evidence criteria tilt entirely toward the determination by US authorities that citizenship has been retained. What this could mean after yet more legislation and rules, which Phil Hodgen foresees, who can guess? Just look at the Saverin reaction.
The nub of the situation seems to be this. An unconfirmed pre-2004 “intention” to lose US citizenship forever leaves the door wide open to asserting a right to US citizenship. This is one circumstance that is beyond the control of US authorities, and they must absolutely hate that. As presently defined, the situation seems to leave a huge loophole that could persist for decades more, given individual lifespans.
Without CLN, there can be no certainty.
@usxcanada
I think the greatest uncertainty lies with those who expatriated between 1986 and 2004. Pre 1986 Amendment to the INA, seems fairly clear about the assumption of intent. And in fact, there is at least one Supreme Court decision refusing to ‘give back’ US citizenship – Richards vs Secretary of State.
I may be the only one at the IBS to think this way, but I think that “intent to relinquish” is all that is required relinquish. The Expatriation Act of 1868 gives us all the “right” to relinquish, and has no rules on how to do it. The current INA and DOS policy on expatriating acts look at them as a sort of rule book as to how one relinquishes. This is not why the expatriating acts are there at all, they were put there so citizenship could be striped from someone, the word voluntary is used now because of the courts. I do not think this small set of actions was ever intended to be the only possible path to relinquishment. A sworn statement to the DOS that you intended to relinquish for any reason under the sun and a date should be sufficient.
@ True North, In a free society, INS 349 would not limit the number of ways that a person could expatriate. Certainly, a written declaration sent directly to the Secretary of the State should suffice. Schubert has mentioned that after being a Canadian he sent a letter to Kissinger saying that he resigned his US citizenship and the CLN came to him a few weeks later. The Expatriation Act of 1868 merely affirms the right of expatriation that established the United States as a country, the Declaration of Independence. Anyone should therefore be able to severe their ties to the United States by writing such a declaration and sending it to the State Department. This is an unalienable right, not given by the laws of the United States, but by our Creator.
So what does it mean, if the rules of relinquishment that the State Department follows are actually so odious and onerous to the people who relinquish? That the country which establishes them is not a FREE country, but rather an oppressive regime, which like King George, would rather fight a war than to let a few colonists exercise their God-given rights (they literally fought a bloody war to keep the South from declaring independence)–or Pharaoh, who chased the Israelites into desert trying to force them back to Goshen into their Egyptian slavery.
Perhaps, once, a Brocker should just simply write, with certified copies of documents to prove their identity, and send it along with their passport straight to Hillary or her successor, and see if that doesn’t result in State sending a CLN, as was the case for Schubert. Try that instead of paying the $450 to the Consulate. You would do the Thirteen Colonies proud. This is a legal streamline process of renunciation which should work since it is the person exercising their rights, and we know that it has worked at least once in the past.
Pingback: The Isaac Brock Society - Did you relinquish before February 6, 1995? Then you did not have to inform the State Department
It occurs to me that I should include one quick “lawyer qualification” of my posts above. I do not have any particularly informed view as to when or whether one would (or would not) be considered to have ceased being a US citizen at any point in time for “normal,” non-tax purposes. So, whether an individual who, for example, naturalizes as a citizen of another country would or would not be considered to have had the intention to no longer be a US citizen, or how that would be proven, or what the applicable test may be for a proper renunciation at any point in time … all of these things are well outside my realm.
But if (and I emphasize “IF”) one is considered under the applicable rules (whatever they are) to have ceased being a US citizen for “normal,” non-tax purposes before the magic date in 2004, then it should follow that that individual should at the same time have ceased being a US citizen for tax purposes. I just wanted to make sure no one thought I was saying anything about anything other than the applicable tax rule. Sorry for wasting 30 seconds of everyone’s day.
P.S. To those who said thanks … you’re welcome!
@ Michael: Thanks for looking after the tax end of things. We have several cases of people who have gone into a Consulate and claimed that they expatriated before 2004. In case they can argue that they’ve done nothing that would indicate that they wished to keep citizenship, the State Department has been willing to bestow a back-dated CLN– to the date they became, e.g., a Canadian citizen. These folks nevertheless experience angst with regard to the IRS, because one might think that they have to follow the same exit procedures as someone who expatriates in 2012. But clearly, even the IRS people you talked to didn’t believe that to make any sense.
@Petros, I think we have all been asked if we would like to make a statement. I did not, my thinking was I would give them only what information was necessary. If someone thinks they may have an earlier claim to relinquishment than on the predefined list, why not put that in the statement. Maybe just maybe DOS will see it your way. For example put in your statement that you came to Canada when you were two days old when you came home from a US hospital, say you have been nothing but 100% since then. Try to get that CLN at the earliest possible date.
I also like the idea of writing to Clinton, if I am not satisfied with the date on my CLN, I may write directly to Clinton and ask that my case be reexamined. Perhaps all of us with limited ties to the US should do so. Maybe a million letters from Canada directly to Clinton might wake her up.
@Michael: The news keeps getting better and better. Thank you again.
We understand you are not able to advise about border crossings and other issues that might need a CLN.
Here’s what we know about two other issues:
FATCA: IF FATCA proceeds as planned in Canada (I remain skeptical considering Canadian law), draft regs allow a non-US passport or other proof of non-US citizenship to be presented to bank, along with a “reasonable explanation” of renunciation of loss of US citizenship. I think many of us simply say we renounced when we became Canadian citizens. That, of course, will be after I threaten them with legal action if they ever ask.
US ENTRY: We have had some reports of problems entering US on a Canadian or other passport with US place of birth. We have had, however, had more reports of no problems entering either by land or air.
I was told in 2004 by a NEXUS Officer I am still a US citizen. She and I had a discussion which concluded with her telling me I should always enter as a US citizen. She said if I did that, I would not be required to say how long I was staying, where I was going or the purpose of my trip. (I think she was truly trying to be helpful).
Fortunately, I didn’t fall into that trap after I learned that if I enter as a US citizen and I get into any difficulty in the US, I can be denied access to Canadian consular officials. If I had gotten a US passport or a US NEXUS card, I would be in the same nightmare now that Calgary is in.
Between 2004 and 2011, I crossed two or three times a year with my Canadian passport or NEXUS card with no problem. In September, 2011, the border guard politely told me I “should” get a US passport. I smiled, nodded and went on my way.
I was expecting possible problems the next time I crossed. Instead, the border guard looked at my Canadian passport with US place of birth, looked at the computer (I was thinking “Here it comes”), asked me where I live and where I was going and waved me on. Not even questions about purpose of trip, how long staying or goods to declare.
So, I think the only thing we know for certain is that nothing at the border is certain or consistent. I will continue to cross on my Canadian passport until they deny me the right to enter. I will not get a US passport.
After my elderly mother’s death, I will be like Joe Smith and others. I will–as Petros recommends–“get my ass and my assets out of the US.” My assets are already out and my ass is out most of the time. That’s a loss for the US economy, but not for me.
@blaze Multiple times entering the US they want to know where I’m staying, what the purpose of my trip was, etc., even when I wasn’t traveling with my wife. Fact is, they treated me as a non-citizen because of my place of residence, Canada, even before I lost my citizenship.
I didn’t realize that if I was traveling on a US passport that I didn’t have to answer those questions. It never occurred to me. And if I didn’t have to answer them as a citizen of the United States, why did the border guards ask them?
Things are sorting themselves out thanks to all of you.
FATCA: as @Blaze states: “I am a Canadian citizen.” If things get out of control: ” I renounced my US citizenship when I received my Canadian citizenship.”
Crossing border: Do not. If and when my brother becomes deathly ill and wishes to see me, I cross and hope for the best.
Personally: Stay under radar, do not renounce or relinguish at a Consulate. As the Consulate said over the phone to me many years ago: “If you intended to not remain a US citizen when you became a Canadian, then you are not a US citizen.”
THE END
Clearly, citizenship is a state of mind.
@Petros: I was surprised at that, too. The Immigration Officer at Nexus explained as a US citizen, you have the right to return at any time, stay as long as you want and go wherever you want, no questions asked.
I don’t think, however, I would want to challenge a border guard who was asking me those questions. Easier to answer.
On one trip, about eight years ago (before passports were required), I was traveling with someone who was a draft dodger. I thought we might have problems related to that. We didn’t.
The border guard asked our citizenship. I replied Canadian. He replied “I’m a dual Canadian and American citizen.” I thought “Oh, Oh.” The border guard snapped “There’s no such thing” and waved us across. I can’t figure it out. Maybe that’s their intent.
@Joe and Others: I know many people are thinking they may need a CLN to cross with a US place of birth on passport. To expand on Schubert’s metaphor about the sleeping bear, I think waving a CLN in front of a belligerent border guard would be like kicking the sleeping Mama Bear to alert her to the fact you’re stealing her cub.
From: 26 USC § 877A – Tax responsibilities of expatriation
“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”
From DOS website: U.S. law does not mention dual nationality or require a person to choose one citizenship or another.
Time for the Department of State to update it’s website, at least one US law does mention dual nationality. Dual nationality does indeed exist in US law, the border guard is wrong.
@All I’ve been offline for the past couple of days coping with this stinking heat here in Ottawa, also visiting with US friends who dropped by (more on that below).
Three things I want to respond to:
1. Petros mentions above that I got my CLN entirely by mail, no appearances before a consular officer and for the record (he didn’t mention this) no fee of any sort. I must point out that was in 1976, and the times they have indeed a’changed. You can NOT get a CLN today by writing to the State Department as far as I know. I know of a couple of people who tried to do that in recent months, and they all got polite letters back from State telling them sorry you can’t get a CLN this way, you MUST appear before a US consular officer at a consulate or embassy. Don’t waste your time trying the mail-only route; unless they change policy, you’ll only delay your CLN process by however many weeks it takes State to write back to you with the form letter saying sorry, do not pass go … It won’t work (a lawyer had advised my friends to try this, so the lawyer was wrong too).
2. Our visiting US friends told us that they’ve heard that, no matter who wins the US election in November, Hillary Clinton will NOT remain as Secretary of State. Their information is that she’s burned out, has aged dramatically in the past four years, and doesn’t want to continue. Our friends, who are liberal democrats (yes there still are some, if only as an endangered species) and are themselves upset with Obama on a number of issues, say that if anyone up here thinks their citizenship and taxation issues will improve under a GOP administration, they’re dreaming in Technicolor. I agree with them on that. All this is to say, that while State Department consular officials are (generally) polite, relatively helpful and relatively sympathetic in many if not all consulates and embassies, there is no guarantee that situation will persist past November. It might suddenly get worse, and I think it’s unlikely to get friendlier. I don’t want to stoke anyone’s paranoia, but I thought I should pass this on for your considation as you contemplate whether/when/if to apply for a CLN, renunciation or relinquishment.
3. Finally, I would like to add my thanks to Michael Miller for his report of his conversation with the lower-level IRS staff who said they think it would be crazy for IRS to treat decades-ago relinquishers as subject to Form 8854 and exit tax regulations. As he subsequently stressed, bear in mind his report is NOT legal advice, and that what he heard from those IRS people is NOT an official IRS policy statement. We won’t know for (relative) certainty how IRS is going to treat such cases until the CLNs have come through and some months have elapsed, enough time for IRS to do whatever it is or isn’t going to do. And again, how that will play out after November, under a Romney administration or for that matter under an Obama administration which at that point will effectively be “lame duck” in that Obama can’t get re-elected more than once and hence doesn’t have to worry about another election, remains to be seen. But for now, this is some comfort. At least for now, even the IRS does seem still to have a few remaining employees in possession of brains and souls.
This may not be the appropriate place to post this information, so please feel free to move it if necessary. I am the mother of two children which would be considered to be accidental Americans, but since I do not believe that American citizenship is an asset, I have never reported their births to the American embassies in the countries where they were born. They continue to travel on their foreign passports (one child has a French passport, the other a Swedish passport) when we go to the US to visit family, about once every three years. I was very nervous about taking them there this July, but absolutely do not want them to have American passports, and took the risk as usual. We entered the US first by air in Boston and then about a week later re-entered by car from Canada (Queenston-Lewiston Bridge). In both cases, the customs officer did not react to or ask questions about their foreign passports. I thought this might be helpful information for parents in similar situations who are contemplating travel to the US.
Pingback: The Isaac Brock Society - Renunciation and Relinquishment: What are the differences? Is there a difference?
*Dear All,
I don’t know if anyone is still following this thread, but for what it’s worth I discussed the issue earlier today with someone else at the IRS. She too told me, purporting only to describe her personal view and not any official policy, that she did not believe a person who ceased to be a US citizen many years ago (prior to 2004) should be subject to the expatriation rules.
Thanks, Michael, for keeping us apprised.
*Michael J. Miller, thank you very much for that report. It is reassuring, but it would ease the minds of many of us old U.S. expatriates a lot more if the IRS would acknowledge that officially. Do you suppose that is possible? Do they care at all about the uncertainty they have left for those of us who expatriated before 2004, while terrorizing us with threats of large penalties? Could they possibly care about the increasing ill will that we feel toward the U.S. as the uncertainty continues?
*Dear AnonAnon,
No promises, but I am trying to reach out to the right people in the IRS to see if they would consider issuing favorable guidance on this issue to put people’s minds at ease.
*Thank you, Michael.
Thank you very much, Michael. I think we are all happy to see there are still some homelander Americans with some sympathy, compassion and decency in these matters.
I’ve thought from day one that the pre-2004 limitation was, or should be, pretty hard to argue with, given, among other things, that the top of form 8854 makes it quite clear (by having a separate question about when you notified State) that the “expatriation date” categories (none of which is earlier than 2004) are not the same as the subsequent question asking for the date you told State, otherwise why have two separate questions on the form? If there’s no box for someone whom State has certified “ceased to be a US citizen” or expatriated before 2004, then clearly (to me and I think to any reasonable interpretation of the form) form 8854 does not apply to that person and there is no need to complete it or file it. That certainly is the way I (expatriated by Canadian naturalization in the 1970s and was issued a CLN a year later in that same decade) interpret the form and also the way my wife (expatriated by Canadian naturalization in the 1970s and was issued a CLN in 2012) is going to interpret the form. Both CLNs date our expatriations from the dates we became Canadian citizens.
I would hope the IRS sees it that way, but if they don’t, they still aren’t getting that form or any of the other filing requirements from us. None of that is enforceable on Canadian soil against a Canadian citizen if they became a citizen before 2004, and we’re quite prepared never to cross the US border again, if push comes to shove.
Thanks for relaying this information, Michael! And, boy, would an official statement from IRS be appreciated!
We were all living peaceful, law-abiding, normal lives for decades and then, bam, it’s like we suddenly got invaded by a foreign country, causing us great ongoing anxiety. I am very serious when I say that sometimes you feel like you’re living in an occupied country although your next door neighbours aren’t.
I completely agree, Schubert. It’s not enforceable. And in fact, I haven’t happened to visit the US in four years — and now I sure don’t expect to visit the US for a long time as I’ve been so turned off by this whole thing I just want to put that country on the back burner and let time do some healing.So, I’d have no problem with never crossing the border again.
Nevertheless, I would find an official statement from IRS very salutary if for no other reason than it ties up loose ends. I really like tying up loose ends and having everything in order. That’s kind of ironic now, for if anyone had even told me about CLNs I would taken care of that 34 years ago.