Coincidentally, on the same day that the latest Federal Register “published expatriates” list finally came out, the Washington Post “In the Loop” blog reports that Tina Turner has finally visited the U.S. embassy in Bern to sign her DS-4079 to confirm that she naturalised as a Swiss citizen with the intention of giving up U.S. citizenship. (No doubt the latter news will overshadow the former, and I fully expect that in the coming days some newspapers will mix up the two news items and erroneously report that Tina Turner appeared in the list.)
Anyway, the news of Tina’s relinquishment comes straight from the horse’s mouth — an embassy “activity report” (but not a public one?) — and is likely to be quite accurate, but the Washington Post wrote something else that comes from an anonymous and entirely misinformed reader:
The key word in the embassy report apparently is the term “relinquishment.” That means, a knowledgeable source told us, that she did not “formally renounce her U.S. citizenship under 349(a)(5) Immigration and Nationality Act, but took Swiss citizenship with the intent to lose her U.S. citizenship.” As opposed to formal renunciation — a much more complex process, we were told — there are no “tax or other penalties for loss of citizenship in this fashion.”
Writer Al Kamen was probably anxious to get the news out, but he was right to hedge this un-fact-checked quotation with “apparently” and “we were told”. (Update, 14 November: he has since issued a correction.) A reading of the actual text of 26 USC § 877A — the portion of the Internal Revenue Code which imposes the “exit tax” on newly-minted ex-citizens — confirms that the “knowledgeable source” is incorrect: the tax consequences are the same whether you renounce citizenship, relinquish citizenship, lose citizenship by court-ordered denaturalisation like an ex-Nazi, or even give up your green card when you were never a citizen at all.
Kamen’s report confirms how Tina relinquished U.S. citizenship:
“Long-time Swiss resident Tina Turner” was in the embassy Oct. 24 to sign her “Statement of Voluntary Relinquishment of U.S. Citizenship under Section 349 (a)(1) of the INA” — the Immigration and Naturalization Act.
So we head to the “definitions” section of the exit tax statute of the Internal Revenue Code, where we find the first piece of text relevant to this situation, § 877A(g)(4):
(4) Relinquishment of citizenship
A citizen shall be treated as relinquishing his United States citizenship on the earliest 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.
Very clearly, Tina falls under (B). So she is “treated as relinquishing [her] United States citizenship” on that date. What does that mean? We go up to § 877A(g)(2), where we find:
(2) Expatriate
The term “expatriate” means—(A) any United States citizen who relinquishes his citizenship, and
(B) any long-term resident of the United States who ceases to be a lawful permanent resident of the United States (within the meaning of section 7701 (b)(6)).
Italics added by me for emphasis: Tina is an “expatriate”, not just in the normal English language sense of “living abroad” but in the tax sense of “let’s take a highly ambiguous ordinary word and redefine it for our own purposes to maximise public confusion”. But there’s more. § 877A(g)(1):
(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).
26 USC § 877(a)(2)(A), (B), and (C) are the three famous tests: do you have at least $2 million (not inflation-adjusted) in worldwide assets, did you owe at least $124,000 (inflation-adjusted) in U.S. taxes over the past five years, or are you missing any tax forms in those years. Tina is an “expatriate”, and it is safe to guess that she has enough assets so that she “meets the requirements of subparagraph (A)”. Therefore, she meets the two prongs of the test to be a “covered expatriate”. The consequences of that are found in § 877A(a)(1) et seq.:
(a) General rules
For purposes of this subtitle—
(1) Mark to market
All property of a covered expatriate shall be treated as sold on the day before the expatriation date for its fair market value.
Hence, Tina will pay capital gains tax on all her worldwide property. It does not matter that most of those capital gains are on property like the home in which she actually lives in Switzerland, and are attributable to the time she has been living outside of the U.S. for the past two decades (during which she still had to pay U.S. income taxes). Uncle Sam demands his cut, and you don’t even get an exclusion for your primary residence. But there’s even more. From § 2801(a):
(a) In general
If, during any calendar year, any United States citizen or resident receives any covered gift or bequest, there is hereby imposed a tax equal to the product of—(1) the highest rate of tax specified in the table contained in section 2001 (c) as in effect on the date of such receipt (or, if greater, the highest rate of tax specified in the table applicable under section 2502 (a) as in effect on the date), and
(2) the value of such covered gift or bequest.
Note the word “covered” here; you may suspect that it’s in the same sense as “covered expatriate” above, and you’d be right. § 2801(e):
(e) Covered gift or bequest
(1) In general
For purposes of this chapter, the term “covered gift or bequest” means—(A) any property acquired by gift directly or indirectly from an individual who, at the time of such acquisition, is a covered expatriate, and
(B) any property acquired directly or indirectly by reason of the death of an individual who, immediately before such death, was a covered expatriate.
In other words, whatever Tina gives to her children in the U.S. will be taxed at a higher rate than if she remained a U.S. citizen: the highest gift/estate tax rate without any $5 million exclusion. On top of that, she loses any Swiss tax breaks she may have enjoyed as a foreigner, if she was ever using them in the first place (it’s unlikely she would have anyway, since whatever she saved in Swiss taxes would simply mean more taxes she had to pay to the U.S.) — Swiss citizens cannot qualify for the special “lump sum” régime du forfait for foreigners who aren’t employed or doing business in the country. And she also faces the risk that demagogues like Chuck Schumer and Jack Reed will push through legislation to ban her from the U.S. for the rest of her life.
And despite all this, Tina would still rather be a citizen of the country where she lives than the country which she left behind — just like the rest of us emigrants around the world, of far more ordinary means, who have also decided to stop being U.S. citizens in order to save our mortgages and preserve our ability to live normal lives in the countries of our choosing.
Update, 14 November: After various experts including Pepperdine Law School’s Paul Caron over at TaxProf Blog (who links to us here at the Isaac Brock Society) and Michael Pfeifer of Caplin & Drysdale weighed in, Al Kamen followed up with a second post setting the record straight. Unfortunately, “a lie can get halfway around the world before the truth laces up its boots”, and some other newspapers have already repeated the error about the alleged lack of tax consequences for relinquishment, including eNews Channel Africa, the Philippines’ ABS-CBN news, and the U.S.’ Newsmax.
I think I’ve read that she took out her Swiss citizenship over 20 years ago. If she did it before Feb 1995, and she hasn’t renewed her US passport or made use of other US citizenship benefits, then she has no US tax obligations or fears (including Reed-Schumer) if her back-dated relinquishment is accepted.
At least, that’s my understanding:
http://isaacbrocksociety.ca/2011/12/16/did-you-relinquish-before-february-6-1995-then-you-did-not-have-to-inform-the-state-department/
Amazing that the “knowledgeable source” could be so lacking in knowledge.
Just a couple of observations that weren’t in Eric’s post:
First, the “significant difference” that the truly knowledgeable USED to cite was that the Reed ammendment applies to those who renounce but not those who relinquish – apparently just sloppy lawmaking. But that’s moot now, as there appears to be no chance of the Reed amendment ever being enforced. Its replacement, yet-to-be-enacted Ex-PATRIOT, contains no such oversight, and would apply equally to those who renounce or relinquish. So from this standpoint, the important distinction is ancient history.
Second, there is a real difference which is that one who relinquishes can control their expatriation date for tax purposes. This could be significant considering the long waiting time to get an appointment to relinquish or renounce. When you renounce, it’s effective the date you sign the oath of renunciation. But when you relinquish, FOR IRS PURPOSES, your expatriation date is the day you furnish the state dept. with notice that you committed an expatriating act with intent to relinquish. You can control the timing of that event by sending the state dept. a certified letter advising them of your expatriating event. Your relinquishment won’t be effective for State Dept. purposes until you appear before a consular officer and then are subsequently issued a CLN. The date on the CLN will be the day you appeared before the consular officer. But if you sent a certified letter to the state dept. a year earlier advising them of your expatriating act, you can use the earlier date as your expatriation date for purposes of IRS form 8854.
So there are indeed a few differences, but the “knowledgable source” is still clueless.
PxP
@WhatAmI: Huh. Would be interesting if true — a major, high-profile test of the value of a backdated CLN. However, the local stories I’ve seen (e.g. on Swissinfo.ch) say that her Swiss citizenship wasn’t approved until early this year. I presume that means she applied for it sometime in 2012 or so, rather than in the 1990s.
@WhatAmI, the Swiss media reports that she tried to get Swiss citizenship in the past but her request was rejected because she had to learn German first just like everyone else. So, in 2012, her German was finally good enough to become a Swiss citizen.
She didnt relinquish. She renounced. She did not qualify for relinquishment. She became swiss and then she renounced her US citizenship, just like everybody else who decided to give up their US passport.
@Polly, where do you find that she did not qualify for relinquishment? “just like everybody else who decided to give up their US passport” is not right; some people who give up U.S. citizenship these days do so by relinquishment, others by renunciation. If you haven’t exercised any privileges of U.S. citizenship between the time of your relinquishing act and the time you attend the consulate, what’s the U.S.’ basis to say that the relinquishment is invalid?
Over 500 new former U.S. persons ( 11/13/2013 )
https://www.federalregister.gov/articles/2013/11/13/2013-27072/quarterly-publication-of-individuals-who-have-chosen-to-expatriate-as-required-by-section-6039g
Last year, she had prepared press release saying that she was going to acquire Swiss citizenship in order to lose her´US citizenship. Then she got the CH citizenship, now can she have relinquished?
The on-line newspaper, Genevalunch.com, has a column on Tina Turner’s relinquishment called “Happily, the Washington Post has “comments””. An excerpt:
“Americans abroad, beware: an article about Tina Turner giving up her US citizenship has just appeared in a Washington Post blog and rarely have I seen so much mis-information in one story from a major newspaper. If you read it or read about it, please be sure to read the comments section, where a number of readers pointed out mistakes.”
http://genevalunch.com/2013/11/13/happily-washington-post-comments/
The bitterness shown by the two Senators is just a case of sour grapes.
What they should be asking themselves is if life is SOOOOO good in the US why can people take the ultimate step move abroad and later renounce?
They still live in the Leave to Beaver 1950s /1960s world where America was riding high. They are in denial that in 2013 America is an indebted nation with Asia’s economic might rising fast.
Senators please have a good look in the mirror and stop ignoring all the low income people you meet consistently on America’s streets.
Yeah America may have some cheap energy to tap into from fracking and shale, however, the big question should be is this enough to turn the tide? There’s a big debt to pay down, big infrastructure bills to pay, and a shrinking middle class that will act as a major headwind on the economy. It’s anyone’s guess.
@eric
She just became swiss. She didnt have a swiss passport before. She was not given one because the swiss said she could not speak german- so then she began to take some serious german lessons. The swiss want their citizens to be integrated into swiss society.
I am not comparing her to somebody who moved to Canada in 1965 and became canadian thinking they had forfeited their US citizenship by doing so. These people are obvious “relinquishers” from years ago and have a very valid reason for not having paid taxes to America in all those years.
Simply saying “I became swiss in order to give up my american passport” is not giving anybody a “get free” pass from the IRS. Otherwise everybody would be doing it that way if they could. Problem is, they can`t just invent the “relinquish” idea because it suits them.
@Polly, No one is inventing anything here, this is precisely what Petros did in April 2011 when he visited the US consulate: he reported a relinquishing act done in February 2011, and then went through the 2011 exit tax procedures.
http://righteousinvestor.com/2011/04/07/my-april-7-visit-to-the-us-consulate/
“Relinquishment” does not refer solely to people who thought they gave up citizenship back in the 70s by naturalising in Canada or whatever. They are a special case of relinquishment: getting a “backdated” CLN by reporting your relinquishment decades after the fact. Other than that special case, relinquishment is not a “get free pass” from the IRS and no one here has said that it is. The point of the the main post is precisely the opposite: a relinquishing act committed & reported in 2013 and an oath of renunciation sworn in 2013 are treated the exact same way by the IRS.
@eric
So whats the point really? 450$?
If your relinquishment/CLN date is after 1995, then there is no difference as far as the IRS is concerned. I don’t know if there is any advantage to having a CLN dated 1998 compared to 2013. Anybody?
@WhatAml
No way she could have gotten Swiss citizenship over 20 years ago. She moved to Switzerland in 1994.
Applying for Swiss citizenship is not at all easy or quick if you are following the ordinary naturalization procedure. If she were married to a Swiss citizen (which she isn’t as Erwin Bach is German) or if she had Swiss parentage, her application process would be simple and she wouldn’t even have to know German.
Applying via the ordinary naturalization route requires 12 years of residency at the Federal Level (to be possibly reduced soon to 10 or 8 years depending on how the new nationality law progresses through the Federal Assembly) along with meeting separate cantonal and communal residency requirements (ranging from 2 years in Cantons like Geneva and Bern to the highest of 12 years in Nidwalden). Also, additional requirements (language knowledge, integration into the local community, etc…) are required. In essence, the application process is not simple and easy and rightly so; the little red book with a white cross is perhaps the world’s most coveted passport.
I hope to get my very soon so I can visit the US Embassy in Bern to bid farewell to Uncle Sam.
@Schweiz-Amerikane
I probably had read that she’s lived there for over 20 years and confused that. Sorry.
The point that I should have focused on is that many articles and blogs seem to miss the fact that things were different before 1995 with back-dated CLNs and tax obligations.
Another point often missed is that Reed-Schumer would only apply to covered expats. Does everyone here at Brock know this?
The WAPO article gives the impression of being some sort of preemptive attempt at damage control. If so, whose image is it trying to protect?
Tina Turner in fear of being raked over the coals like the Facebook guy?
Or the Obama administration not wanting to be seen beating up an a genuine “rags to riches” icon who is adored by his base?
Food for thought anyway.
http://english.pravda.ru/opinion/columnists/14-05-2012/121102-americans_renounce_citizenship-0/
This is an old one, probably posted Before, but Pravda & the RUssian “information” system picked up on FATCA and renunciations, and used it to show why Life in the block is better. Being an old article, it also sheds a Little light on the anti-gay movements in Russia.
Robert Wood, a tax attorney and blogger at Forbes, concludes that Tina Turner’s expatriation was not tax motivated although US taxes “doesn’t exactly help”:
http://www.forbes.com/sites/robertwood/2013/11/13/tina-turner-gives-up-u-s-citizenship-big-fatca-wheel-keep-on-turnin/
For the record, “lump-sum” taxation scheme was abolished for Canton Zurich in a referendum in 2009, effective January 2010. As Eric mentions, it is unlikely that she would have benefited from it anyway since the difference between her US income tax and reduced “lump sum” Swiss income tax rate would have been taxed by the US (German):
http://www.swissinfo.ch/ger/archiv/Zuerich_schafft_Pauschalsteuer_fuer_reiche_Auslaender_ab.html?cid=7203506
Switzerland does not have low taxes so I don’t see much if any tax motivation. While Switz. provides an advantage on capital gains, most if not all cantons have a wealth tax varying between 0.5% to 1% of total wealth per year which surely adds up over the years.
I do see a substantial burden in continuing to have US tax returns prepared, FBAR reports, as well as the near-impossibility of doing any meaningful tax planning (what makes sense from the US tax point of view probably doesn’t make sense from the Swiss tax point of view, and vice versa.)
I think Robert Wood is actually starting to understand the plight of expats.
His replies to some of the comments from expats are very sympathetic, unlike many of the other mainstream columnists.
@Joe Blow: The WAPO article gives the impression of being some sort of preemptive attempt at damage control — Interesting thought. If it was some sort of coordinated PR leak and not just an overenthusiastic & misinformed fan who gave Kamen this tip, though, the “knowledgeable source” just burned a lot of his credibility with the Washington Post. Wonder who would have that level of credibility in the first place and thought it would be worth spending it to give the world the misimpression that the exit tax only hits “tax evaders who flee America” and not “nice people who just want to become citizens of other countries”.
@Polly: or avoiding a second visit, for those whose nearest U.S. consulate still requires it. Or for those who still feel emotional & patriotic towards the U.S., avoiding the need to stand in front of the flag with their right hand raised and swear it off. Or for most, just doing things the way their lawyer has done before for other clients rather than spending an extra $450 on something the lawyer is less familiar with.
@eric
There is an interview with Tina from this past summer- just after her wedding. ( Google) And in this interview she is asked by Oprah what this is about giving up her US passport? And Tina`s answer is so VAGUE. She mentions something about taking trains all over America and having “seen it all”. That is the reason? It doesnt make sense really. But I could imagine prefering “relinquishment” to “renunciation” as it does sound more loving. Besides saving 450$!
To summarize some thoughts on Relinquishment vs. Renunciation:
A. Process:
1) With Relinquishment you are informing the DOS of your decision to give up US citizenship (“fait accompli”).
2) With Renunciation you are requesting that the DOS allow you to give up US citizenship.
3) Since DOS rarely if ever denies a Renunciation request, is the difference between the two a distinction without a real difference?
B. Cost:
1) Renunciation is priced at $450 while Relinquishment is done at no charge.
C. Brady Act:
1) If you are ever in the US and really need to buy a gun legally, Relinquishment will allow you to pass the FBI NICS check while Renunciation will not.
D. How it sounds:
1) Relinquishment probably sounds better than Renunciation.
E. Possible two-visit Renunciation vs. one-visit Relinquishment:
1) A good point made by Eric although Renunciations are one-visit at some consulates.
@Innocente
I emailed the US embassy in Bern a few months ago asking about renouncing and received from them a couple of PDF’s about the procedure. If my recollection serves me correctly I’m think I read somewhere that if you relinquish you might be able to regain your citizenship later on in life if you come to regret it one day, but if you renounce you’re pretty much up sNit’s creek without a paddle.
I’ll try to find which paper it was that I read this in.