Is it Easy/Hard to Renounce?
Depending on your circumstances, it can be easy to renounce (except for the cost of USD 2350), but it can also be difficult or impossible (one example would be if you don’t have another citizenship, you can renounce, but going stateless, while it works fine for some, is generally not a comfortable or practical option).
See also: Renunciation Question thread and its sub-threads (which are listed there).
Many non-dual Canadians counter that dual American/Canadian citizens should just simply renounce and their problems will just go away. The fact is a US citizen can NOT “simply” renounce their citizenship and stop filing U.S. taxes. Firstly there is a $2350 fee. Secondly, to ‘cleanly’ renounce, the person must file/pay an “exit tax”, which could amount to 100s of 1000s of retroactive tax on income NEVER earned. The US will levy a tax on the person’s house and retirement funds (which are not taxed in Canada), as though they had been sold or liquidated at the time of the renunciation! Literally, a US citizen is boxed in. He or she cannot move on abroad, and cannot renounce – severe punishment for simply living abroad.
“The fact is a US citizen can NOT “simply” renounce their citizenship and stop filing U.S. taxes.”
It’s easy (though expensive) to renounce, thus becoming no longer a US Person; then file the expatriation form, plus the final return if needed to settle the last part-year’s tax.
(An exit tax on US-source assets may indeed be due. It’s not necessary to volunteer to pay an exit tax on residence-country assets.)
Alternatively, a USC with no US income/assets can indeed simply renounce.
Firstly there is a $2350 fee. Secondly, to ‘cleanly’ renounce, the person must file/pay an “exit tax”, which could amount to 100s of 1000s of retroactive tax on income NEVER earned”
“It’s easy (though expensive) to renounce, thus becoming no longer a US Person; then file the expatriation form, plus the final return if needed to settle the last part-year’s tax.”
Oh brother, here we go again. To renounce, one must first have another (rare exceptions exist) citizenship. That may not be easy nor even possible.
Why is this first step always ignored?
Good point. Obtaining another citizenship is usually a multi-year project. And once that is accomplished, then one must get a renunciation appointment, the availability of which are purposefully limited by the US government. (Not to mention having $2350 plus travel expenses plus time available to throw away.) So its not really all that easy to “simply renounce” as some flippantly claim.
Not flippantly at all. People need to know the available options in order to make a decision. The fact that it’s easy to renounce without paying exit taxes on residence-country assets/future income, is a good thing for those considering renunciation to know.
Can’t renounce without first having another citizenship granted. Not easy for all, may not even be possible.
Nor is the paying costs in time and money easy things for all to do. Not even remotely possible for some.
To those of us that find ourselves in any of the above situations, “flippant” is a mild way to put it. But this argument has been waged several times in the past. So, I am done with it now.
The exit tax is only payable for people who were not born dual nationals. If you were born with American and one other citizenship, then you are exempt from the exit tax. You would have to pay the fee.
Of course to exit cleanly you would also have to be up to date on your tax returns. If not, then it can be an expensive process getting up to date. It all depends on how complicated your life is. Being a director of a LLC can complicate your life. Owning PFICS can as well.
I’ll try again.
Renouncing is expensive, yes, and one needs another citizenship. And there may be a wait for an appointment, depending on location.
For those who are over the threshold for being liable for exit taxes and are worried about it, it’s worth being aware that it’s very easy to renounce. After renouncing, you can file for the final part year, if need be, and then file the expatriation form, listing only US-taxable assets that you would be able to give away.
Alternatively, you can opt not to file the expatriation form.
(Note from moderator re “I’ll try again.”: Phyllis posted this comment because there was a problem getting her 2.19 am comment online, which is now also up. This comment is similar, but it’s a bit different, so I left both of them up)
“Of course to exit cleanly you would also have to be up to date on your tax returns. If not, then it can be an expensive process getting up to date.”
If you’ve been filing, and owing US tax, then yes, you would need to finish filing.
If you haven’t been filing, and don’t have any US income/assets, there’s no need to file anything.
Just for comparative purposes, to renounce Canadian citizenship the person must fill out the appropriate form, provide certified true copies of the requested documents, and pay the $100 fee. This can all be done on line without having to travel anywhere. That is “simple”.
Renouncing US citizenship, on the other hand, is a far more complicated, expensive, and lengthy process and “simple” is not the word I’d use to describe it. The word “simple” is typically used by ignorant people who say things like “if you object to CBT, why don’t you simply renounce your US citizenship?” They obviously don’t have a clue what it takes to actually make it happen.
If the US were like Canada, I’d be happy to spend 100 bucks and have a CLN in hand, but I am unwilling to invest the time and money needed to get one using their present convoluted process. I’m a self-relinquisher and fortunately, in Canada, one doesn’t need a CLN to live a normal financial life. Others who live elsewhere aren’t so lucky.
No option suits all circumstances. Renouncing is expensive but is a very good solution for some of us; and not complicated to do.
There’s a collection of accounts of people’s renouncing experiences, somewhere on this site.
“The word “simple” is typically used by ignorant people who say things like “if you object to CBT, why don’t you simply renounce your US citizenship?” They obviously don’t have a clue what it takes to actually make it happen.”
It’s a reasonable question, if not asked in an offensive manner. Most people who aren’t US expats probably don’t realise the fee is so high. Non-expats I’ve discussed it with have been very shocked at the fee.
@Phyllis Henderson
“If you haven’t been filing, and don’t have any US income/assets, there’s no need to file anything.”
Please explain this. I am aware that technically it is not required to have 6 years of tax returns filed in order to renounce, but practically US embassies will check to make sure that you have. What would be the consequence of not filing and simply renouncing?
US embassies don’t ask renouncers about taxes. The printed information includes a statement to the effect that after renouncing you should finish up your tax obligations with the IRS; and the IRS gets a copy of the CLN, but it’s not the Embassy officials’ job to interrogate the renouncer about their tax affairs. The two things are separate.
You can renounce, and then when the next tax time rolls around you can either file one last time, and file the expatriation form; or if you have no US income / assets, and haven’t been filing, there’s no need to file anything. You’re no longer tax-resident in America.
I didn’t know about CBT and had never filed since leaving the US. When I wanted to open a new account, and the bank wanted my SS number, I found out about FATCA, and renounced.
Later I got the CLN, and the following year I filed the expatriation form. That’s all. No tax returns.
@salamander
“I am aware that technically it is not required to have 6 years of tax returns filed in order to renounce…….”
That’s correct. That 6 year number comes from Form 8854, the exit tax form. Nothing to do with the renunciation process.
“but practically US embassies will check to make sure that you have….”
That’s not correct. How could they? The IRS will not release tax information, even to the State Dept. And, of course, if you are a non-filer, there is nothing to release. In many years of keeping track of this stuff, I have never heard a single report stating a renunciant’s tax status was investigated by the State Dept. prior to or during the renunciation process. The State Dept. and the IRS are notoriously uncooperative with each other.
“What would be the consequence of not filing and simply renouncing?”
There would be no consequence. Many have done exactly that. What would be the point of a non-filer entering the system only to turn around and exit the system? The only possible exception would be if there were US based assets the IRS could use for leverage and even then it would take years for the IRS to figure it out. But in that situation the would be renunciant would wisely eliminate the hazard before they actually renounced. In spite of what the compliance condors may say, the reach of the IRS outside of the US is non-existent. All US tax and reporting obligations cease on the day the individual renounces and is no longer a US citizen. Some choose to file a Form 8854 and a final partial year tax return anyway so they can exit “cleanly” but its mostly just because it somehow makes them feel better. Others choose to skip the final filing and suffer no ill consequences. No renunciant ever hears from the IRS again.
@ Salamander,
Ditto to Phyllis’ and Maz57’s comments. Also we have an info sheet on this at http://isaacbrocksociety.ca/renunciationrelinquishment-interactions-between-department-of-state-and-the-internal-revenue-service/
“I didn’t know about CBT and had never filed since leaving the US. When I wanted to open a new account, and the bank wanted my SS number, I found out about FATCA, and renounced.
Later I got the CLN, and the following year I filed the expatriation form. That’s all. No tax returns.”
Nor did I until I renewed my passport. Looked into relinquishing/renouncing but learned that I must first have another citizenship. ALL STOP.
Simple, Easy, easypeezy, not complicated, not difficult, not expensive, not simple, not easy, complicated, difficult, expensive. None of those apply to me and those similarly situated. The only word that does describe my situation is “impossible”. I do not and no longer can meet the requirements for citizenship in the country I have lived most of my adult life, married and started a family. I do have a permanent resident visa, but can not obtain citizenship.
So no, relinquishing/renouncing is not an option for all, regardless of the level of difficulty and or expense.
“relinquishing/renouncing is not an option for all”
Indeed. As said before (http://isaacbrocksociety.ca/is-it-easyhard-to-renounce/comment-page-1/#comment-8647251), “No option suits all circumstances.”
“I didn’t know about CBT and had never filed since leaving the US. When I wanted to open a new account, and the bank wanted my SS number, I found out about FATCA, and renounced.
Later I got the CLN, and the following year I filed the expatriation form. That’s all. No tax returns.”
Nor did I until I renewed my passport. Looked into relinquishing/renouncing but learned that I must first have another citizenship. ALL STOP.
Simple, Easy, easypeezy, not complicated, not difficult, not expensive, not simple, not easy, complicated, difficult, expensive. None of those apply to me and those similarly situated. The only word that does describe my situation is “impossible”. I do not and no longer can meet the requirements for citizenship in the country I have lived most of my adult life, married and started a family. I do have a permanent resident visa, but can not obtain citizenship.
So no, relinquishing/renouncing is not an option for all, regardless of the level of difficulty and or expense.
“relinquishing/renouncing is not an option for all”
Indeed. As said before (http://isaacbrocksociety.ca/is-it-easyhard-to-renounce/comment-page-1/#comment-8647251), “No option suits all circumstances.”
Problem is, someone just learning of this or wanting to find out what all the belly aching is all about reads something along the lines of, “renouncing is simple” and they think “problem solved” and dig no deeper.
For instance, there’s the option of keeping US citizenship and not filing US tax returns
A very good option, for expats in treaty countries with little or no US-source income. The taxing rights on worldwide income belong to the residence country, not to the US (unless the treaty explicitly states otherwise in an article not subject to the saving clause).
Consequently, it’s likely that for many, there’s not enough US-taxable income to hit the filing threshold. Therefore no US tax due.
If there are no FATCA-related banking issues, this can be a very good, tried-and-true solution.
(Like other solutions, it won’t be suitable for all circumstances.)
“For instance, there’s the option of keeping US citizenship and not filing US tax returns”
Except when it comes time to renew your passport. That is exactly what I did for about 20 years until the last time I renewed my passport. It was then that I learned of CBT and FBAR and a little later FATCA come along too.
Now my banks tell me that they have been sending all the information they have on me to the IRS since June 2014.
And there is also the option of keeping US citizenship and filing US tax returns every year, reporting one’s worldwide income as US-taxable, and, by the act of reporting it as US-taxable, making it so.
Avoid double taxation by claiming foreign tax credits (not the duplicitous US-controlled Foreign Earned Income Exclusion), and pay tax to the US on any income that hasn’t been fully taxed by the residence country. And read the treaty carefully, and exclude from gross income all income that is exempt by treaty.
(Like all solutions, this one’s not suitable for all circumstances.)
Useful links seen recently on a US-UK tax forum:
https://thunfinancial.com/home/american-expat-financial-advice-research-articles/american-expat-pfic-uk-non-reporting-fund-investment-trap-article/
https://help.taxesforexpats.com/article/537-uk-isa-sipp-foreign-trusts-on-us-tax-return
I renounced in London in September last year. I’ve never filed a single US tax return, and I shan’t do so now. If I ever do hear from the IRS, I’ll let everyone know!