We received a question from Denise from Canada.
The question is: “I’ve heard a lot of words to describe people who were no longer U.S. citizens – “surrendered”, “relinquished”, “renounced” U.S. citizenship. What is the difference between these three terms?”
First of all, “surrendered” is not a term defined in either the Internal Revenue Code (IRC) or the Immigration and Nationality Act (INA). It is a casual term to describe people who gave up their U.S. citizenship regardless of the method used.
This term describes people who performed an “expatriating act” with the intention to relinquish U.S. citizenship. Common expatriating acts include acquiring another country’s citizenship. Or being a state worker for another country, joining the army of another country etc. You can find the list in Section 349 of the INA.
Section 349 of the INA (8 U.S.C. 1481), as amended, states that U.S. nationals are subject to loss of nationality if they perform certain specified acts voluntarily and with the intention to relinquish U.S. nationality. Briefly stated, these acts include:
1. obtaining naturalization in a foreign state upon one’s own application after the age of 18 (Sec. 349 (a) (1) INA);
2. taking an oath, affirmation or other formal declaration of allegiance to a foreign state or its political subdivisions after the age of 18 (Sec. 349 (a) (2) INA);
3. entering or serving in the armed forces of a foreign state engaged in hostilities against the United States or serving as a commissioned or non-commissioned officer in the armed forces of a foreign state (Sec. 349 (a) (3) INA);
4. accepting employment with a foreign government after the age of 18 if (a) one has the nationality of that foreign state or (b) an oath or declaration of allegiance is required in accepting the position (Sec. 349 (a) (4) INA);
5. formally renouncing U.S. nationality before a U.S. diplomatic or consular officer outside the United States (sec. 349 (a) (5) INA);
6. formally renouncing U.S. nationality within the United States (The Department of Homeland Security is responsible for implementing this section of the law) (Sec. 349 (a) (6) INA);
7. conviction for an act of treason against the Government of the United States or for attempting to force to overthrow the Government of the United States (Sec. 349 (a) (7) INA).
Above all, no formal notification needs to take place for the U.S. citizenship to be lost (for immigration purposes). One would simply perform such an act with the intention to relinquish U.S. citizenship. He/she could rightly claim to no longer be a U.S. citizen after performing that act.
What about U.S. taxes?
However, for tax purposes, it’s not an easy process as it seems. For example, if the expatriating act occurred after 2004, one would continue to be taxed as a U.S. citizen. He/she should notify the Department of State and then files form 8854 with the IRS.
Practically speaking, that notification takes the form of going to a U.S. consulate, convincing them that the expatriating act occurred and applying for a Certificate of Loss of Nationality. The fee for this procedure is $2,350.
Renunciation takes place when a U.S. citizen makes an appointment at a U.S. consulate and applies for a Certificate of Loss of Nationality. The fee for this procedure is $2,350.
Unlike the relinquishment, the loss of citizenship would occur right there and then. As soon as the U.S. citizen tells the consulate employee “I’m out of here”. Also, the U.S. citizen wouldn’t need to convince the consulate officer that an expatriating act occurred since the expatriating act would occur during the appointment at the consulate.
As for a relinquishment, one would need to file form 8854 in order to no longer be a U.S. taxpayer.
You might wonder “If it’s less cumbersome (no need to convince a consulate officer of my expatriating act) and the fee is the same, shouldn’t I just renounce?”
While the relinquishment allows stopping being a U.S. citizen at an earlier date, this could be advantageous in a few scenarios:
- The expatriating act occurred before 2004, then no further action would be needed for tax purposes
- If the taxpayer had children who were born after the expatriating act and wants to keep the children out of the U.S. tax system. If the parent was not a U.S. citizen.
Either way, you want to document your separation with the United States with a Certificate of Loss of Nationality, file form 8854 and honestly certify that you were tax compliant for the prior 5 years. You want a “clean break”.
Do you need a help with U.S. expat taxes as a U.S. Citizen living abroad? Contact Expatriate Tax Advisor Olivier Wagner.