Month: May 2014
The IRS does not give a “Certificate of Expatriation” or similar tax document . . .
After a U.S. citizen has formally renounced (or relinquished) their U.S. citizenship, the U.S. Department of State provides a “Certificate of Loss of Nationality” (“CLN”). This form can be located here at – Certificate of Loss of Nationality of the United States, Form DS-4083 (CLN)
Also, lawful permanent residents who formally abandon their “green card” status will do so by filing an Abandonment of Lawful Permanent Resident Status Form I-407.
Those LPRs who mail the Form I-407, will never receive any type of confirmation from the government, other than their own copies of documents filed and proof of mailing it (e.g., certified mail, return receipt). If the Form I-407 is presented to the U.S. Consulate or Embassy, the individual should receive a stamped copy of the form which should be given to the former LPR by the consular officer.
However, the Internal Revenue Service (“IRS”) which has very different responsibilities as compared to the U.S. Department of State, does not issue any sort of similar document to the CLN. There is no equivalent “Tax CLN.” Indeed, many individuals feel let down or “without closure” when they learn that it is a one-way flow of information; from the individual to the IRS. The IRS does not have an obligation to even confirm receipt of the documents filed with the IRS.
This is quite disorienting for many USCs and LPRs residing overseas, where the revenue authority in their country will regularly give a confirmation of tax documents received. Sometimes, a government will provide a confirmation of the taxes owing and paid through some specific type of feedback or response.
The IRS does no such a thing; and there is no document that will come from the IRS certifying “tax expatriation” has occurred.
The legal burden is therefore generally on the taxpayer to be able to prove the filing of the tax returns and IRS Form 8854. See, How many former U.S. citizens and long-term lawful permanent residents have filed (or will file) IRS Form 8854?
Filing the returns through an overnight courier service (e.g., DHL, Federal Express, etc.) and maintaining the proof of mailing and delivery is always important. If the tax documents are filed from the U.S., they should always be sent with such proof, or via U.S. certified mail, return receipt. One recommendation/pointer, is to ask the IRS to stamp date the receipt (e.g., a copy of the cover/transmittal letter) and return it to you in a self-addressed return envelope.
All of this is quite important, particularly to get the “clock ticking” against the IRS to bring an audit, under the statute of limitations period. See, When the U.S. Tax Law has no Statute of Limitations against the IRS; i.e., for the U.S. citizen and LPR residing outside the U.S.
Collateral Affects of Renouncing U.S. Citizenship & LPR status – U.S. Driver’s License
Renouncing USC or formally abandoning your LPR can have consequences that you may not have contemplated. For instance, many States in the United States will not issue or renew a driver’s license to a non-USC who has a certain immigration status.
As an example, Delaware will not issue a driver’s license to someone who has an A-1, A-2, B-2, B-1, or WB visa holder.
Other States, such as Texas have extensive requirements, depending upon the immigration status of the former USC or LPR.
California laws restrict many non-citizens from having a driver’s license. California does accept a Canadian passport or birth certificate as a valid document and proof of eligibility. Also a valid Mexican border crossing card (aka “laser visa”) with a valid I-94 is acceptable in California. See, California DMV.
Almost every State has a different set of unique rules. See, for instance, New Hampshire, New York, Florida, Washington State, Illinois and Washington, D.C. Illinois, for instance, has a law passed in 2013 that allows a driver’s license to be issued to an “undocumented” temporary visitor.
Washington State currently has one of the most liberal set of rules for obtaining a license; including acceptance of “multiple documents issued by: Mexican government [&] Guatemalan government”
Of course, if you are living almost exclusively outside the U.S., a driver’s license from a State within the United States, will certainly not be necessary. However, some U.S. insurance companies will not provide certain insurance coverage for non-citizens without a U.S. driver’s license. Losing your U.S. driver’s license may be little more than an inconvenience.
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Surprise – You are Not a Citizen After All . . . NYT Article – After Forming Deep Roots in U.S., Man Discovers He Isn’t a Citizen
The New York Times has a fascinating article titled After Forming Deep Roots in U.S., Man Discovers He Isn’t a Citizen, May 12, 2014, by Lizette Alvarez.
The article discusses the “opposite” of someone considering expatriation; rather when a long-term resident of the U.S., who always thought he was a U.S. citizen, discovers he is not, to his dismay.
Ironically, if Mr. Mario Hernandez was never a U.S. citizen (and never a lawful permanent resident) he would be able to leave the U.S. without having adverse U.S. income tax consequences (nor his family and friends having adverse gift or inheritance tax consequences), if he can comply with the certification requirement of Section 877(a)(2)C). Never being a USC or a LPR is a blessing in disguise, when it comes to the application of the “expatriation tax” rules.
Since the resources dedicated in tax-expatriation.com focus on USCs and LPRs who reside outside the U.S., this is just a theoretical observation that surely would not be in the interest of this gentleman who has lived most of his life in the U.S. and has always considered himself a “U.S. person.”
NYT’s article –
. . . Mario Hernandez made a discovery recently that rattled him to his core: He is not an American citizen. In fact, he is not even a United States resident.
Nobody had ever told him. Not his mother or his grandparents. Not the United States Army, where he served for three years in the 1970s. Not the election supervisors in four states who tallied his votes in every major election since Jimmy Carter won the White House. Not the two state agencies where he was employed, one in Washington State and the other in Florida. And not the two federal agencies, including the Justice Department, where he spent most of his career as a prison supervisor handling notorious inmates and undergoing thorough background checks every five years. Citizenship is a requirement for the job.
The revelation came only after Mr. Hernandez and his wife, Bonita, started planning a trip to celebrate his recent retirement from the Bureau of Prisons after 22 years. The two had settled on a Caribbean cruise, which would have been Mr. Hernandez’s first time out of the country since arriving in 1965 as a Cuban refugee. On a cruise line website, he found out that a United States passport was a requirement. He did not have one and wondered whether he even had naturalization papers.
The article highlights a number of key considerations. First, how any U.S. citizen, living in any part of the world, must have a U.S. passport to enter into the U.S. See an earlier post – Coming to America. . . Accidental Americans Beware – The Law Requires a U.S. Passport!
There are a host of practical problems for people who live both in and outside of the U.S. who do not have a U.S. passport. This article highlights a very important example.
The article also demonstrates the complexity of anyone knowing with certainty, their own citizenship status and whether they are a “U.S. person” for U.S. federal income tax purposes. Imagine, the difficulties that financial institutions and companies throughout the world will have to comply with FATCA, as they attempt to identify whether their existing or new customer accounts or owners validly hold USC or LPR status. See, The Catch 22 of Opening a Bank Account in Your Own Country – for USCs and LPRs.
Incidentally, in the case of Mr. Mario Hernandez, he was a “U.S. person” for U.S. federal income tax purposes for all of the years he resided in the U.S. This is true, even if he had no legal immigration status to live in the U.S. Anyone satisfying the physical residency rules (“substantial presence test”), regardless of their legal or illegal immigration status, will be a U.S. income tax resident and subject to income tax and reporting on their worldwide income. See, “Tax Simplification: The Need for Consistent Tax Treatment of All Individuals (Citizens, Lawful Permanent Residents and Non-Citizens Regardless of Immigration Status) Residing Overseas, Including the Repeal of U.S. Citizenship Based Taxation,” by Patrick W. Martin and Professor Reuven Avi-Yonah, 2013.
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Loss of US Nationality – Renunciation versus Relinquishment?
[The following is a Guest Post from Immigration Lawyer Ms. Teodora Purcell and does not address tax issues.
A word of caution – Do not be lulled in to thinking that by “relinquishment” you have escaped the federal tax consequences of Sections 877, 877A, 2801, 7701(a)(50), et. seq. See, Why Section 7701(a)(50) is so important for those who “relinquished” citizenship years ago (without a CLN)] See also, How many former U.S. citizens and long-term lawful permanent residents have filed (or will file) IRS Form 8854?]
Loss of US Nationality – Renunciation versus Relinquishment?
If you are a US citizen or a US non-citizen national,[1] you can lose your nationality (“expatriate”) by committing certain acts specified in the immigration statute [2] voluntarily and with the intention to relinquish your nationality.[3]
Expatriation is a personal right that cannot be exercised by another, for example, a parent cannot renounce the US citizenship of a minor child. Your motivation is also not relevant, unless you later claim you gave up your US citizenship under duress or involuntary
How can you lose US nationality?
You can lose your US nationality as a result of renunciation or relinquishment and if you make such a claim, the burden is on you to show by preponderance of the evidence (i.e. more likely than not) that all requirements have been met.[4]
The most unequivocal and the formal way of losing your US nationality is by virtue of renunciation, i.e. when you formally give up your US citizenship by taking a sworn renunciation oath before a diplomatic or consular officer abroad[5].
Other expatriating acts under the immigration statute include: 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; or accepting policy level employment with a foreign government after the age of 18 (if you have the nationality of that foreign state or an oath of allegiance is required in accepting the position);; or if are convicted of treason against the US Government.[6]
The expatriating act must occur abroad (except for an oath of renunciation taken during the state of war or conviction of treason) for it to be effective.[7]
If you perform an expatriating act listed in the statute, there is a rebuttable presumption that it was voluntarily.
If you relinquish your US citizenship, you must establish not only the expatriating act, but also your intent to expatriate and complete a detailed questionnaire (Form DS-4079, Request for Determining Possible Loss of US Citizenship) [8] have an interview with a US diplomatic or consular officer abroad, and get it approved by a Department of State (DOS) official which will issue a Certificate of Loss of Nationality of the United States, Form DS-4083 (CLN)[9].
Formal renunciation of citizenship at a US Consulate is the quicker and more unequivocal way to give up your US citizenship.[10]
However, if you renounce your US citizenship, it is much more difficult to establish a lack of intent or duress if you seek reconsideration at a later time.
[1] INA § 308
[2] Immigration and Nationality Act (“INA”)
[3] INA § 349
[4] INA § 349(a)
[5] INA § 349(a)(5). Also, 7 FAM § 1210 and § 1280
[6] INA § 349 (a)
[7] INA §349(a)(6)
[8] Form DS-4079 –
[9] Form DS-4082 –
[10] INA § 349(a)(5). Also, 7 FAM § 1210 and § 1280
Teodora Purcell | Attorney at Law
FRAGOMAN
11238 El Camino Real, Suite 100, San Diego, CA 92130, USA
Direct: +1 (858) 793-1600 ext. 52424 | Fax: +1 (858) 793-1600
TPurcell@Fragomen.com
POLL: Is the U.S. “whistleblower law” to catch non-compliant taxpayers good policy?
The U.S. federal government has an “informant award” program that pays private individuals who provide information about other taxpayers. USCs and LPRs who live outside the U.S. are subject to being reported upon by private persons throughout the world.
The payment is mandatory by the government if the statutory requirements are satisfied. The IRS summary of the law can be found on their website – here – and provides –
“The IRS Whistleblower Office pays money to people who blow the whistle on persons who fail to pay the tax that they owe. If the IRS uses information provided by the whistleblower, it can award the whistleblower up to 30 percent of the additional tax, penalty and other amounts it collects.”
For more details on the whistleblower program, you can review – The 2013 GAO Report of the IRS Offshore Voluntary Disclosure Program, International Tax Journal, CCH Wolters Kluwer, January-February 2014.
What do you think? Take the poll.
How will USCs and LPRs living overseas be affected? Credit Suisse is reportedly in talks to pay well over $ 1 billion to resolve tax transgressions with the U.S. Department of Justice
UBS paid US$780M to resolve its issues with the US DOJ and IRS in 2009. It’s deferred prosecution agreement seemed harsh to many at the time. However, if recent news reports are correct, Credit Suisse will be paying well over $1 Billion to settle allegations of tax misconduct, including possible criminal indictments?
See Bloomberg, Credit Suisse Said Near U.S. Tax Deal for Over $1 Billion,
Also, Jack Townsend issued a report on his blog about the possibilities of such a settlement – Credit Suisse Reports (5/6/14; 5/7/14)
How will USCs and LPRs living overseas be affected?
This is a question of great importance to many of the millions of USCs and LPRs residing outside the U.S.
Certainly, USC and LPR individuals with accounts at Credit Suisse are bound to be directly affected.
According to the Senate report, there were some 6,000 USCs residing outside the U.S. with accounts at Credit Suisse. For further observations on this topic, see an earlier post – Key Take Aways from Senate Investigations re: Foreign Banks and “Offshore Tax Evasion”: U.S. Citizens Residing Overseas have Become a Focus of the Government.; Posted on March 4, 2014
Will an agreement with Credit Suisse regarding USC accounts, specifically including those who live outside the U.S. bring greater attention by the IRS and DOJ to the tax compliance of USCs and LPRs residing outside the U.S.?
Only time will tell, what type of USCs and LPRs are of most interest to the IRS and DOJ. Will they include large numbers of individuals living outside the U.S.? Will it go beyond USC accounts at Credit Suisse to Canadian resident account holders at Royal Bank of Canada; to British resident account holders at Barclays Bank; to Mexican resident account holders at Banamex; French resident account holders at Banpais, etc. etc. etc.?
Millions of USCs reside around the world. See, Coming to America. . . Accidental Americans Beware – The Law Requires a U.S. Passport!
Technology (with the help of FATCA) has enabled the U.S. government to now readily access information of financial accounts of USCs and LPRs residing throughout the world. See, The Catch 22 of Opening a Bank Account in Your Own Country – for USCs and LPRs (Posted on April 30, 2014)
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How is the offshore voluntary disclosure program really working? Not well for USCs and LPRs living overseas.
The authors have taken the taxpayer information that was finally made, at least partially public, via the following GAO report, to identify the amount of actual estimated taxes collected: Offshore Tax Evasion: IRS Has Collected Billions of Dollars, but May be Missing Continued Evasion (GAO-13-318): March 2013, (referred to as “GAO Report”). Table 3 provides that the total “offshore penalty” collected was $2.81 Billion and “total collected” out of a total US$4.4 Billion collected. Accordingly, the “offshore penalty” represented 64% of all sums collected under the program out of the 10,543 taxpayers analyzed.
The 2013 GAO Report of the IRS Offshore Voluntary Disclosure Program, International Tax Journal, CCH Wolters Kluwer, January-February 2014. PDF version here.
Fortunately, some revenue agents handling OVD cases in the IRS are now getting a better understanding that USCs and LPRs who live outside the U.S., are typically in a very different category than U.S. resident taxpayers who have taken steps to hide their foreign assets. Many of these individuals should be opting out of the OVD program, depending upon the facts of their case.
This report was highlighted earlier in the year in Jack Townsend’s blog as follows:
Article Analyzes Counter-Intuitive Effects of IRS Offshore Penalty Structure (2/12/14)
In a comment, a reader directed me and other readers to a recent article that is quite good, so I decided to elevate the article to a separate blog entry. The article is Patrick W.Martin & Michelle Ferreira, The 2013 GAO Report of the IRS Offshore Voluntary Disclosure Program (1/10/14). The web version is here, and the pdf is here. The authors’ bios are here and here.
As the authors note, “the GAO Report indicates [that] taxpayers with little or no criminal or civil fraud exposure were punished proportionately in higher amounts than those who participated and had true criminal tax exposure.” The authors break these categories into Bad Actors and other actors, referred to as Benign Actors. That Bad Actors would be treated better than Benign Actors is a counter-intuitive result.”
“One key question that the GAO Report raises is why would so many taxpayers enter into the Offshore Voluntary Disclosure Program if they were not at least as liable for income taxes or penalties under the law? The authors think the answer to this question can be simply answered. Neither taxpayers nor many of their tax advisers understand how tax penalties actually apply under the law, particularly because some penalties are not in the Internal Revenue Code. Instead of understanding what the requirements are under the law, taxpayers simply relied upon the IRS to inadequately explain how penalties could apply in and outside of the program. Based upon only the Frequently Asked Questions (which were published subsequent to the program’s announcement), taxpayers and their advisers had to make swift and uneducated determinations as to whether a taxpayer should participate in the Offshore Program at all and many feared all would be criminally prosecuted, as the IRS continuously led them to believe.”
This is occurring while the Senate investigations of undisclosed foreign accounts has now started to focus on USCs living overseas.
See my earlier post – Is the new government focus on U.S. citizens living outside the U.S. misguided or a glimpse at the new future? (Posted March 6, 2014)
- A large portion of the Senate committee report is dedicated to U.S. citizens who live outside the U.S. and are not compliant with U.S. tax laws. The . . . chart from the report highlights this focus as to the approximately 6,000 U.S. citizen accounts at Credit Suisse who were/do not live in the U.S:
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U.S. “Citizen” versus “National” – What is the difference? Guest Post from Immigration Lawyer Ms. Teodora Purcell
Today’s post is a description of the difference between what is a “citizen” versus a “national” for U.S. immigration law purposes. They are not the same. The post is written by immigration lawyer Teodora Purcell at the immigration law firm of Fragomen, with her contact details below.
US Citizens and US Nationals
Most people use these terms interchangeably but there is a difference. Specifically, section 101(a)(21) of the Immigration and Nationality Act (‘INA”) defines the term “national” as “a person owing permanent allegiance to a state.” Section 101(a)(22) of the INA provides that the term “national of the United States” includes all U.S. citizens as well as persons who, though not citizens of the United States, owe permanent allegiance to the United States (non-citizen nationals).
Further, section 308 of the INA confers U.S. nationality but not U.S. citizenship, on persons born in “an outlying possession of the United States” or born of a parent or parents who are non-citizen nationals who meet certain physical presence or residence requirements. The term “outlying possessions of the United States” is defined in Section 101(a)(29) of the INA as American Samoa and Swains Island. No other statutes define any other territories or any of the states as outlying possessions.
Non-citizen U.S. nationals may reside and work in the United States without restrictions, and may apply for citizenship under the same rules as lawful permanent residents (green card holders). Like resident aliens, they are not presently allowed by any U.S. state to vote in federal or state elections.
Like U.S. citizens, non-citizen U.S. nationals may transmit their non-citizen U.S. nationality to children born abroad, although the rules are somewhat different than for U.S. citizens.
Lastly, non-citizen nationals can obtain US passports that contain the following annotation: “THE BEARER IS A UNITED STATES NATIONAL AND NOT A UNITED STATES CITIZEN.”
Teodora Purcell | Attorney at Law
FRAGOMAN
11238 El Camino Real, Suite 100, San Diego, CA 92130, USA
Direct: +1 (858) 793-1600 ext. 52424 | Fax: +1 (858) 793-1600
TPurcell@Fragomen.com
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Ausbürgerung – יורד – Expatriación – – المغتربين – Expatrié – Ausgebürgerter – 外籍 – Espatri
Ausbürgerung – יורד – Expatriación – – المغتربين – Expatrié – Ausgebürgerter – 外籍 – Espatri
Each of these terms can have a significantly different meaning, depending upon each country, different histories and distinct cultural experiences. The meaning of “expatriate” in the U.S. itself has now become a loaded word, meaning different things to different people.
Only recently has the term “expatriate” conjured up tax consequences, largely due to U.S. tax law and the attention it has gotten over the last 5-6 years around the world. The term “expatriate” or “expatriation” appeared sparingly in the U.S. tax law (less than a dozen times), until modifications made in 2008, which introduced no less than 46 news uses of the term “expatriate” or “expatriation” in Section 877A.
Different countries throughout history have had their own experiences with so-called “expatriates.” I will write a series of posts that touch upon the meaning of such terms throughout different societies, including in different points of time and history.
Ausbürgerung – יורד – Expatriación – – المغتربين – Expatrié – Ausgebürgerter – 外籍 – Espatri
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