As of September 2026, the U.S. Department of State has reduced the U.S. citizenship renunciation fee from $2,350 to $450. Adjusted for inflation since the 2014 increase, $450 today is equivalent to approximately $320 in 2014 dollars — the lowest real-terms cost for renunciation in more than a decade.
This is what the updated government website provides regarding renunciation:
Overview
Relinquishment of U.S. citizenship by performing certain statutory expatriating acts, including taking the oath of renunciation, voluntarily and with the intent of relinquishing U.S. citizenship, is a personal right that cannot be exercised on a person’s behalf. For example, a person’s parent(s) or legal guardian may not take the oath of renunciation for that person. A Certificate of Loss of Nationality (CLN) approved by the Department of State is the final agency determination of loss of U.S. nationality.
NOTE: STEPS 1-4 below outline the process for requesting a CLN based on taking an oath of renunciation before a U.S. diplomatic or consular officer abroad under Immigration and Nationality Act (INA) Section 349(a)(5), 8 USC 1481(a)(5). For information on the parallel process to request a Certificate of Loss of Nationality (CLN) on the basis of the commission of another potentially expatriating act under INA 349(a)(1)-(4), 8 USC 1481(a)(1)-(4), please contact your location by selecting it below.
Oath of Renunciation of U.S. Nationality
Embassy, consulate, or office providing consular services process requests to take the oath of renunciation of U.S. citizenship. Minors, individuals who do not read or write English, individuals with mental health or cognitive disability or impairment and/or guardianship, and those for whom loss of U.S. nationality would result in statelessness are invited to contact your location to discuss taking the oath of renunciation.
Taking an oath to renounce U.S. nationality before a U.S. diplomatic or consular officer overseas is a serious and irrevocable act. Therefore, you should carefully consider and fully understand the consequences and ramifications of this act prior to your decision to begin the process.
Steps to Take
STEP 1: Review the legal requirements and consequences/ramifications of taking the oath of renunciation of U.S. citizenship.
Please read the information provided by the embassy, consulate, or office providing consular services and available online at the Department of State and Internal Revenue Service links below regarding the legal requirements for taking the oath of renunciation before beginning this process. Loss of U.S. nationality is irrevocable, and you should fully understand the consequences and ramifications before beginning this process.
The Court agrees. In Mann Construction, Inc. v. United States, 27 F.4th 1138 (6th Cir. 2022), the court found that Notice 2007-83 failed to comply with the APA’s notice-and-comment procedure. Similarly here, because Notice 2009-85 has not been subject to a notice-and-comment procedure, it does not comply with the APA and thus is not binding. As such, Aroeste was not required to file Form 8854 with his amended returns.]
[See, Aroeste v. United States – where IRS Form 8854 is not binding as IRS Notice 2009-85 is invalid.]
STEP 2: Email your locationto initiate the process and receive instructions. Gather and submit scanned copies of the required documents and schedule your first interview.
To schedule an initial interview, which will be conducted by telephone or in-person at the embassy, consulate, or office providing consular services, please send an email to your location. Canada, Bern, Berlin, Amsterdam, Australia (Sydney and Melbourne), Singapore, Brussels, and Paris provide electronic first interviews
Applicants should personally review all documents and prepare all forms provided by the embassy, consulate, or office providing consular services in accordance with the instructions. DO NOT SIGN ANY FORMS BEFORE YOUR FINAL INTERVIEW.
STEP 3: Schedule and attend the final interview at the embassy, consulate, or office providing consular services with all required original documents and pay the fee.
Schedule your final interview appointment according to embassy, consulate, or office providing consular services instructions. On the day of your final interview appointment, you must bring all of the original documents you previously submitted by email. You will be asked to reschedule if you do not have the required documents at the time of your final interview appointment.
Your Consular Report of Birth Abroad, and Certificate of Naturalization or Citizenship, if applicable, generally will be retained by the embassy, consulate, or office providing consular services during the remainder of the process and then returned to you. Your U.S. passport also will be retained and, if your Certificate of Loss of Nationality is approved by the Department of State, it will be canceled before it is returned to you upon your request. If you need to travel to the United States on your U.S. passport after the second interview but before the Certificate of Loss of Nationality has been approved, please so advise the embassy, consulate, or office providing consular services at the second interview.
You will meet with a consular officer for your second interview and you will be given another opportunity to review the documents that you have already filled out (but not signed) Form DS-4079, Questionnaire; Loss of United States Nationality; Attestations prior to signing them and taking the oath of renunciation.
Fee: Immediately after taking the oath of renunciation, you must pay the non-refundable current fee of US $450 for administrative processing of a request for a Certificate of Loss of Nationality. The fee is not waivable, nor is it refundable if your request for a Certificate of Loss of Nationality is denied.
Step 4: Receive the Certificate of Loss of Nationality if approved by the Department of State
The Department of State will review each request for a Certificate of Loss of Nationality to determine whether there is a legal basis to approve it. This step may take several months or more. The embassy, consulate, or office providing consular services may contact you for further information before the Department of State decides your case. The embassy, consulate, or office providing consular services will email you if and when your request has been approved. If your request is denied, the embassy, consulate, or office providing consular services will send you an email attaching a denial letter.
NOTE: STEPS 1-4 above outline the process for requesting a CLN based on taking an oath of renunciation before a U.S. diplomatic or consular officer abroad under Immigration and Nationality Act (INA) Section 349(a)(5), 8 USC 1481(a)(5). For information on the parallel process to request a Certificate of Loss of Nationality (CLN) on the basis of the commission of another potentially expatriating act under INA 349(a)(1)-(4), 8 USC 1481(a)(1)-(4), please contact your location for inquiries.
Fees (Prices in U.S. Dollars)
Non-refundable fee of $450 USD at the time of the appointment.
What the Fee Reduction Does Not Change
The $450 consular fee covers only the State Department’s administrative processing of the renunciation appointment. It has no effect on the U.S. tax consequences of renunciation, which are governed entirely by separate federal tax law.
A U.S. citizen who renounces citizenship in 2026 still faces the same IRS obligations as before the fee change. Form 8854, the Initial and Annual Expatriation Information Statement, must still be filed. The five-year tax compliance certification is still required. If the renouncing individual qualifies as a covered expatriate under the three IRS tests — net worth, average annual tax liability, and compliance certification — the Section 877A mark-to-market exit tax still applies in full.
The fee reduction makes the administrative step of renouncing less expensive. It does not reduce the tax cost.
Is the $450 Fee the Only Cost of Renouncing?
No. The consular fee is the smallest cost most people encounter. The substantive costs of renunciation depend entirely on the individual’s financial situation and filing history. For individuals who are covered expatriates, the Section 877A exit tax can represent a significant liability. For individuals with unfiled FBARs or unreported foreign accounts, FBAR penalties may apply separately.
Attorney fees for proper pre-renunciation planning, tax preparation for Form 8854, and any exit tax liability are the costs that vary significantly from person to person. The $450 appointment fee is the one cost that is the same for everyone.
When Did the Fee Change Take Effect?
The State Department updated its fee schedule in September 2026, reducing the U.S. citizenship renunciation fee from $2,350 to $450 effective immediately. The $2,350 fee had been in place since September 2014, when it was increased by more than 500 percent from the prior $450 level. In real terms, adjusted for inflation since 2014, the current $450 fee is equivalent to approximately $320 in 2014 dollars.
FBAR Penalties Explained: What Happens If You Don’t File?
Few basic U.S. tax compliance questions matter more to a U.S. citizen or green-card holder living abroad than what an unfiled FBAR can actually cost in penalties. Also, a green-card holder might not have any reporting requirements at all – given the law explained in the federal district court decisions originally appealed by the government in my 9th Circuit decision: Aroeste v. United States, Case No. 22-cv-00682-AJB-KSC.
What Are the Penalties for Not Filing an FBAR?
Failure to file an FBAR mayresult in a civil penalty if assessed by the government. The willful civil penalty is frankly more onerous than the criminal penalty that is maxed out by statute. The maximum civil penalty depends on whether the violation is determined to be non-willful or willful.
The statutory framework was initially set out by a federal district court in 2015, that also reviewed the FATCA laws, and it is worth reading the summary here:
A person who fails to file a required FBAR may be assessed a civil monetary penalty. 31 U.S.C. § 5321(a)(5)(A). The amount of the penalty is capped at $10,000 unless the failure was willful. See 5321(a)(5)(B)(i), (C). A willful failure to file increases the maximum penalty to $100,000 or half the value in the account at the time of the violation, whichever is greater. § 5321(a)(5)(C). In either case, whether to impose the penalty and the amount of the penalty are committed to the Secretary’s discretion. See § 5321(a)(5)(A) (“The Secretary of the Treasury may impose a civil money penalty[.]”)
Crawford v. U.S. Department of the Treasury (S.D. Ohio 2015 – Case No. 3:15-cv-00250)
The IRS internal revenue manual (4.26.16.4.1) summarizes how and why the IRS has purported authority to assess penalties for FBAR Title 31 violations as set forth below:
As of April 8th 2003, IRS was delegated the authority to assess and collect FBAR civil penalties. 31 C.F.R. § 103.56(g). The delegation includes the authority to investigate possible FBAR civil violations, provided in Treasury Directive No. 15-41 (Dec. 1, 1992), and the authority to assess and collect the penalties for violations of the reporting and recordkeeping requirements.
Was this delegation of authority from FinCEN to the IRS even valid as a matter of law? That questions has not been challenged yet in the courts.
When performing these FBAR functions, the IRS is not acting under Title 26 (the federal tax law) but, instead, is acting under the authority of Title 31 (the Bank Secrecy Act). Provisions of the Internal Revenue Code generally do not apply to FBARs and visa-versa. Does the IRS even have lawful authority to manage and assess these penalties – which previously were in the hands of the more obscure FinCEN.
What Is the Penalty for a Non-Willful FBAR Violation?
A non-willful FBAR violation may result in a civil penalty of up to $10,000 per violation. The Supreme Court has now held (after years of litigation) that, for non-willful violations, the penalty generally applies singularly – per report – rather than per account as the IRS argued for years. Bittner v. United States, 598 U.S. 85, 143 S. Ct. 713 (2023)
For years the government (IRS) read that $10,000 could be assessed for each account, and the Supreme Court finally resolved the question in 2023 against the government. The Ninth Circuit had ruled against the government inUnited States v. Boyd, 991 F.3d 1077 (9th Cir. 2021) and the Fifth Circuit (United States v. Bittner, 19 F.4th 734 (5th Cir. 2021)) overturned the federal district court in the eastern district of Texas in United States v. Bittner, No. 4:19-CV-415, 2020 WL 4200057 that had originally ruled in line with Boyd.
See an article I wrote on this issue along with two of my international tax colleagues at Chamberlain Hrdlicka: published as a Special Report in Tax Notes:
On February 28th, 2023, the Supreme Court of the United States (“SCOTUS”) resolved in Bittner that the applicable non-willful FBAR penalty is not measured by every foreign account of the individual as the Service had argued for years and as they put into their IRM. The author had the opportunity to draft as one of the co-authors of the ACTEC amicus brief that was filed in Bittner. After Bittner, the total maximum penalty per year is $10,000 for non-willful violations. A maximum penalty of $50,000 (x5 years) applied per the SCOTUS versus the IRS determined amount of US$2.7M+ multiplying each account by $10K.
“Best read, the BSA treats the failure to file a legally compliant report as one violation carrying a maximum penalty of $10,000, not a cascade of such penalties calculated on a per-account basis.” The ACTEC brief was cited by the majority opinion- “ We see evidence, too, that the point of these reports is to supply the government with information potentially relevant to various kinds of investigations, criminal and civil alike. But what we do not see is any indication that Congress sought to maximize penalties for every nonwillful mistake (whether a late filing, a transposed account number, or an out-of-date bank address). See Brief for American College of Trust and Estate Counsel as Amicus Curiae 5–7.”
What Is the Penalty (Civil) for a Willful FBAR Violation?
A willful FBAR violation may result in substantially higher penalties. The maximum penalty is generally based on the greater of a statutory amount or a percentage of the account balance.
The government was on its face, very “successful” in the Zwerner case in convincing a jury they should render a verdict for 3 years of FBAR 50% willfulness penalties (150% of the account balance in total). The government tried to assert 4 years of willfulness penalties, which would have been 200% of the account balance; all under a civil penalty provision in the statute, that looks like a criminal penalty on its face and via its outcome.
In Zwerner, the taxpayer did come forward and disclose the unreported foreign accounts, and received a letter from the IRS CI on February 17, 2009, stating that ” . . . based upon the information provided a criminal investigation will not be initiated at this time. . . ” Nevertheless, the government pursued 50% civil willfulness penalty assessments for multiple years (4 years). The Tax Division of the Justice Department pursued this case through trial, incurring the time and costs of government resources, arguing Mr. Zwerner owed a total of $3,630,119.29 (on an account with a maximum value during the years at issue of apparently no more than US$1.69M) in their Motion for Summary Judgement.
In Count Six, Plaintiffs contend that the FBAR “Willfulness Penalty” is unconstitutional under the Excessive Fines Clause. Plaintiffs allege the Willfulness Penalty is designed to punish and is therefore subject to the Excessive Fines Clause. Plaintiffs further allege the Willfulness Penalty is grossly disproportionate to the gravity of the offense.
Can the IRS Penalize Each Foreign Account Separately?
Not for non-willful violations as explained above. The “jury is still out” regarding to what extent multiple years of 50% willfulness penalties may be assessed. The IRS has tempered their approach a bit over the last decade – particularly as of late, after losing a number of key FBAR cases going to trial.
Is the FBAR Penalty Mandatory?
No. The statute provides that the government may assess an FBAR penalty, giving the government discretion over whether, and in what amount, a penalty is imposed.
The distinction between what the statute permits and what it requires is easily missed, and it matters a great deal for individuals who have not filed FBARs. Especially for those residing outside the United States – including those individuals with green cards.
The relevant statutory provision is that “The Secretary of the Treasury may impose a civil money penalty on any person who violates, or causes any violation of, any provision of section 5314.” 31 U.S.C. Section 5321(a)(5)(B).
How Long Does the IRS Have to Assess an FBAR Penalty? – Six Years –
The IRS generally has six years to assess a civil FBAR penalty. This limitations period differs from the rules that apply to federal income tax returns.
The two bodies of law run on different time clocks.
The FBAR (the Foreign Bank Account Report) comes from a different law than the federal income tax. The income tax is from Title 26 of the U.S. Code. The FBAR comes from the Bank Secrecy Act, which is Title 31. These two laws are very different, with very different obligations and rights. One of the important differences is the time frame in which the government can assess penalties for not complying.
A statute of limitations is the time frame in which the government has to assess penalties for not complying with the law. For foreign accounts, these time periods are not the same under Title 31 (the Bank Secrecy Act) as they are under Title 26 (the income tax law). The gap between the two is what makes this area confusing.
No. When a U.S. citizen or LPRs residing overseas fails to file an income tax return, the time period for the IRS to make tax assessments never lapses. There is effectively no statute of limitations against the IRS in that situation. The clock to assess does not start until a return is filed.
Title 31, the Bank Secrecy Act, is different. It does have a time period that runs against the U.S. federal government, even if the FBAR was never filed. For civil assessments of penalties, that time period is 6 years. This important distinction helps drive strategic decisions of foreign account holders if they have failed to file FBARs.
An FBAR penalty is generally not collected through the IRS’s ordinary tax lien and levy procedures. Instead, the government is typically required to bring a civil action to collect an unpaid penalty. They also have “off-set” rights that can be invoked against other payment amounts owed to the taxpayer. See, Bureau of the Fiscal Service and their powers through the Treasury Offset Program (TOP).
Assessing a penalty and actually collecting it are separate problems for the government, particularly where the taxpayer and the assets are outside the United States.
The collection of the FBAR penalty is not as easily collected under the law, as is a tax claim. A Title 26 tax lien and levy claim against the taxpayer’s property cannot be used to collect an FBAR penalty. Instead, the government has rights of set-off and will typically be required to bring a judicial action in Court to enforce the penalty assessment. See, an early case, United States v. Williams, 489 F. App’x 655 (4th Cir. 2012), where the government sued to collect the 50% FBAR willfulness penalty.
The laws of many countries outside the U.S. often conclude that enforcing these FBAR penalties against a U.S. citizen or LPR, inside that person’s home country, violates the laws of that country. Canada is one example. Calgary based tax attorney Roy Berg has written on the question of whether the IRS can collect FBAR penalties under the Canada-US Treaty.
The “Revenue Rule” was a common law concept that generally prohibited the U.S. government from assisting in the collection of taxes of another country. Hence, the U.S. Treasury renegotiated the treaties with five countries (including Canada) that now have a specific treaty provision such as XXVI A above:
As a result of these cases and the Revenue Rule, the U.S. and Canada modified their income tax treaty to (at least in theory) to allow for the international enforcement of taxes. The U.S. now has five income treaties with “mutual assistance” provisions: Canada, Sweden, France, Denmark, and the Netherlands (with a clause in the newly negotiated, but yet to go into force, Swiss treaty).
In the Dewees case, we learned that the assistance in collection provision is not merely a theoretical tool that can be used in collecting taxes. The IRS was successful in a long running case with FBAR penalties and Title 26 penalties for failure to file IRS forms 5471 regarding the U.S. citizens Canadian companies. He lived in Canada. See, Dewees v. United States, 272 F. Supp. 3d 96 (D.D.C. 2017), which was subsequently affirmed by the D.C. Circuit Court of Appeals (Dewees v. United States, 767 F. App’x 4 (D.C. Cir. 2019)). The actions of both the Canadian (CRA) and U.S. governments (IRS and District Court Judge), made the provision effective. The US$120,000 penalty, that has nothing to do with any U.S. income taxes owed (nor FBAR penalty), was collected by the IRS; a penalty under 26 U.S.C. § 6038(b) for failure to file informational returns – .
Can an FBAR Violation Lead to Criminal Charges?
Yes, but not every FBAR violation is a criminal matter. Criminal liability generally requires proof of willful conduct and carries a burden of proof on the government – (beyond a reasonable doubt) – and always depends on the facts of the case.
Yes. A U.S. citizen or LPR living overseas could in theory become criminally liable for willfully not filing the FBAR form. Criminal liability carries different legal consequences than a civil penalty. These are not easy cases for the government – and hence they rarely have brought criminal FBAR cases for taxpayers residing overseas. It all depends upon the facts.
IRS Criminal Investigation (division) has been delegated the authority to investigate possible criminal violations of the Bank Secrecy Act. 31 C.F.R. §103.56(c)(2). This should not be taken lightly.
Yes, there are also statutes of limitations for criminal charges the government brings for FBAR violations. The law gets much more complex here, especially when the taxpayer is residing outside the U.S. In that situation, the time period can be tolled or suspended in favor of the government, which extends the window to bring charges. Jack Townsend (an amazing, now retired criminal tax defense lawyer who has contributed extensively to the tax law practice) has written on the statutes of limitations for FBAR noncompliance related to tax reporting. Jack is co-author of Tax Crimes – John (“Jack”) Townsend with my law partner the esteemed criminal tax defense lawyer Larry Campagna along with Steve Johnson, and Scott Schumacher.
U.S. citizens residing overseas clearly have FBAR filing requirements – if they meet the thresholds. The law is quite different for those with “green cards” residing predominantly overseas in a country with an income tax treaty with the U.S. Here, it gets a lot more complicated, but see my case of Aroeste v. United States, Case No. 22-cv-00682-AJB-KSC (2023) that was appealed to the Ninth Circuit by the government after they lost.
What Can We Learn from Real FBAR Penalty Cases?
Reported cases show that the outcome of an FBAR penalty dispute depends heavily on the facts. They also demonstrate that proposed penalties may be successfully challenged in appropriate cases.
One case makes the point better than any summary of the rules could.
This case was covered extensively by various tax journalists and followed by tax professionals around the world from the time it started until it concluded. I know, because I was the lead attorney representing the then 91 year old widow from Canada, dear Mrs. Margaret Jones. The pleadings in the case can be viewed here –Margaret J. Jones v. United States (2:19-cv-04950)
In my view, this case should have never ended up before the U.S. District Court. The IRS erred in making a determination of “willful blindness” against Mrs. Jones who was legally blind at her advanced age. They conceded Mrs. Jones had no actual knowledge of the reporting requirement. She was advised for more than two decades by a CPA, both she and her late husband (an immigrant from New Zealand). They both had accounts that were decades old from their respective countries – Canada and New Zealand. Held openly and directly for the majority of their lives.
Mrs. Jones did the right thing by going to the Streamlined Filing Procedure (the streamlined filing procedure) and correcting her errors on her tax returns. She was then selected by the IRS for audit (because of that filing) where she got a tax refund of over $20,000. For that effort, time and expense, the IRS turned around and slapped her with US$3.4M of “willful blindness” penalties regarding her accounts in Canada and New Zealand, most of which were her husband’s accounts. Her late husband served in World War II while living in New Zealand before moving to the U.K. then Canada (where he met Mrs. Jones) and then on to the U.S. They both had high school diplomas.
The case was set for a jury trial (on two occasions) but Judge Selna postponed it on both occasions due to the Corona-virus. Unfortunately, Mrs. Jones never had her day in Court where I believe a jury would have found that the government did not carry its burden against Mrs. Jones and her late husband. Not even a close call. Her facts were not nefarious, unlike most of the cases where sophisticated taxpayers have been hiding their assets from the IRS, such as in Swiss bank accounts.
After the government conceded the bulk of the case and it was dismissed just before Christmas of 2020, Mrs. Jones passed away shortly afterwards. May her Soul Rest in Peace.
The DOJ drives the bus (NOT the IRS) once the case falls into their hands.
A jury trial should always be considered in the right case, a good faith taxpayer case, as jurors will generally see and understand the big picture.
By contrast, in Zwerner the penalty amount apparently sustained by the jury has been reported as “. . . $2,241,809 on an offshore account that had an apparent high balance of $1,691,054. . . “
The author has spoken on defending Title 31 FBAR penalties at the University of San Diego School of Law – International Tax Institute, alongside Caroline D. Ciraolo, former Acting Assistant Attorney General of the Justice Department’s Tax Division, and Robert S. Horwitz; and many other panels and forums advising clients on these FBAR issues. Seek advice on FBAR issues if you have a filing requirement.
Immigration Forms, I-407; I-485, Application to Register Permanent Residence or Adjust Status & Tax Forms, 1040, 1040NR, 8833, 5471, 8854, 8621, 3520, 8864, 8858 and FinCEN forms 114, etc. etc. (Part I of III)
The U.S. tax law is complex, including when an individual (i) becomes and (ii) ceases to be, a U.S. income tax resident (USITR). USITR is not a technical term used under the tax law. The U.S. tax and information reporting requirements are very different depending the status of an individual. Anyone who is not a United States citizen, is either a –
“Resident alien“, or a
“Nonresident alien” as the tax law defines both of these categories.
You can’t be both.
“Resident aliens” are generally also “United States persons” (both technical terms in the federal tax law).
“Non-resident aliens” as defined are necessarily not “United States persons.”
Being one versus the other has huge U.S. tax and reporting consequences.
An individual who is a “lawful permanent resident” as referenced in the tax law (Section 7701(b)(6)) cross-references the U.S. immigration law. The first requirement of that statutory tax rule in § 7701(b)(6)(A)) is that “(A) such individual has the status of having been lawfully accorded the privilege of residing permanently in the United States as an immigrant in accordance with the immigration laws [such status not having changed]. . .[emphasis added]” This means the tax definition is dependent upon the immigration laws, which are found in Title 8, Immigration and Nationality Act. Importantly, the last part of that sentence (i.e., [such status not having changed] is a requirement in the immigration law (Title 8), but does not appear in the tax definition.
The term “lawful permanent resident” cannot be found in Title 8 as a noun or object (i.e., the individual). Instead, the immigration law defines the status of a person in 8 U.S. Code § 1101(a) as follows:- “. . . (20) The term “lawfully admitted for permanent residence” means the status of having been lawfully accorded the privilege of residing permanently in the United States as an immigrant in accordance with the immigration laws, such status not having changed.“
This analysis is fundamental to be able to determine whether an individual who holds a “green card” in their pocket even has the status of being “lawfully admitted for permanent residence. . . such status not having changed.” It’s a fundamental legal question under immigration law that must be answered first, to then be able to answer the tax question.
Each form an individual files or does not file (e.g., IRS tax form 1040 v. 1040NR; 8833, 5471, 8854, 8621, 3520, 8864, 8858 and FinCEN forms 114; and immigration forms, e.g., I-485, I-407, etc.) can have a potential impact on the tax residency status of an individual.
The immigration law and when forms, such as Form I-485, Application to Register Permanent Residence or Adjust Status are submitted to the U.S. federal government can have an impact on this determination. The government can use it against the individual as they did unsuccessfully in Aroeste (see below – Pages 9 and 11 of 17); asserting that Mr. Aroeste waived the treaty by not submitting certain forms.
The tax residency analysis for those who have kept their “green card” in their pocket, can be even more complex as was analyzed by the Court. There are additional provisions of the law that must be considered including old Treasury Regulations that pre-date many provisions of various U.S. income tax treaties.
For instance, each of the following federal tax statutory rules, which will be considered in more detail in later posts (II and III):
Additional posts will review the impact of these provisions in the law and how various immigration forms (including I-485 and I-407, Record of Abandonment of Lawful Permanent Resident Status) and tax forms (including 1040 v. 1040NR; 8833, 5471, 8854, 8621, 3520, 8864, 8858) and FinCEN form 114, can impact the determination of whether someone who has a “green card” in their pocket is or is not a United States person.
The author has extensively discussed the appropriate IRS Form for individuals to sign under penalties of perjury when dealing with their banks and third parties, irrespective of the banks’ location. The choice between IRS Forms W-8 and W-9 hinges on the U.S. income tax residency status of the individual. Forms W-8 and W-9 serve the purpose of conveying the tax residency status of the individual to third parties. The correct (or incorrect form) can have a range of different tax and legal consequences to the individual. A non-resident is generally not subject to income taxation in the United States, except for on limited types of income. In contrast, a resident (for federal income tax purposes) is subject to taxation on their worldwide income. If an income tax resident of the United States falsely certifies their status using Form W-8, severe adverse legal consequences can follow. See e.g., W-8s for U.S. Citizens Abroad: Filing False Information with Non-U.S. Banks (2016)
IRS Forms W-8 or W-9 (or Other)?
For U.S. citizens, the process is straightforward—they must sign IRS Form W-9. However, for individuals without U.S. citizenship, the situation becomes more intricate. The following posts delve into critical legal considerations surrounding IRS Form W-8BEN.
These comments provide in-depth insights into the legal consequences of filing and signing specific IRS forms (or their equivalents produced by financial institutions: W-8 vs. W-9). Notably, UBS’s explanation titled “UBS One Source Understanding tax forms—non U.S. taxpayers” sheds light on the efforts foreign financial institutions need to dedicate to assist clients who are not “United States persons” for federal tax purposes, ensuring compliance with U.S. federal tax laws.
Green Card Holders Living Abroad Have Further Analysis to Consider
The complexity heightens for “Green Card” holders living abroad, especially those residing in countries covered by an income tax treaty with the United States. See, Aroeste v. United States, Case No. 22-cv-00682-AJB-KSC. Aroeste v United States – Order Nov 2023, emphasizes a 5-step analysis for Green Card holders who have not formally abandoned their status. The ultimate test is whether the individual is entitled to be treated as a resident of a foreign country under a tax treaty.
Aroeste v. United States: Decision’s Impact on LPR Individuals
The decision could potentially affect millions of Green Card holders living outside the U.S. Aroeste Court’s 5-step analysis becomes crucial for the 3+ million LPRs residing abroad, determining whether they qualify as “United States persons” under the law.
LPR Individuals Living in 66 Different Countries Could Be Impacted by Aroeste vs. U.S.
The United States has a total of 58 income tax treaties that covers around 66 countries. The 1973 U.S. – U.S.S.R. income tax treaty applies to Armenia, Azerbaijan, Belarus, Georgia, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, and Uzbekistan. Some have been cancelled.
Importance of Figuring Out your Residency Status if you Never Formally Abandoned your Green Card and Live in an Income Tax Treaty Country.
The impact of the Aroeste v United States decision presents a dual scenario for individuals who have not formally abandoned their “lawful permanent residency” status. On the positive side, there is an opportunity to inform the Internal Revenue Service (IRS) of their non-resident status by utilizing the applicable income tax treaty. There are specific steps to take as explained by the Court in Aroeste vs. United States. This action can relieve them of U.S. federal income tax filing obligations and Foreign Bank Account Report (FBAR) filing requirements, helping to steer clear of potential penalties and taxes that might otherwise be owed. The Court in Aroeste concluded such late filings could subject the individual ” . . . to penalties pursuant to I.R.C. § 6712(a) equal to $1,000 per failure to timely report his Treaty position. . . “
Potential Downside for “LPRs” Living in an Income Tax Treaty Country.
However, on the flip side, this termination of U.S. income tax residency status may lead to the individual “cease[ing] to be a lawful permanent resident of the United States (within the meaning of section 7701(b)(6)).” Such a shift can trigger adverse U.S. tax consequences, affecting not only the individual but also extending to children, spouses, family members, and friends who could receive “covered gifts” or “covered bequests.” This classification may result in the individual being deemed a “covered expatriate” under the expatriation tax law, as outlined in IRC 877A(g)(3). See, IRC 877A(g)(3). Potentially severe adverse tax consequences can follow from this edge of the sword. The Court in Aroeste vs. United States did not address these adverse tax consequences as they were not at issue.
This Blog is intended to provide general information about tax expatriation legal concepts under U.S. law to help readers better understand often very complex issues within the U.S. international tax field for citizens and lawful permanent residents. General legal information is not the same as legal advice, that is, the concrete application of law to a specific case with unique and particular facts.
Legal advice also should include strategic planning and advice to a particular case. A legal adviser should be able to assist an individual in taking important decisions and steps, related to the specific goals of the individual, while understanding the legal and tax consequences of each step. There are a range of consequences that the “U.S. tax expatriation” laws impose upon different types of transactions, transfers, reorganization of assets, etc. None of these items are discussed in this Blog.
Although the author has taken great care to make sure that the information contained herein is accurate and useful, it is necessary that you consult an experienced attorney to address any particular situation. Most importantly, if you are contemplating renouncing (or proving relinquishment) of U.S. citizenship or formally abandoning your LPR status, you must get legal advice. This is a very important decision with a range of complex legal consequences.
FATCA Driven (Even More . . . ) – New IRS Forms W-8BEN versus W-8BEN-E versus W-9 (etc. etc.) for USCs and LPRs Overseas – It’s All About Information and More Information (Part III)
U.S. citizens residing outside the U.S. along with lawful permanent residents (“LPRs”) are not the only persons who need to understand the IRS forms referenced above. Indeed, all entities and institutions, whether they are small privately held companies or large and traditional financial institutions are required to complete and have signed a range of IRS forms.
The forms can be either the actual IRS form, or a satisfactory substitute form. Many individuals are of the erroneous view that if they are not financial institutions, they do not need to concern themselves with these classifications.
Unfortunately, that is not the case. Also, these classification rules apply to the surprise of many, if there are (or are not) U.S. persons involved.
In addition to a basic understanding of U.S. laws, it is also crucial that the parties see if their country has entered into an IGA. For instance, if we examine the tiny little country of Liechtenstein which has a relatively large financial sector, it is necessary to first classify the type of entity.
For instance, if it is a Liechtenstein Stiftung, it will probably (but not necessary) be a trust and not a corporation. See the IRS Memorandum from 2009 that provides that a Liechtenstein Stiftung will be classified as a trust, if its primary purpose is to protect or conserve the property transferred to the Stiftung for the Stiftung’s beneficiaries and is usually not established primarily for actively carrying on business activities.[1]
Hence, the terms of the IGA are most important. Under the IGA, as is the case generally for FATCA, the entity has to be either an Foreign Financial Institution (“FFI” or “FI”) or a Non-Financial Foreign Entity (“NFFE”).
1) Definition of Financial Institution (“FI”)
A financial institution is any entity that:
Accepts deposits in the ordinary course of a banking or similar business (“Depository Institution”);[1]
Holds, as a substantial portion of its business financial assets for the benefit of one or more other persons (“Custodial Institution”);[2]
Is an investment entity; or
Is an specified insurance company or holding company that is a member of an expanded group;[3]
Generally a private Liechtenstein Stiftung would not satisfy any of these requirements (although it could conceivably be the case that one could be an “investment entity”). Hence, it would generally be an NFFE and not an FI.
NFFEs can be passive or active. The kind of compliance obligations varies depending on the type of NFFE (passive or active).
Passive NFFEs
A passive NFFE is an NFFE which is not an active NFFE or a withholding foreign partnership or withholding foreign trust.[1]
There are several criteria under which a NFFE can be classified as an active NFFE. The following explain the most relevant criteria.
Active NFFEs
Among the criteria that the IGA establishes, under which a NFFE can be considered as an Active NFFE, are the following:
1) If less than 50% of the NFFE’s gross income is passive income and less than 50% of the assets held by the NFFE are assets that produce or are held for the production of passive income during the preceding calendar year. A
2) Substantially all of the activities of the NFFE consist of holding (in whole or in part) the outstanding stock of, or providing financing and businesses other than the business of a Financial Institution.
Sometimes trusts or Stiftungs will also participate in or hold interests in companies, some of which may engage in active trades or businesses or simply hold passive investments. On the contrary, the companies/subsidiaries only hold other assets from which they derived passive income (e.g., dividends, interests, rents, royalties, etc.).[2]
This will determine if a Stiftung will be classified as a Passive NFFE or not under FATCA regulations and the IGA.
[1] It also can make a difference if the trust (or Stiftung in this example) is a so-called “withholding” foreign trust; which generally requires an agreement with the IRS.
Not surprisingly, the above analysis is complex, because the rules are complex. Accordingly, it has been the author’s experience, that many institutions around the world which request one or more of the above IRS Forms have great difficulty in even implementing these rules. Most of their employees seem to have little understanding of what is a very complex area of law, even when their resident country has issued extensive regulations or guidance about how the terms of the IGA are to be implemented.
consulate, or office providing consular services will email you if and when your request has been approved. If your request is denied, the embassy, consulate, or office providing consular services will send you an email attaching a denial letter.
