Is there a legal difference between “relinquishing” and “renouncing” U.S. citizenship for tax purposes?
For U.S. federal tax purposes, “relinquish” and “renounce” are in effect interchangeable. Many people assume the two words carry an important legal distinction. For federal tax purposes, they generally do not. This question was first taken up in an earlier post dated June 21, 2014. The expatriation tax statute, IRC Sections 877 and 877A (the U.S. tax rules that apply when a person gives up U.S. citizenship), uses both terms in the same breath. What drives the tax result is not which word applies but the “expatriation date.”
What date actually matters under the U.S. expatriation tax rules?
The key time reference is the “expatriation date.” Under IRC Sections 877 and 877A (the U.S. expatriation tax rules), this date is defined in Section 877A(g)(3). It focuses on specific dates tied to meetings or events with the U.S. Department of State. Because the tax outcome turns on this date, the choice between the words “relinquish” and “renounce” does not, by itself, change it.
Why don’t the words “relinquish” and “renounce” change the tax outcome?
Both words point to the same thing under the tax law. The expatriation tax statute, IRC Sections 877 and 877A, uses “renounce” and “relinquish” in the same breath. The result instead depends on the “expatriation date” defined in Section 877A(g)(3), which is tied to specific meetings or events with the U.S. Department of State. So the terminology a person uses does not, on its own, change the federal tax treatment.
Consult an experienced attorney about how these rules apply to a specific situation.
How much does it cost to renounce U.S. citizenship?
The fee to process a Renunciation of U.S. Citizenship rose to US$2,350, up from US$450. That is an increase of more than 500%. The U.S. Department of State announced the change, and it applies to the consular service of accepting and adjudicating a renunciation.
Why did the State Department raise the renunciation fee so much?
The Department said the new fee reflects the true cost of providing the service. Documenting a renunciation is described as extremely costly, because U.S. consular officers overseas spend substantial time to accept, process, and adjudicate each case. The fee had previously been subsidized, and the Department said it seeks to recover the cost of consular services through the fees it collects. It reviews these costs regularly and adjusts fees to match the cost of service.
When did the higher renunciation fee take effect?
The new fee took effect on September 12, 2014. The Department announced the change from Mexico City on August 28, 2014, as part of a broader adjustment to processing fees for several consular services.
How long can it take to get an appointment to renounce?
At some consulate offices around the world, appointments for renunciations were reportedly not available until the year 2015. A person seeking to renounce may face a long wait, because demand for these appointments can exceed what a given consulate can schedule in the near term.
What other consular fees changed at the same time?
Most nonimmigrant visa processing fees stayed the same, but several other fees moved alongside the renunciation fee:
The fee for E visas (treaty-traders and treaty-investors) decreased.
The fee for K visas (for fiancé(e)s of U.S. citizens) increased.
The fee for Border Crossing Cards for Mexican citizen minor applicants under age 15 increased by $1.
For immigrant visas, the fee for family-sponsored immigrant visas increased, as did the fee for domestic review of an Affidavit of Support.
All other immigrant and special visa processing fees that changed decreased.
Where were the new fees published, and could the public comment?
The proposed fees were published in the Federal Register and took effect 15 days later. The change was issued as an interim final rule, viewable at http://www.regulations.gov. Comments were accepted until 60 days after publication, and the Department said it would consider the public comments and address them in the published final rule. Fee information may also be found on the Bureau of Consular Affairs website, travel.state.gov, and on the websites of U.S. embassies and consulates.
Why You Need to Plan Before Renouncing US Citizenship
Giving up U.S. citizenship or a green card can trigger an immediate income tax bill, and the IRS may be able to collect it indefinitely, no matter where you live. The rules can also reach your friends and family. This post explains why tax planning generally comes before the paperwork, who the expatriation rules can affect, what the U.S. Department of State forms are, and how hard the tax may be to collect once you live abroad. Consulting an experienced attorney before taking any of these steps is essential.
Why does tax planning usually come before giving up U.S. citizenship or a green card?
U.S. international tax law is complex. Without planning, people can create very adverse tax consequences for themselves and for their friends and family, often without understanding the full implications of the law. This is especially true for tax expatriation, which is when a U.S. citizen (USC) renounces citizenship or a long-term lawful permanent resident (LPR), meaning a green card holder, abandons that status. Several features of the law make planning ahead important.
What is the general income tax rule when someone expatriates?
The general rule is that an immediate income tax is payable under the “mark to market” taxation rules on unrealized gains. Mark to market means that unrealized gains, the increase in value of assets that have not actually been sold, are treated as if the assets were sold and are taxed right away. This can produce an income tax bill at the time of expatriation, even though nothing has actually been sold.
Can the IRS collect the expatriation tax from someone living outside the United States?
Yes. Once a tax is recognized under U.S. tax law, the only way to discharge the liability with the U.S. federal government is to pay the tax owing. The IRS generally can collect an income tax owing against a taxpayer who lives outside the U.S. indefinitely. The normal 10 year collection statute does not apply while the individual is outside the United States for a continuous period of at least six months, under IRC Section 6503(c). In effect, the IRS can “forever” pursue collection of the expatriation tax against U.S. citizens and lawful permanent residents living outside the U.S.
Can someone become a covered expatriate even with no assets?
Yes. It is easy to fall into the general rule of expatriation, even for a taxpayer who would not otherwise be subject to income taxation. A person who falls into these rules is called a “covered expatriate.” Because covered expatriate status can attach even to someone with no assets, it is sometimes described as a “Forever Taint.”
Can your friends and family be taxed because of your expatriation?
Yes. The friends and family of a covered expatriate, meaning a former U.S. citizen or long-term lawful permanent resident who fell into these rules, can be subject to U.S. taxation during their lifetimes, even if they also live outside the United States. This consequence comes from Section 2801, sometimes called the “Hidden Tax” of expatriation and another part of its “Forever Taint.”
What forms are filed to renounce U.S. citizenship?
Renouncing U.S. citizenship involves going to the U.S. Department of State and taking the oath of renunciation. Two forms are completed and filed at that time:
Form DS-4080, Oath of Renunciation of the Nationality of the United States.
Form DS-4081, Statement of Understanding Concerning the Consequences and Ramifications of Relinquishment or Renunciation of U.S. Citizenship.
The reason planning generally comes first is that these are the steps that formally complete the renunciation, after the tax consequences are already in motion.
If you live abroad with no U.S. assets, can the IRS still collect?
It may be difficult. If the individual lives outside the U.S., does not travel to and from the U.S., and has no assets in the U.S., it may be practically very difficult for the IRS to collect on the tax judgment owing. Even so, there are legal means and steps the IRS can take in an attempt to collect U.S. taxes on assets held overseas.
Why is planning important before renouncing citizenship or abandoning a green card?
Ideally, a former U.S. citizen or long-term lawful permanent resident will want to avoid these potential tax and collection issues by engaging in thoughtful and strategic planning before renouncing U.S. citizenship or abandoning lawful permanent residency. Because expatriation can trigger an immediate tax, long-term collection exposure, and tax consequences for family members, the planning generally comes before the renunciation paperwork. Consulting an experienced attorney before taking any of these steps is essential.
What Documents Should You Request When Renouncing US Citizenship?
When you attend your renunciation appointment, it is important to know exactly what paperwork you will be handling and what documentation you should take home with you. Here is a guide to help you navigate the process.
During your appointment, you will typically sign two primary documents: Form DS-4080, which is your formal Oath of Renunciation, and Form DS-4081, a statement confirming that you understand the serious consequences of giving up your citizenship. If you do not speak English, you will also need to sign Form DS-4082, which is a witnesses’ attestation.
What documents should you request?
The government does not always automatically provide copies of the forms you sign, so you need to be proactive.
The Payment Receipt: You are entitled to a receipt for the $450 fee you pay to renounce. This is a “mere receipt,” but it is arguably the most important piece of paper you will receive that day.
An Acknowledgment Letter: Some embassies or consulates provide a letter that officially acknowledges you have taken the oath. If available, this letter will state that the Department of State will submit your Certificate of Loss of Nationality (CLN) for approval and that the consulate is retaining your U.S. passport.
Why is the date on your receipt so important?
You must keep your payment receipt in a safe place because it records the exact date of your renunciation meeting. This date is critical for your U.S. tax obligations. Under specific tax laws (Section 7701(a)(50)), this date marks a major transition and is used for timing purposes regarding your final tax responsibilities.
What happens with the Certificate of Loss of Nationality (CLN)?
You will not receive your CLN at the appointment. After you take your oath, the Department of State reviews your case. If they approve the renunciation, they will then issue the CLN. Until then, the acknowledgment letter (if your consulate provides one) serves as proof that the process is underway.
Does every consulate follow the same rules?
No, the experience can vary depending on where your appointment is held. Some offices routinely provide acknowledgment letters or copies of signed forms, while others do not. Because of this inconsistency, you should always double-check what you are given before leaving your appointment to ensure you have the proof you need for your records.
This post provides general information only and is not legal advice. Consult an experienced attorney for guidance specific to your situation.
Form W-8 or W-9? Why the Wrong Choice Could Cost Green Card Holders Abroad
The choice between Form W-8 and Form W-9 comes down to one thing: your U.S. tax residency status, not your immigration status. Green card holders living abroad may be able to sign Form W-8 under a U.S. income tax treaty, but picking the wrong form means signing a false statement under penalty of perjury. And claiming treaty benefits carries a risk that many people never see coming. Consulting an experienced attorney before signing anything is essential.
What is the difference between Form W-8 and Form W-9?
Both forms tell your bank or financial institution whether you are a U.S. tax resident or not. Form W-9 is for U.S. residents, who must pay U.S. taxes on income they earn anywhere in the world. Form W-8BEN is for non-residents, who generally only pay U.S. taxes on certain types of income that come from U.S. sources. The form you sign has real legal consequences, not just administrative ones.
What happens if you sign the wrong form?
Signing either form is a certification made under penalties of perjury. If you are a U.S. tax resident and you sign Form W-8, you are making a false statement, and serious legal consequences may follow.
Why is this more complicated for green card holders living abroad?
U.S. citizens always sign Form W-9, with no exceptions. For everyone else, it depends on tax residency status. Green card holders are generally treated as U.S. tax residents even while living in another country, which would normally mean they sign Form W-9. But there is an important exception: if the country where they live has an income tax treaty with the United States, they may be able to claim non-resident status under that treaty and sign Form W-8 instead. There are important unintended tax consequences that can befall individuals here: see, Oops…Did I “Expatriate” and Never Know It: Lawful Permanent Residents Beware!International Tax Journal, CCH Wolters Kluwer, Jan.-Feb. 2014, Vol. 40 Issue 1, p9).
The United States has 58 income tax treaties that together cover 66 countries. That includes the 1973 U.S. and U.S.S.R. income tax treaty, which still applies today to nine former Soviet republics: Armenia, Azerbaijan, Belarus, Georgia, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, and Uzbekistan.
What did the court decide in Aroeste v. United States, and why does it matter?
Aroeste v. United States (Case No. 22-cv-00682-AJB-KSC) is a federal court decision that established a 5-step analysis for green card holders who have not formally given up their green card but are living abroad. The key question the court addresses is whether a green card holder qualifies to be treated as a resident of a foreign country under an applicable U.S. income tax treaty. This ruling matters for the more than 3 million LPRs who are living outside the United States.
What are the benefits of successfully claiming non-resident status under a treaty?
If a green card holder qualifies as a non-resident under a tax treaty, they may be able to stop filing U.S. federal income tax returns on their worldwide income. They may also no longer be required to file the Foreign Bank Account Report, known as the FBAR, which would help them avoid the significant penalties that come with missing that filing. The court in Aroeste laid out the specific steps required to make this claim correctly.
One important note: if you claim non-resident status under a treaty but fail to report that treaty position to the IRS on time, you face a separate penalty under IRC Section 6712(a) of $1,000 for each failure to timely file. Claiming treaty status correctly and reporting it on time are both required.
What is the risk on the other side?
Claiming treaty-based non-resident status may also legally end your U.S. tax residency. Under IRC Section 7701(b)(6), this shift may cause you to cease to be a lawful permanent resident of the United States. That change may trigger the U.S. expatriation tax rules under IRC Section 877A(g)(3), which could classify you as a covered expatriate. The Aroeste court did not address these consequences because they were not part of that case, but they are real and potentially serious.
What does covered expatriate status mean for your family?
Covered expatriate status does not only affect you. If your family members or friends in the United States later receive gifts or an inheritance from you, they may owe U.S. tax on those transfers under the covered gift and covered bequest rules. This may affect children, spouses, and anyone else who would receive something from you.
Do you need an attorney before making this decision?
The answer depends on which country you live in, which treaty applies, the value of your assets, and your long-term plans. Getting it wrong may trigger exit taxes, affect your family’s inheritance, and have consequences that cannot easily be undone. This post explains the framework but is not a substitute for legal advice specific to your situation.
Burdens of U.S. International Tax Compliance: Why some USCs residing overseas ultimately renounce U.S. citizenship (dizzying tax compliance)
The value of a U.S. citizenship is known throughout the world. Immigrating to the U.S. is something that is valued by millions of individuals around the world. The following table from State Department data explains the principle reasons people chose to immigrate to the U.S. – to come to the U.S.:
The year before last, 2023, nearly 900,000 individuals became naturalized citizens. Many of these individuals who immigrate become naturalized citizens or lawful permanent residents (LPRs) ultimately leave the U.S.
See, the National Taxpayer Advocate blog report –
Filing and Paying Taxes for U.S. Citizens or Residents Living Abroad
Understanding State Income Taxes and Global Tax Planning for Expatriates (Part I of II)
Assets and income earned in high tax states such as California and New York, are taxed very differently compared to low-tax states such as Texas, Nevada, Florida or Tennessee. Focusing on “expatriation” (e.g., renouncing USC or abandoning LPR status) of the individual might be misplaced if the person wants to live mostly in the United States. See earlier post, Form 8854 Filing: TIGTA Report Reveals Compliance Gap
What Questions Need to be Asked if You Live (with a “green card”) in one of the 67 Countries – with a U.S. Income Tax Treaty?
Depending upon the factual circumstances of each individual, they may be able to benefit from the international tax treaty law articulated by the U.S. Federal District Court in Aroeste v United States – Order (Nov 2023). Future posts will explore the legal relevance of some of the following questions to consider:
Has the individual filed any U.S. federal income tax returns since leaving the United States?
Was a professional tax return preparer hired or consulted about the filing of a federal income tax return (e.g., a certified public accountant, an enrolled agent, a full time tax return preparer, ta tax attorney, etc.)?
Has the individual been filing IRS Form 1040 Resident Tax Returns in the same way Mr. Aroeste was filing – based upon the advice (that turned out to be erroneous -although given in good faith) from their U.S. tax return preparer?
What steps if any have been taken to notify the U.S. federal government (irrespective of the agency) regarding their physical residency outside the United States?
This information 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 Tax-Expatriation.com This is not legal advice.
Mérida – the Place to be in February (19th and 20th)
The implications of the Aroeste v United States – Order (Nov 2023) particularly for millions of taxpayers globally and “U.S.” taxpayers affected by pertinent tax treaty provisions, will be a focal point of discussion at the upcoming international tax conference in February.
The University of San Diego School of Law – Chamberlain International Tax Institute will take place on February 19th and 20th, 2024, at the International Convention Center in Mérida, Yucatán, México. You can register for the conference – HERE –
Among the courses offered, there will be a detailed examination of- Aroeste v. the United States: Limits on Government Authority Re: Tax Treaty Law ++– along with other international tax topics and sessions featuring much Moore:
United States Supreme Court – Tax Decisions & Moore
International Tax Reporting: New Reporting of International Partnerships – K-2s & K-3s
United States-based Cross-Border Real Estate Investments (Advanced)
U.S. Investor Visa Options and Limitations
California, Texas & Florida Probate Proceedings of Cross-Border Estates
ar 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 
