Guide to Renouncing US Citizenship

An in-depth look at renouncing US citizenship, including the consequences, procedure, and US tax consequences.

Written by Stewart Patton

A record 3,415 individuals renounced their U.S. citizenship or gave up their green card in 2014. Then, that record was broken the very next year as the 2015 total hit 4,279. In both cases, this only includes the people on the Treasury Department’s official list, which is widely believed to under-report actual renunciations by quite a bit.

Now, after the election of Donald Trump as the 45th President, it’s anyone’s guess which way that number will go. But I’d expect it to grow if certain celebrities stick to their word.

This article provides an overview of the legal and tax consequences of renouncing US citizenship and the process to do so. Renouncing your US citizenship is a serious matter that deserves careful consideration. If you’re considering renouncing your US citizenship, you need advice and assistance that is tailored to your specific situation.

Renunciation is irrevocable, so you want to make sure you understand all of the consequences and how they apply to your specific situation. Your own internet research can get you thinking in the right direction, but it’s absolutely no substitute for specific advice tailored to your exact situation.

General Consequences of Renouncing US Citizenship

The largest effect of renouncing US citizenship is that you would no longer be able to remain in the US for as long as you want to. As a US citizen, you’re allowed to come and go as you please, but someone who is not a US citizen or green card holder must first obtain permission to cross the border legally.

This result may seem obvious, but it can be easy to forget if you live in the US or you’re an expat who frequently visits the US. It’s hard for a fish to think about what life would be like when not always surrounded by water.

It’s important to consider the different paths your life could take and how losing the ability to remain in the US for as long as you please could affect you in each of those paths. For example, if a relative who lives in the US were to become sick, you would not be allowed to simply move to the US to take care of them. Or, if your kids end up residing in the US, you would not be able to simply move near them when they have kids or move in with them as you grow older. Living permanently in the US would be possible only if you first obtain a green card, which requires going through the same immigration process as everyone else.

Other general considerations are as follows:

US Tax Considerations

US citizens are required to file a US federal income tax return each year if they have income over the applicable threshold amount. US citizens are also required to file a “Foreign Bank Account Report” (“FBAR”) if they own or have signature authority over non-US bank accounts with a maximum aggregate balance in excess of $10,000. The Internal Revenue Service (“IRS”) can impose a penalty of $10,000 per year for failure to timely file an FBAR.

Renouncing US citizenship does not relieve a person of liability for US taxes or penalties incurred before the loss of citizenship. Therefore, even after renunciation, the IRS could still audit and assess taxes and penalties (and use any available enforcement mechanisms to collect taxes and penalties).

Additionally, the IRS imposes an “exit tax” on certain people who renounce US citizenship. The exit tax will apply to you only if any of the following three triggers is met:

If the exit tax applies to you, you’re treated as having sold all of your assets on the day your renounce. Gain or loss on each asset is aggregated, and then $680,000 of gain is excluded. You’re then subject to US tax on any remaining amount of such gain. The exit tax also has other consequences on later gifts to US persons and in certain other circumstances.

For the reasons discussed above (i.e., the lingering liability for US taxes and penalties after renunciation, and the trigger for the exit tax for not being tax compliant), it’s best to make sure you’re fully caught up on all of your US tax obligations before you renounce. If necessary, you can use one of the IRS amnesty programs to catch up on or amend past returns and/or file past FBARs.

One such amnesty program—the Streamlined Filing Compliance Procedures—generally allows US citizens to catch up on past obligations by filing original or amended tax returns for the previous 3 years. However, if you want to use this program in advance of a renunciation, you can use it to file returns for the previous 5 years.

After you renounce, you still must file a US tax return for the year of the renunciation. This return is a “dual status” return—you’ll be treated as a US citizen for the part of the year before you renounce and a non-resident alien for the part of the year after you renounce. Also, you must attach a special form to the return that shows whether or not you’re subject to the exit tax.

Following your renunciation, you’ll be subject to US tax only on certain types of US source income (e.g., income from a business you own in the US, or amounts you receive from US investments). In unusual circumstances, depending on the type of US source income you receive, your US tax burden may actually increase after renouncing. So, careful consideration and tax planning is necessary before renouncing.

How to Renounce US Citizenship

Certain aspects of the renunciation procedures are mandated by law, but other aspects vary according to local practice at each particular US embassy or consulate. This section discusses the general procedures to renounce at the US Embassy located in Belmopan (the capital of Belize), which should be fairly similar to the procedures at other US Embassies.

(Note that you do not need to be a Belize citizen or resident to renounce at the US Embassy in Belize. So, you could make a 10-day vacation out of it—Belmopan’s central location makes it easy to design a jungle-and-beach itinerary around the two Embassy appointments discussed below.)

Here’s the general procedure:

The above is merely to acquaint you with the processes and documents associated with renouncing your citizenship as they are generally applied at one US Embassy. The US Embassy where you renounce may have different procedures, and even the exact procedures at the US Embassy in Belize may vary slightly from the procedures discussed above.

Entering the US after Renouncing

To enter the US after renouncing, you first need to secure the right to do so.

Again, renouncing your US citizenship is a very serious step that requires careful consideration and professional advice tailored to you.

Even for you do-it-yourself types, this is one area where you absolutely need professional advice, even if you think you have a simple situation. If your situation really is simple, then a single phone call with a US tax attorney should be all you need to make sure you’re understanding everything correctly and are ready to execute your plan.

Get in touch if you’re considering renouncing. I’d be happy to help.

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Stewart Patton

I'm Stewart Patton, US tax attorney and expat entrepreneur based in beautiful Belize. Read more about me here, or email me at [email protected] to discuss how I can help.

U.S. Tax Services, P.O Box 2651 Belize City, Belize • Belize tel: (+501) 629-6007 • U.S. VOIP: (312) 675-8571 • Email: [email protected]