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:
- Renunciation of US citizenship is permanent and irrevocable. A person who renounces US citizenship can never change their mind and undo the revocation. If a person who renounces wishes to once again be a US citizen, they would need to acquire US citizenship in accordance with US immigration law in the same manner as a person who never had US citizenship.
- A person’s renunciation affects only that person. None of their family members would lose US citizenship or otherwise be treated any differently for any US legal purpose. However, note that a US citizen is able to confer US citizenship upon their children (including adopted children). Therefore, renouncing US citizenship could cause a person to lose the ability to confer US citizenship on any natural or adopted children they have after renunciation.
- US citizens enjoy the right of visa-free travel to a long list of countries. Many of these countries require citizens of other countries to obtain a visa to enter. Therefore, after renouncing US citizenship, you may find it more difficult to travel to certain countries. You may first need to send your passport to that country (or an embassy/consulate) to obtain a visa to enter such country, which could take several weeks or months (during which you would not be able to leave your home country since you would not have a passport).
- A common misconception is that a person who renounces US citizenship turns their back on everything they are entitled to from the US. However, that is not necessarily the case. After renouncing, you would still receive all Social Security benefits to which you’re currently entitled. Your other pension income would likely not be affected either (except for certain pensions received by former active duty military personnel; some of these pensions are paid because you could theoretically be called back to serve, so the payment is no longer made after you revoke citizenship).
- Medicare and Medicaid each generally have a US residency requirement, so you would lose entitlement to those simply because you would no longer live in the US.
- You would no longer be able to vote in US elections, and you would not be entitled to the protections of the US in case of a catastrophic event such as a war or natural disaster.
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:
- You have had an average US tax liability of at least the threshold amount (which is currently about $170,000) during the previous five years;
- You have a net worth in excess of $2 million on the day of renunciation; or
- You fail to certify compliance with all US federal income tax obligations for the five years before renunciation.
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 about $700,000 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.
Like this article? Click here to stay informed on the latest tax topics for global individuals who live or invest abroad.
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:
- First, send an email to [email protected] stating that you would like to make an appointment to renounce your US citizenship.
- Renouncing takes two appointments, each scheduled for a Thursday afternoon one week apart from each other.
- Your case will be assigned to a consular officer (who is an American who works with the Foreign Service section of the State Department and was stationed in Belize). The consular officer may ask you for additional information ahead of time so they can begin preparing the paperwork before you arrive.
- Second, you will attend the initial appointment.
- You should take your US passport and your other passport(s) with you to the first appointment; it would also potentially be helpful to take your US Social Security Card and a copy of your birth certificate if you have those readily available. It is not necessary (and would not be helpful) for you to take your tax returns and FBARs to the appointment.
- The consular officer will provide you with the official documentation to fill out, and then you’ll take it with you to fill out before your second appointment.
- The consular officer will also conduct an interview with you, which will most likely be very brief and professional.
- There’s no set script for the interview, so each consular officer may ask slightly different questions. The consular officer’s main task in the interview is to insure that your renunciation is voluntary and intentional and that you understand the consequences of renouncing.
- The consular officer may ask why you’re renouncing. You can simply answer that your US citizenship is no longer needed since you have established a home outside the United States and do not intend to return to live permanently in the United States.
- The consular officer may ask questions related to whether or not you’ve complied with your US tax obligations. So, you’ll want to make sure you’ve already completed all required filings (if necessary, pursuant to an amnesty procedure as discussed above).
- Your renunciation would be rejected if you say anything that indicates (i) you desire to live permanently in the US, (ii) you’re being forced against your will to renounce, or (iii) you only want to renounce your US citizenship temporarily.
- Third, you’ll leave the initial appointment and return home (or to your jungle/beach hotel) for a week. The purpose of this period is to allow you to consider the seriousness of your decision to renounce. You’ll also use this period to complete the documentation provided to you by the consular officer.
- Finally, one week after the initial appointment, you attend the second appointment.
- You should take all of the items you took to the initial appointment plus the now-completed documentation. Also, you will be required to pay a fee to the US Embassy of US$2,350 to renounce.
- The consular officer (which may be different than the one at the initial appointment) will conduct a second interview that’s much like the interview at the first appointment. The purpose of this interview is (i) to determine whether you still want to renounce now that you’ve had some time to consider the seriousness of your actions and (ii) to review your completed paperwork.
- Next, you’ll sign all of the completed documentation and conduct the “renunciation ceremony” (where the consular officer asks you to raise your right hand and take the Oath of Renunciation).
- Following the second appointment, the US Embassy will forward all of your documents to the State Department in Washington, DC, which will make the final decision on your renunciation. Your renunciation will be approved (generally within 1-2 months) as long as all of the documents are completed correctly.
- The State Department cannot simply decide that it will not allow you to renounce your US citizenship. Longstanding legal precedent holds that US citizens have the right to renounce US citizenship, so the State Department has no ability to arbitrarily disallow your renunciation.
- After the State Department approves your renunciation, you will be issued a document called a “Certificate of Loss of Nationality,” which will be mailed to you. It is important for you to obtain and safeguard this document—you may be required to show it in the future to prove that you are no longer a US citizen.
- Following your renunciation, your name will be published in the Federal Register (which is simply an official US government document that lists new laws etc.).
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.
- If you’re a Canadian citizen, then there’s nothing further to do—a Canadian passport is essentially the equivalent of a US passport when it comes to travel in the US
- If you’re a citizen of a country that is allowed to participate in the Visa Waiver Program, then you can travel to the US without obtaining a visa. You’ll need to register for the Electronic System for Travel Authorization at least 72 hours before departing for the US
- Finally, if you’re not Canadian or a citizen of a Visa Waiver Program country, you must first obtain a visa before entering the US.
- The US issues a “B1/B2” visa, which allows you to enter the US for tourism or business purposes. The visa is issued on a 10-year multiple-entry basis. So, you’d need to obtain a new visa only every 10 years, and each visa would allow you to enter the US whenever you like for the length of time stamped in your passport on your arrival to the US (which is typically from 90 to 180 days).
- If you overstay your visa (i.e., you don’t leave the US within the time period stamped in your passport on arrival), then you could face severe repercussions upon any subsequent attempt to enter the US (including potential criminal penalties and/or a permanent loss of the visa).
- The decision whether to issue you a visa is completely separate from your decision to renounce. Some people worry that the US Embassy employees will be less likely to issue a visa to a former US citizen who has renounced, but there is no evidence that this is the case. Rather, embassy employees are just people doing a job and following a rulebook—they care more about following the visa issuance procedures than about whether a person requesting a visa was at one point a US citizen. Furthermore, it’s likely that the person processing your visa application will not even know that you were once a US citizen.
- The criteria for obtaining a visa are all pretty straightforward—the US performs some basic background checks and makes sure that you don’t have “immigrant intent” (i.e., that you don’t look like you’re trying to get a visa for the purpose of illegally immigrating to the US).
- You can apply for a visa only after you’ve renounced US citizenship, and the visa application process takes some time. So, there may be a period of a few weeks or months where you have no ability to enter the US.
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.
Ready to become an expert on this stuff? Click here to take the US Tax Masterclass for Americans Abroad (absolutely free).