Beginning September 6, 2014, the U.S. Department of State’s fee to renounce U.S. citizenship increased fivefold—from $450 to $2,350. The increase, intended to discourage dual citizens from renouncing U.S. citizenship, comes after a significant increase in renunciations over the past year. Last year, the total number of expatriations was roughly 3,000, compared to 932 in 2012. In the first two quarters of 2014, there were already 1,577 renunciations, on pace to top 2013. The increase has created backlogs at some U.S. consulates causing delays. Currently, U.S. consulates in Canada are not scheduling renunciation appointments until 2015.
The likely cause of increased expatriation is aggressive IRS enforcement of ever expanding global tax reporting obligations imposed on citizens. This includes the Foreign Account Tax Compliance Act (“FATCA”), which requires foreign financial institutions and U.S. withholding agents to implement new procedures for tax information reporting and withholding, account identification, and documentation. Laws like FATCA help identify use of foreign financial accounts by U.S. persons to evade U.S. taxes.
Oftentimes individuals mistakenly believe they have renounced U.S. citizenship or otherwise are not obligated to pay U.S. tax. As a result, those individuals can have outstanding tax obligations. Furthermore, under the Immigration and National Act (“INA”) individuals who have renounced U.S. citizenship on or after September 30, 1996, to avoid U.S. taxation are considered inadmissible to the United States, possibly preventing even temporary, nonimmigrant visas to the U.S. in the future. Broadly speaking, under current tax law, the expatriating citizen or long term green card holder is deemed to have sold and is currently taxed on gains from worldwide assets. Moreover, U.S. children or other heirs of an expatriated decedent can be fully taxable on their inheritance.
Renunciation of U.S. citizenship can have significant consequences and should not be taken lightly. The importance of involving both tax and immigration counsel in such a decision cannot be overstated.