We have met with many potential clients who were considering renouncing their US citizenship. This has been challenging to consider for them particularly if they were non-compliant with their tax filing obligations due to the onerous requirements to renounce correctly.
The process might have just gotten a bit easier. On September 6, the IRS announced a new program to assist US Citizens that want to renounce their citizenship.
It is important to keep in mind that there are two separate processes in place to relinquish your US citizenship – legal and tax. On the legal side, you will need to pay $2,350 USD, file multiple forms, and attend an interview at your nearest US Embassy. As accountants, we can only thoroughly address the tax process, so if you have questions about the legal implications or process I would encourage you to seek competent legal advice.
On the tax side, the process tends to be quite complicated. However, it can be done with no lasting consequences if you can certify that you have been in compliance for the past five years of US income tax filing obligations.
This five years of compliance has been a sticky point for many, including for what we call “accidental Americans.” These citizens have never actually resided in the US, but gained citizenship by either being born in the US and leaving at a very young age or being born abroad to parents with US citizenship. Coming into compliance can be especially tricky if the birth was not registered abroad and a Social Security Number was never assigned (SSN is typically required for filing a tax return).
Programs have been available for those trying to come into compliance, such as the Streamlined Filing Procedures (see https://www.hutcheson.ca/streamlined-catch-up-filings-the-best-choice-for-delinquent-us-citizens/). While such programs can be helpful in certain circumstances, they are not one-size fits all and do not complete the requirements for a person who wishes to immediately renounce. Luckily, the new program shows promise.
So what has changed?
The new program (https://www.irs.gov/individuals/international-taxpayers/relief-procedures-for-certain-former-citizens) makes it easier to come into compliance and relinquish your citizenship in fewer steps. An SSN is not needed, and preclearance or prior approval is not necessary. Unlike other compliance programs the IRS will notify you that your submission was received and complete. This will provide comfort and finality to the individual that all required processes are complete.
If the following applies, the program may be right for you:
- No US filing history as a US Citizen or Resident
- Relinquished and have Certificate of Loss of Nationality with a date after March 18, 2010 or intend to relinquish imminently
- Must meet the requirements to not be a Covered Expatriate
- Less than $2 Million Net Worth
- Average annual net income tax liability of the five years preceding the year of expatriation is less than $168,000 USD for 2019 (adjusted for inflation)
- Must have aggregate tax liability of $25,000 USD or less for the year of expatriation AND the five prior years
If you meet the requirements and comply with filing according to the procedures – you will not be liable for any unpaid taxes and penalties for these years or any previous years. That’s right – up to $25,000 USD tax liability from these filings is FORGIVEN along with all penalties and interest for these and prior years!
As always, there are requirements and the procedures must be strictly adhered to. This is not advice that this is applicable or useful to you and you must always do your due diligence and please hire a professional to assist you in your compliance if you need one.
If you think this may apply to you or be useful please do not hesitate to contact me any time – we can explore if this option and others may be right for you!