Every year some expats decide to renounce their US Citizenship!!!

How that works?

First, once you chose to renounce your US Citizenship, you still have to file a final US tax and FBAR for one more last time that covers from January 1st to the date of the renunciation. Also, you must file the last five years of your US Taxes and FBAR, and more to come is you must pay all US tax liabilities before submitting the renunciations forms.

Citizenship Renunciation Exit Tax?

A citizen attempting to renounce is deemed to have sold all his property as of the day before expatriation and is taxed immediately upon any gains realized from such theoretical sale.

Internal Revenue Code – IRC Section 877A covers to exist tax for US Citizens willing to renounce their US Citizenship after June 17, 2008 with the following three tests if any apply:

  • Net Worth Test – a US Citizen who have a net worth of 2million dollars or more at the time of renunciation.
  • Tax Liability Test – a US Citizen have $165,000 or more in us tax liabilities per year in the last five years prior to renunciation.
  • Compliance Test – a US Citizen did not comply with the IRS and did not file US Tax and FBAR for the last five years prior to renunciation.

Please note that the IRC Although the code does provide some assistance in the form of a statutory exemption of up to $651,000

The tax nonetheless can lead to liquidity issues (assuming the expatriate is unwilling to sell off his property in anticipation of his move). In order to help alleviate the liquidity issue, the IRS also provides a deferral option, whereby an expatriate can elect to defer payment of the exit tax by agreeing to pay interest charges during the deferred period and posting a form of “adequate” security as collateral

Although the overall intent of the exit tax is to seek net tax neutrality when one gives up U.S. citizenship, the impact is more likely to dissuade citizens from renouncing simply due to the onerous costs of having to pay tax on gains that have accrued yet have not been effectively monetized.

US Citizenship Renunciation Cost and Process

United States government charges a fee total of $2,350 paid to the United States embassy where you live abroad. You will be required to appear before the US Consul, file form 8854, the expatriation information Statement and pay the exit tax due.

Required Document at the embassy meeting:

  • S. citizenship Proof
  • S. Consular Report of Birth Abroad, if applicable
  • Completed form DS-4079
  • Completed Loss of Citizenship Questionnaire
  • Completed Informal Loss of Citizenship Acknowledgement, which must be signed/dated

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