Contemplating the decision to relinquish U.S. citizenship or long-term U.S. permanent residency status will take both an emotional and financial toll. Largely due to the Foreign Account Tax Compliance Act (FATCA) and the additional challenges it creates for Americans living abroad, many U.S. citizens have started weighing the benefits of U.S. status against the financial hardship it can create while living in a foreign country. Onerous U.S. tax filing and asset reporting requirements, new limitations on access to banking options overseas, and increased restrictions on available financial products in the U.S. have effectively tipped the scales for many considering the move.

The numbers demonstrate that the complexity of the new legal operating environment for American expats has resulted in many turning in their American passports. In 2016, 5,411 Americans renounced their U.S. citizenship or long-term residency status. While not a staggering number, by comparison, only 231 Americans made this decision during all of 2008.

Americans who have made the decision to abandon citizenship will be obligated to comply with a two-part process that intersects both tax and immigration laws.

Renunciation Process. The first step of the process is to schedule a meeting at a U.S. consular or embassy location outside of the United States. In this meeting, a U.S. consular official will ask questions to ensure that the decision to renounce is both intentional and voluntary and an oath indicating that the individual intends to renounce U.S. citizenship will be signed.

Specific renunciation procedures vary widely across U.S. consulate locations globally, but the fee for renouncing is set at $2,350 in all locations. Following the renunciation, the U.S. government will issue a Certificate of Loss of Nationality documenting the change of status and effective date.

Tax Filing Process. Americans who have abandoned their citizenship at a U.S. consular location will then file Form 8854 and certify under penalties of perjury that they have complied with their U.S. tax responsibilities for the prior five-year period. A copy of the form is also submitted with the individual’s final U.S. tax return.

The reporting is purely informational and no tax is typically owed. However, high net worth individuals who meet the definition of a “covered expatriate”, meaning over $2 million in net worth or an average annual tax liability in excess of $162,000 over the prior five-year period, face a costly exit tax on the value of their assets and certain deferred income streams.

American expatriates in most countries will be able to structure their finances in a way to minimize duplicative tax responsibilities. U.S. tax laws are designed in theory to eliminate exposure to “double taxation” and, in many instances, expats will fare as well as (if not better than) their U.S.-based countrymen with proper advice and planning.

Nevertheless, the issue can be highly emotional and more associated with the cost of continued annual U.S. tax compliance and the exposure to additional financial restrictions that U.S. citizenship may be creating locally.

When contemplating a decision to abandon citizenship, conducting a robust, long-term analysis that answers the following questions is crucial:

• What are the filing requirements and associated costs?
• Is there an ideal time for me to abandon my U.S. citizenship status?
• What are my projected future U.S. tax compliance costs and are there ways to minimize these fees?
• Does my U.S. status provide any benefits in my new home country that I would lose?
• Will I be subject to exit tax?
• How will gifts I’ve made be treated for purposes of the exit tax?
• How can I minimize my exposure to exit tax?
• How will my eligibility for U.S. social security benefits be impacted if I abandon my U.S. citizenship?
• Will any U.S.-based pensions or other investments be taxed differently in the future?
• Am I able to transfer or close out any U.S. pensions?
• What will be the restrictions on my ability to continue travelling to the United States for work or vacation? How long can I remain in the United States?
• Will losing my U.S. passport prevent future travel to other countries?
• Should my children or spouse consider abandoning their U.S. citizenship as well?
• Will abandoning citizenship change my exposure to U.S. estate tax if I have assets in the U.S. or anticipate a U.S. inheritance?
• Will property ownership rules be any different if I continue to have a home in the United States?

Expat Legal Services Group focuses on providing bespoke legal advice to Americans considering relinquishing their U.S. citizenship. We offer detailed analysis of your situation to help you feel confident that you are making the right decision.

If considering relinquishing your U.S. citizenship contact us now to schedule a consultation with our tax and immigration attorneys to obtain a holistic view of the details surrounding this important decision.