Every year, hundreds of thousands of US lawful permanent residents apply for US citizenship, seduced by the promise of economic prosperity, a high standard of living and, of course, the much coveted American Dream.

However, you may be surprised to know that every year many US citizens elect to renounce their US citizenship. US citizens may choose to renounce their citizenship for any number of reasons, including acquisition of another nationality which does not allow dual nationality or, perhaps more commonly, for tax reasons. In this article, we will examine the advantages and disadvantages of renouncing US citizenship.

Advantages of Renouncing US Citizenship

  1. Upon renunciation, the US citizen in question will be relieved of the obligation to file annual IRS tax returns, detailing their income, assets and capital gains. IRS tax returns are notoriously lengthy, comprehensive and burdensome to file.
  2. A dual national who renounces his/her US citizenship will no longer be liable to taxation on their income, assets and capital in two separate jurisdictions. Taxation in multiple countries can be financially devastating, particularly if the individual in question is a high net worth individual or a business owner.
  3. Renunciation of US citizenship may be advantageous to some US citizens residing overseas, as tax reforms have, in recent years, increasingly targeted expats.
  4. Many individuals may be able to renounce their US citizenship without adverse tax consequences.
  5. With sound legal advice, former US citizens may continue to enter and exit the US for leisure purposes after renunciation, albeit on the same terms as other foreign nationals (i.e. by way of ESTA or non-immigrant visa).

The Disadvantages of Renouncing US Citizenship

  1. The loss of the privileges and immunities associated with US citizenship including, of course, the right to live and work in the US.
  2. The expense of renouncing US citizenship. At the time of writing, the filing fee is a hefty $2,350.
  3. The possible tax consequences of renouncing US citizenship, including payment of a possible “Exit Tax” (subject to circumstances).
  4. The possible legal consequences of renunciation, including possible inadmissibility to the US if the Attorney General determines that the individual in question renounced US citizenship for the purpose of avoiding taxation by the United States.
  5. Renunciation of US citizenship is generally irreversible, absent a successful administrative or judicial appeal. A child who renounces their US citizenship before the age of 18 may apply to have their US citizenship reinstated within 6 months of their 18th

What Should I Do If I Am Contemplating Renunciation of My US Citizenship?

Any individual contemplating renunciation of their US citizenship should seek advice from a licensed US immigration attorney and CPA regarding the legal and tax consequences of renunciation, prior to taking any action. In some cases, an individual who renounces their US citizenship may be liable to pay an “Exit Tax”, which is calculated as though the taxpayer in question sold all of their assets before they expatriated and reported the gain to the IRS. Equally, in some cases an individual may find themselves inadmissible to the US, if the Attorney General determines that they renounced their US citizenship in order to avoid US taxation. Legal and taxation advice is therefore essential.

Is It Possible For Me To Renounce My US Citizenship Without Paying Tax?

A US citizen who does not fall within the definition of a “covered expatriate” may renounce their US citizenship without adverse tax consequences.

“Covered Expatriates” are defined as individuals who:

  • Have a net worth exceeding $2 million on the date of expatriation OR
  • Have an average annual U.S. income tax liability for the five (5) years preceding the year of expatriation exceeding $165,000 OR
  • Incorrectly filed U.S. tax returns for the five (5) years prior to expatriation.

In many circumstances, a US citizen is not liable to pay an “Exit Tax” upon renunciation of their US citizenship. Any individual contemplating renunciation of their US citizenship would therefore be well-advised to seek advice from a CPA before proceeding.

Davies Legal Immigration

At Davies Legal Immigration, we provide advice and representation in connection with all immigrant and non-immigrant visa categories, including cases in which a waiver of inadmissibility is sought and cases in which there have been previous visa denials. We pride ourselves on providing the highest standards of client care and undertake to keep you informed. Call now for a complimentary telephone call with a licensed US immigration attorney and free, no obligation price quotation.

Published: 4th June 2018