Renouncing citizenship to avoid taxes

With concern over higher tax rates in the United States relative to some low tax destinations such as Singapore and Belarus, and the rise of economic citizenship in many emerging countries around the world a record number of United States citizens have sought to renounce citizenship to avoid taxation. Many have even inquired about “relinquishment” without full “renunciation” to avoid paying U.S. taxes while still preserving U.S. citizenship and its benefits.

Renouncing U.S. citizenship to avoid US taxes*

With concern over higher tax rates in the United States relative to some low tax destinations such as Singapore and Belarus, and the rise of economic citizenship  in many emerging countries around the world a record number of United States citizens especially those who identify themselves as investors have sought to renounce citizenship to avoid taxation.  Many have even inquired about “relinquishment” without full “renunciation” to avoid paying U.S. taxes while still preserving U.S. citizenship and its benefits including the ability to confer immigration and citizenship benefits to others.

Loss of Citizenship

Section 349 (a) of the Immigration and Nationality Act set out the expatriation acts by which a national of the United States by birth or naturalization can lose United States nationality. Formal or official renunciation at a U.S. consulate [Section 349 (a) (5)] is one means of losing United States nationality but it not the only means. Some United States citizens with dual nationalities who hold political office abroad may lose United States nationality when they take an oath of allegiance to a foreign state, if the act of taking the oath was done with the intent of relinquishing United States nationality.

Renunciation can make a former citizen ineligible for a U.S. visa

The Illegal Immigration Reform and Immigrant Responsibility Act of 1996 (IIRIRA) added a new ground of inadmissibility for certain former citizens who renounce citizenship to avoid paying taxes. Section 212 (a) (10) (E) of the Immigration and Nationality Act states

“Any alien who is a former citizen of the United States who officially renounces United States citizenship and who is determined by the Attorney General to have renounced United States citizenship for the purpose of avoiding taxation by the United States is inadmissible.”

But the ground of inadmissibility in Section 212(a) (10) (E) applies only to renunciations of U.S. citizenship that took place on or after September 30, 1996. Furthermore the statute requires specific intent to avoid paying U.S. taxes. Specific intent requires that the former U.S. citizen subjectively desired loss of U.S. citizenship to avoid paying U.S. taxes. Therefore the reason for renouncing U.S. citizenship is important. Public statements about the reason for renouncing US citizenship may come back to bit. But the surrounding circumstances of the renunciation may still prove specific intent to avoid paying U.S. taxes even if the former U.S. citizen was silent on the issue.

The regulations effecting the statute state that “an alien who is a former citizen of the United States, who on or after September 30, 1996, has officially renounced United States citizenship and who has been determined by the Secretary of Homeland Security to have renounced citizenship to avoid United States taxation, is ineligible for a visa under INA 212(a) (10) (E).” 22 CFR 40.105. But the statute has been criticized both for the ambiguity of its language and as a possible violation of international law.

Role of U.S. consulate

The role of the State Department and the consular officer is very limited in implementing this ground of inadmissibility. The extent of coordination between the Internal Revenue Service and the immigration agencies is unclear. But unless the applicant appears as a hit in the consular lookout system revealing a finding of inadmissibility under INA 212(a) (10) (E), a consular officer is required to assume that the visa applicant is eligible. So persons who renounce to avoid U.S. taxes may slip under the radar.

Conclusion

Renouncing U.S. citizenship is a very serious decision and is not just a matter for high net worth individuals. Choosing to live abroad as over 6 million Americans do, is not the same as renunciation.As with many areas of immigration law the general rules seem simple but the details and exceptions to the rules are complex and confusing. So look before you walk on thin ice. Before renouncing citizenship consult with both an immigration attorney and a tax attorney to evaluate the specific circumstances of your case as each case is unique. Under current immigration law even if you are found inadmissible a discretionary waiver may be available for non-immigrant admission into the United States.

If you have any questions please speak to a qualified immigration attorney. Feel free to email me at info@immigrationnavigator.com. I also urge you to subscribe to this blog or the RSS feed so you can see when new articles are posted.

*CIRCULAR 230 NOTICE: IRS Regulations require us to inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transactions or matter addressed herein.

Resources for additional information

1. Laura Saunders, Should you renounce Your U.S. citizenship W.S.J. , May 18, 2012

2. 77 Fed. Reg. 25538 – 25545 (April 30, 2012)

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US Citizenship for a child with a green card

For a permanent resident child to acquire automatic US Citizenship the law requires that:

1. at least one parent must be a US citizen;

2. the child must be under 18 years old; and

3. the child must reside in the US in the legal and physical custody of a US Citizen Parent (the child must be still living with a US Citizen Parent).

All three citizenship requirements must be met at the same time.

I am a US Citizen. My 16-year-old son came to the US 2 years ago on a green card. He lives with his mother who has a green card. Is my son a US Citizen?

 

US Citizenship for a child with a green card – The Requirements

For a permanent resident child to acquire automatic US Citizenship the law requires that:

1.            at least one parent must be a US citizen;

2.           the child must be under 18 years old; and

3.            the child must live in the US in the legal and physical custody of a US Citizen Parent (the child must be still living with a US Citizen Parent).

All three citizenship requirements must be met at the same time. Pursuant to the Child Citizenship Act of 2000 (effective Feb. 27, 2001) at the moment all these requirements are fulfilled the child is deemed a United States citizen.

Child must live with US Citizen Parent

Your son is not a US citizen at this time because he does not live with you. If you were to have legal custody of your son and can show a court order granting you custody of your son or if you can show factually that you son lives with you, (e.g. your address is contained on his school records, he is claimed as a dependent on your IRS tax returns and receives mail at your home), then all three  citizenship requirements would be met and your son is a US citizen.  Additionally if his mother becomes a US Citizen before he reaches 18 and he is still living with her, he could acquire automatic US citizenship then.

Get Certificate of Citizenship to prove US Citizenship

If your son acquires automatic US Citizenship you should file an up-to date copy of Form N-600 ( available at www.uscis.gov) and include the application fee and supporting documents to get his Certificate of Citizenship. His certificate of Citizenship will then be used to document his US Citizenship and to apply for a US Passport.

Naturalization Process as a practical alternative

If your son does not qualify for automatic US Citizenship before he turns 18 he will have to satisfy the requirements for United States Citizenship through the Naturalization process using Form N-400 ( also available at www.uscis.gov). The requirements for naturalization are:

  1. permanent resident in the US for at least 5 years (continuous residence);
  2. physical presence in the US (he has not been outside the US for more than a specified time);
  3. good moral character ( he has conducted himself in a legal and acceptable way);
  4. an understanding of English and US history and Government;
  5. an understanding of and support for the principles of the US Constitution; and
  6. residence for a specific amount of time in the state or USCIS district where he will file.

US Immigration Attorney Gary Goodin.

Copyright © 2011 Immigration Navigator

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