After the presidential election, some citizens planned on renouncing their citizenship and moving abroad to Canada, or elsewhere. It would be interesting to survey those who stated this proposition to see if they followed through on their promise (or threat).
The Immigration and Nationality Act applies to U.S. citizens who exercise the right to voluntarily renounce their U.S. citizenship. However, potential relocating Americans must realize that renouncing American citizenship has profound implications on any future return to the United States. Why? Signing an oath of renunciation is an irrevocable act for Americans over the age of 18. Despite this serious implication, the number of individuals that renounced their citizenship in 2015 was eighteen times as many Americans that renounced their citizenship in 2008, which set yet another record for the third consecutive year.
It is illegal to renounce citizenship to avoid paying taxes. Under the Illegal Immigration Reform and Immigrant Responsibility Act of 1996, individuals who renounce their citizenship for the purpose of avoiding the payment of taxes may not legally enter the United States. The Act provides the test for determining whether an individual has renounced citizenship for the primary purpose of avoiding the payment of taxes.
*If you expatriated after June 16, 2008, I.R.C. § 877A applies instead of I.R.C. § 877. Taxpayers are subject to an immediate exit tax, which deems for tax purposes that the taxpayer has sold all property for its fair market value the day before departure from the United States.
*If you expatriated on or after June 17, 2008, the new I.R.C. § 877A expatriation rules apply to you if any of the following statements apply.
- Your average annual net income tax for the 5 years ending before the date of expatriation or termination of residency is more than a specified amount that is adjusted for inflation ($147,000 for 2011, $151,000 for 2012, $155,000 for 2013 and $157,000 for 2014).
- Your net worth is $2 million or more on the date of your expatriation or termination of residency.
- You fail to certify on Form 8854 that you have complied with all U.S. federal tax obligations for the 5 years preceding the date of your expatriation or termination of residency.
I.R.C.§§ 877 and 877A state that individuals who renounced their US citizenship or terminated their long-term resident status for tax purposes after June 3, 2004, are required to certify to the IRS that they have satisfied all federal tax requirements for the 5 years prior to expatriation. If these requirements are not satisfied, the individual taxpayer is subject to the I.R.C.§§ 877 and 877A expatriation tax provisions, regardless of whether or not he or she meets the monetary thresholds in I.R.C. § 877 or I.R.C. § 877A.
Renouncing your U.S. citizenship is a serious matter. If you have questions about the tax requirements related to a renunciation of citizenship, call THE TAX EXPERTS AT THE Thorgood law Firm www.thorgoodlaw.com. For a FREE consultation, call 212-490-0704.
