At 1040 Abroad, we specialize in guiding American citizens through the complex tax landscape involved in renouncing U.S. citizenship. For many people, this decision marks a turning point in their lives, typically driven by financial, personal, or legal motivations. Central to this process is understanding what constitutes an expatriating act, the legal framework surrounding it, and the tax implications associated with it.
What is an Expatriating Act?
An expatriating act is any voluntary action performed by a person that results in the loss of nationality under the Immigration and Nationality Act (INA). According to the Nationality Act, specific acts are recognized as resulting in the loss of U.S. citizenship, provided they are done voluntarily and with the intent to relinquish that citizenship.
Such acts include:
- Obtaining naturalization in a foreign state after the age of eighteen years.
- Taking an oath of allegiance to a foreign government.
- Serving in the armed forces of a foreign country, especially when such service involves bearing arms against the United States or serving as a non commissioned officer in such armed forces.
- Working for a foreign government in a policy-level position or non policy level employment.
- Formally renouncing U.S. citizenship before a diplomatic or consular officer of the Department of State outside the United States.
These acts are categorized as potentially expatriating acts. Not all potentially expatriating actions result in the loss of nationality unless certain legal requirements are met. Specifically, the act must be performed voluntarily, with the intent to relinquish citizenship, and followed by confirmation from the Department of State through the issuance of a Certificate of Loss of Nationality.
The Immigration and Nationality Act and Its Amendments
The Immigration and Nationality Act and subsequent nationality act amendments govern the procedures for loss of U.S. nationality. The act mandates that certain actions, once verified and documented, may result in citizenship being legally terminated. The Department of State plays a central role in this process, determining if a person has performed voluntarily one of the acts listed. The act also includes taking an oath or making an affirmation or other formal declaration of allegiance to a foreign state as grounds for loss of nationality.
If a request for a Certificate of Loss of Nationality is denied, the individual remains a U.S. national, and the tax liability and income tax obligations continue. The burden of proof rests on the party claiming they have lost United States nationality through an expatriation act. The own application must include documentation such as a birth certificate, relevant travel documents, and such form DS-4079, supported by a formal declaration and reviewed by a duly authorized agent or consular officer.
While international law allows individuals to renounce nationality, the Department of State strongly discourages such persons from making themselves stateless, though there are limited exceptions. There is no prohibition under U.S. law, but such claim to statelessness complicates both immigration and consular matters.
Related: U.S. Citizenship Renunciation: Interview & Oath Guide
Why Are People Renouncing U.S. Citizenship?
There are several reasons why individuals decide to undertake an expatriating act and ultimately relinquish citizenship:
- Tax liability and compliance: With stringent regulations from the Internal Revenue Service, such as FATCA, many naturalized citizens and native born Americans living abroad struggle with dual tax reporting and high income tax obligations.
- Freedom from financial disclosure: The burden of declaring financial accounts to the U.S. often leads individuals to consider loss of nationality.
- Desire for simplified residency in a foreign state or foreign territory.
- Avoidance of double taxation.
- Political or personal disagreement with U.S. policy.
Related: What Are Acceptable Reasons for Renouncing U.S. Citizenship?
Legal Framework for Expatriation
The process involves filing an application filed with a consular officer, undergoing interviews, and completing various forms, including such form DS-4079. The duly authorized agent then evaluates the evidence to ensure the act was performed voluntarily and with intent. The issuance of the Certificate of Loss of Nationality finalizes the loss of U.S. citizenship.
Important considerations:
- The effective date of such loss is the date the expatriating act was committed.
- The Department of State confirms the act through a consular officer.
- A formal declaration may be required.
- The process may take several months, often involving multiple interviews with such officer assigned by the Department of State.
Foreign Government Employment
Employment with a foreign government can have profound implications for U.S. citizens. Under the Immigration and Nationality Act, accepting a position with a foreign government can be classified as a potentially expatriating act, potentially leading to the loss of U.S. nationality. This provision is particularly relevant for individuals who hold the nationality of the foreign state or are required to take an oath or make a declaration of allegiance to the foreign state as part of their employment.
Naturalized Citizen Responsibilities
Naturalized U.S. citizens enjoy the same rights and responsibilities as native-born citizens, including the obligation to pay taxes and adhere to U.S. laws. However, they may also have additional duties, such as registering with the Selective Service System and obtaining a U.S. passport. For naturalized citizens considering relinquishing their U.S. citizenship, it is crucial to be aware of the potential consequences, including the loss of certain rights and benefits like the right to vote and access to Social Security benefits. Consulting with the U.S. Department of State and the IRS is essential to fully understand the tax implications and other consequences of relinquishing U.S. citizenship.
Related: Social Security Taxes After Renouncing U.S. Citizenship
Clarifying a Common Misunderstanding
We often receive inquiries such as: “I joined the UK military 10 years ago and served for a year. Does this mean I’ve already lost my U.S. citizenship and no longer have any filing obligation?”
The answer is: No. Simply performing a potentially expatriating act such as joining such armed forces of a foreign state like the UK does not automatically result in loss of nationality. According to the Immigration and Nationality Act, the individual must also go through the formal declaration and renunciation process.
According to the policy of administrative presumption adopted by the State Department in 1990, certain actions indicating expatriation, such as serving in a foreign government, do not necessarily indicate a relinquishment of citizenship unless the individual explicitly asserts intent otherwise.
The Department of State must confirm the intent and issue a Certificate of Loss of Nationality. Until that occurs, you are still considered a U.S. citizen with ongoing income tax filing obligations.
However, if you did perform a valid expatriating act in the past, such as joining the armed forces of a foreign country, you can claim such claim and backdate your expatriation for tax purposes. This involves submitting an application filed and such form 1040NR to the Internal Revenue Service, asserting your status as a nonresident alien from the date of the potentially expatriating event.
It’s crucial to emphasize this: just because you were born in the UK, lived there, and even served in such armed forces does not automatically terminate your U.S. citizenship. Only by following the prescribed process—including coordination with a diplomatic or consular officer, proper documentation, and the issuance of the certificate of loss—can the loss occurred be recognized officially.
Tax Implications of Renouncing U.S. Citizenship
From a taxation standpoint, renouncing has serious tax consequences. The Internal Revenue Service imposes an exit tax for certain individuals, particularly those with a net worth over $2 million or average annual income tax over a specific threshold. These tax implications apply during the taxable year of expatriation and can involve the deemed sale of worldwide assets.
Documentation includes:
- Birth certificate to prove identity.
- Tax filings for the previous five years.
- Filing of Form 8854 to the Internal Revenue Service.
Effective Date of Expatriation
The effective date of expatriation is a critical factor in determining when a person officially loses their U.S. nationality. Typically, this date is the day the individual performs a potentially expatriating act, such as obtaining naturalization in a foreign state or taking an oath of allegiance to a foreign government. However, if the U.S. government does not immediately recognize the loss of nationality, the effective date may be delayed. During this period, the individual may still be considered a U.S. national. Understanding the effective date of expatriation is vital, as it affects tax liability, travel documents, and other rights and benefits.
What is a Certificate of Loss of Nationality?
A Certificate of Loss of Nationality is an official document issued by the U.S. Department of State, confirming that an individual has lost their U.S. nationality. This certificate is typically issued after the individual has performed a potentially expatriating act and submitted the necessary application to the Department of State. Serving as proof of the loss of nationality, the certificate may be required for various purposes, such as obtaining a visa or registering with a foreign government. Individuals who have relinquished their U.S. citizenship should ensure they obtain a Certificate of Loss of Nationality to formalize their status and avoid potential complications.
Can You Still Live in the U.S. After Renouncing?
Technically, yes, but it becomes more complex. One must apply for a visa to reside in the U.S. after relinquishing citizenship, just like any non U.S. citizen. This includes complying with immigration policies and undergoing review.
How Long Can You Live Abroad Without Losing U.S. Citizenship?
There is no time limit for how long a citizen can live abroad. However, such persons may be considered for loss of nationality if they perform a potentially expatriating act with intent. For naturalized citizens, prolonged absence may prompt review, especially under nationality act rules.
Special Considerations
- Children born to citizen parents abroad must maintain ties and documents like a birth certificate and travel documents.
- Minor children cannot typically renounce until they reach eighteen years of age.
- Such renunciation must be an act of free will and include a formal declaration.
Our Role at 1040 Abroad
At 1040 Abroad, we specialize in helping individuals navigate the tax implications and compliance requirements tied to the loss of nationality. We ensure full compliance with the Internal Revenue Service, prepare documentation for the Department of State, and clarify your legal and tax obligations before and after an expatriating act.
If you’re considering renouncing your U.S. citizenship or have performed a potentially expatriating act, contact us today for free tax advice and expert guidance through every step of the process.
