Month: January 2014

How I Renounced My US Citizenship and Why, Part I

 

The following is a firsthand story of how and why a former US citizen—who kindly shared this information on condition of anonymity—decided to renounce his US citizenship. It’s packed with practical advice and priceless insights into this momentous decision. Whether or not you take the ultimate step of renunciation, I believe you will find value from the author’s experiences.)

By Citizen of the World

Having evolved philosophically in my adulthood to a fairly hardcore libertarian worldview, I had read the writings of people like Doug Casey, which encouraged people even some decades ago to take concrete steps to internationalize themselves. Not just “talk the talk,” but to actually “walk the walk.”

My professional career offered me the chance to travel abroad quite a bit, so it was not too difficult for me to begin taking baby steps to internationalize.

I rented an apartment in one of the Asian cities that I frequently visited. A few years later, I made my first overseas real estate purchase of a small apartment in another Asian city, followed by several more in the next few years.

By this time, I was managing to spend about 2/3 of each year outside the US—you could say that I waded into the pool, rather than just diving in.

The passage of the first of the three recent “exit tax” laws by Congress in 1996 had alerted me to how high-stakes the US government regarded full expatriation to be—and inclined me toward doing so.

I reasoned that if they were that anxious to discourage people from leaving, it might well be time to seriously consider doing so.

Still, for about another decade, I wasn’t in a good position financially or logistically to do so, although I did begin seriously collecting more information about residency abroad, second passports, etc.

Shortly after my financial and logistical impediments cleared up, Ron Paul began achieving astounding success in the early phases of the 2008 presidential campaign. Encouraged once more at the prospect of there perhaps being a chance to turn things around after all, I put my international plans on hold and devoted nearly the entire first three quarters of the year to his campaign.

But the unremitting ferocity with which mainstream Republicans opposed our every effort led me to renew my efforts to abandon the sinking ship.

Another imperative for me has been the maxim “silence implies consent”—that is, by not acting (especially now that I was in a reasonably good position to do so) to separate myself from the manifest evils of the regime in DC, I would continue granting it my consent.

So, believing at that time (incorrectly, as it turns out) that you had to have another passport before you could give up US citizenship, I settled on the economic citizenship of the Commonwealth of Dominica, which is the quickest legitimate and least-expensive way to clear that hurdle.

I engaged a US-based consultant/agent to undertake the process of applying for Dominica’s program—something I definitely recommend.

Even though the agent may not want to hold your hand the whole time or answer every last question you may have, he or she can be quite helpful in navigating any significant rough spots or ambiguities. But be careful: the fees can mount up quickly. Keep in mind that obtaining a second citizenship (so you won’t be “stateless” and unable to travel after giving up your US citizenship) and the actual Relinquishment/Renunciation are two distinct phases (there’s a third expatriation phase, if you will be a “Covered Expatriate” and have to deal with the “mark to market” exit tax). You’ll likely be expected to pay fees to an advisor/agent for each phase, unless you spring for a (much more expensive) “package deal.”

Do be careful to choose only a legitimate agency—there are any number of dubious ones offering their “services” on the Internet. If in doubt about one you’re considering, you should inquire directly to the government officials of your chosen country whether that agency is in good standing with the officials there.

Initially, it was expected to take about three months to receive the Dominica passport, after all the required documents and preliminaries had been done.

But even as I got those things ready to submit (the required FBI criminal check was routinely quoted as taking up to 12 weeks at that time), the expected approval and completion dates were being pushed out at least several more months.

I had originally considered doing the St. Kitts program, which offered a considerably more useful passport—visa-free entry to all of the EU, as well as to Canada, which is about two dozen more countries than the Dominica passport allows.

So faced with a possibly quite extended delay in getting the Dominica passport and by now having a fair amount of experience in making such an application, I decided to apply for the St. Kitts one as well—and without the additional expense of a consultant/agent.

Since most of the documents and preliminaries I had done for Dominica were also needed for the St. Kitts application, I got the St. Kitts one done much sooner and had everything for it filed about a month after filing for the Dominica one. In the end, the St. Kitts passport was issued about three months before the Dominica one.

With the passport hurdle soon to be cleared, I had to make financial preparations. Not so much on account of the exit tax itself, but much more because of the very punitive, but much less known Section 2801 gift/inheritance tax imposed on all post-expatriation gifts and/or bequests to “US persons” by a “covered” expatriate (which I have the dubious pleasure of being).

[Editor’s Note: The term “covered expatriate” refers to the former US citizens who qualify to be stung with the exit tax. See this IRS article for more details.]

Because most of my low-to-mid seven-figure wealth had already been taxed at least once (and also having considerable loss carry-forwards ensuing from the aftermath of the 2008 panic), I was not facing much of an exit tax liability itself.

Once I had the passports in hand, but well before I had finished financial preparations, I made the first of the two visits to a US embassy or consular office abroad required for the actual renunciation process.

On the first visit, you must allow the consular staff to inform (lecture?) you about the “grave” consequences and irrevocability of what you seek to do; and you must assert to them that you understand what you are doing, that you really do intend to do so, and do not expect to retain any rights or privileges of US citizenship.

However, you are not allowed to complete the renunciation process at that first visit. You must go away for at least a short while and then come back on a second appointment, “to be sure you really want to do this.”

In my case, the consular official whom I met with on that first visit did not try very much to dissuade me, nor did I have any difficulty convincing her that I had thought about it extensively and knew what I was seeking to do.

Another half-year elapsed before I finished all the required property transfers into irrevocable trusts (to avoid Section 2801 gift/inheritance tax), after which I was finally ready for my actual expatriation appointment.

There are actually two somewhat distinct procedures by which you can give up US citizenship: relinquishment or renunciation. The State Department forms and consular staff procedures are similar, but not identical, for both ways.

Renunciation is the more affirmative way, and may be preferable for that reason alone.

Professional and informal advisors have differing opinions on which is better—and even whether there’s any substantive difference at all—apart from the $450 fee now required for a Renunciation filing (no fee at all is currently required for filing a Relinquishment—if one is in a position to choose that route).

There are no differences in IRS/tax consequences, and it’s said that the State Department makes no distinction between those who relinquish versus those who renounce.

But the fact remains that there are the two different procedures, and some knowledgeable people do recommend relinquishment (if one’s situation permits using that method) instead of renunciation.

Be aware though that pursuing a relinquishment requires the applicant to demonstrate to the satisfaction of the State Department people involved (both in the embassy/consular office and the application reviewers in Washington), that the applicant’s “potentially expatriating act” (which is usually the act of obtaining citizenship in another country) was truly done “with the intent to give up US citizenship” at the time of “performing the potentially expatriating act.”

In contrast, making a renunciation filing, which involves performing an Oath of Renunciation before a consular officer, provides convincing prima facie evidence of intent to give up US citizenship.

The State Department may reject a renunciation filing only if there’s clear evidence that the applicant was under some sort of duress to take the oath, or that the would-be renunciant intends to retain any prerogatives of US citizenship (such as continuing to reside in the US without obtaining any residency visa/permission as an “alien”).

Because so much time had elapsed since my first visit, I had to re-do it. Mercifully, the consular staff allowed me to return quite soon for the actual renunciation process.

There are numerous reports of delays of weeks to months in getting appointments (for either or both of the two required visits) at many of the busier embassies. I have personal knowledge of an embassy in a major Asian city requiring a two-week interval between an applicant’s first and second renunciation visit regardless of how full or slack its appointment calendar was.

A note about embassy/consular office practices: The expatriation requirements and procedures are stated in fairly thorough detail in in Volume 7, chapter 12 of the State Department’s Foreign Affairs Manual (FAM).

In practice though, each embassy/consular office seems to operate with a fair amount of discretion.

As just one example, FAM explicitly states that an embassy or consular office must allow any US citizen to expatriate who applies there to do so. Yet I was told by consular staff in one major Asian embassy that it refuses to let anyone who is not a legal resident of that country expatriate at that embassy.

Though they’re primarily focused on the plight of the many Americans who permanently moved to Canada, the Isaac Brock Society maintains an excellent website. It keeps an extensive—if anecdotally based—log of people’s expatriation experiences at various embassies/consular offices around the globe.

The actual process of formally doing the renunciation was straightforward and was conducted without any further hassle or delay at my next appointment.

 

How I Renounced My US Citizenship and Why, Part II

 

By Citizen of the World

There are two forms for the applicant to fill out: DS-4079—a questionnaire about the applicant’s intentions to give up US citizenship; and DS-4081—a “Statement of Understanding” (that the applicant knows and understands the consequences of giving up US citizenship, and that doing so is irrevocable). DS-4079 is technically only for a “Relinquishment” filing, but may also be requested for a “Renunciation” filing. For a Renunciation proceeding (but not for a Relinquishment), the consular officer also prepares DS-4082, the Oath of Renunciation. The Oath is administered orally, after which the applicant as well as the consular officer signs the DS-4082.

Then the consular officer prepares a DS-4083, Certificate of Loss of Nationality (CLN). But the applicant will not be given a copy of the CLN at this time, as the application must first be approved by a State Department bureau in Washington. Embassy/consular staff were careful to remind me that my expatriation would not be finalized until these documents were reviewed in Washington—in particular my CLN, and my application was approved in Washington.

The time necessary for that State Department review process apparently has varied quite widely in recent years. Its duration may also depend at least somewhat on the embassy or consular office where one makes their expatriation application (perhaps taking longer from embassies with higher expatriation caseloads). Again, it may be useful to shop around among various embassies/consular offices which may be relatively accessible to an expatriation-seeker. The Isaac Brock website may be a very useful resource in this regard.

In my case, approval of my renunciation was fairly prompt—only about a month. As soon as the embassy or consular office receives confirmation from the State Department in Washington that the applicant’s filing has been approved, the embassy/consular office will provide the applicant an approved, sealed copy of the CLN.

For a renunciation, the effective date of expatriation is the date the Oath of Renunciation was performed; but for a relinquishment, the effective date of expatriation—as far as the State Department is concerned (but not the IRS)—is the date the “potentially expatriating act” (such as obtaining citizenship in another country) occurred. The IRS considers one’s expatriation date to be the date the applicant completes his or her filing with the embassy/consular office—provided only that that filing is subsequently approved by the State Department.

Of course, the “potentially expatriating act” may have occurred quite some time before one’s expatriation filing is made—but in such a case, it’s important for the person seeking to expatriate to avoid availing himself of any significant privileges/benefits of US citizenship, such as voting or using his or her US passport.

The State Department seems to have developed formulaic criteria for whether an applicant really intended to give up citizenship at the time they performed the “potentially expatriating act.” Even if one really did intend at the time one did the “potentially expatriating act” to give up citizenship and declares so in the application, the State Department will apparently refuse to accept that fact, if the person subsequently “continues to avail oneself” of any “significant”—whatever that means—benefits of US citizenship.

Once you’ve succeeded in expatriating, it will be important to be able to produce your CLN at various times in the future, as there will be no other official document you can offer as proof that you really did give up US citizenship. As FATCA and similar measures eventually become widespread (which unfortunately seems much more likely than not), the few remaining foreign financial institutions which have continued to accept US individuals as clients will dwindle further. So providing your CLN will likely become essential to open or even retain already existing financial accounts.

You should probably make several good copies of your CLN, including a high-resolution color scan (quite useful for online purposes). Sometimes it may be important to have some sort of notarization or other official recognition of it. You may want to do that sometime when you’re in the US, as notaries abroad tend to be a lot more expensive, less prevalent, and may refuse to even deal with documents not originating in their own country. Because loss of citizenship is irrevocable, there is logically no expiration to the CLN, so it should not matter when a copy of it is notarized. But alas, bureaucrats everywhere are not well known for their reliance on logic.

Once you’ve been notified that your expatriation application has been approved in Washington, you will be able to begin the process of applying for a visa to enter the US, if you wish to—that is, if you don’t hold a passport from a country on the US visa waiver list. Some people advise waiting for some time before applying for a visa, but there’s no formal requirement to do so.

Do keep in mind that the State Department considers that every applicant for a visitor visa to the US has the burden of proving (to the consular officials where the visa application is made) that the applicant will not try to stay illegally in the US. One might think that an expatriate, having gone to the considerable trouble of giving up citizenship, would be highly unlikely to want to stay too long in the US—but there’s no evidence that the State Department recognizes such an argument. One factor which does lend considerable support to an applicant’s (implied) assertion that they will not try to stay illegally in the US is to have “substantial ties” to another country—residency, social and/or familial ties, etc.

There’s no hard and fast requirement to apply for a US visa only at your “home”-country US embassy or consular office, but it’s generally considered better to do so. For instance, it’s likely easier to provide evidence of one’s substantial ties to that other country from within that country (and easier for the consular staff there to verify that evidence).

One very critical point to understand is that you should NEVER state that you are expatriating to avoid taxes. It could end up complicating matters if you ever intend to return to the US.

If your dossier with the US government states that you renounced for tax purposes, that information should be assumed to be readily available to any number of agencies—including those dealing with visas and immigration—and likely could be used to deny you a visa or otherwise deny entry into the US.

Although the authority to exclude a person from re-entering US on that basis is of questionable validity, and formal regulations on this have never even been proposed or implemented, State Department guidance to overseas posts does explicitly state this as a reason to reject a visa application.

The increasingly great difficulty (largely due to FATCA, FBAR, and Form 8938 reporting requirements) of trying to lead a normal life while living overseas as a US citizen is—and ought to be—reason enough for many to give up their US citizenship.

Some experts advise against giving any reason for why you’re expatriating in any of your interaction with US consular officials at any point during the expatriation process—and particularly in any of your responses on the DS-4079 Questionnaire. But these responses may be useful later on to have established that one did have substantial non-tax-avoidance reasons for expatriating. In any case, it would probably be best not to express opposition to the regime in DC too strongly or explicitly as the reason for expatriating—even if that is a major factor in one’s decision.

Do keep in mind that visa applicants are required to have a face-to-face interview with a US consular agent before a visa can be approved. The application (using form DS-160) must be completed using the State Department’s online system. The interview itself may be conducted in a more or less assembly-line manner, in a bank-teller-window-like setting. The main purpose of the interview requirement seems to be to assess the general nature of the applicant and his or her situation—and to attempt to ferret out any adverse factors for which US officials there might want to reject the application (such as lacking strong enough ties to one’s new home country, or an actual—or even fleeting—thought on the applicant’s part to remain illegally in US).

The lead time for getting the interview appointment will vary considerably by location and time of year, ranging anywhere from just one day up to several weeks, maybe even months. Consult the online appointment calendar of the embassy/consular office where you plan to submit your application and try to avoid applying during whatever peak periods may exist there.

It will probably only take a few business days after successfully completing the interview to receive your passport back with your visa. You’ll be advised at the end of the interview whether or not your application is being recommended for approval; apparently an application is very rarely rejected after a successful interview.

The parameters of any US Visitor visa you may be issued—its validity period (in years), number of entries allowed, and maximum length (in days or months) of each visit—will depend on the passport under which you apply for that visa.

It’s not very easy to locate country-specific State Department policy on these parameters, but this page on the State Department’s website has a selection box to check at least the default visa validity period and default number of entries allowed for any particular country. Unfortunately, this page has no information about the default length of stay permitted for US visa holders of a particular nationality.

(Editor’s Note: See the VisaHQ website to see what kind of visa passport holders from country X need to enter country Y while living in country Z.)

Another point to note: regardless of whether you enter the US under the visa-waiver rules or under your own visa, doing a “visa run” (a quick trip to a nearby country to reset one’s visa or visa waiver period) is not so easy. US Immigration authorities require you to perform a “substantial” departure, meaning you must go at least as far away as continental South America—no quick trips to Canada, Mexico, nor even any Central American or Caribbean country!

Without question, you’re likely to have some fairly keen feelings at least the first few times when you come back to the US as an “alien” (what a horrible word—as if people living elsewhere are some sort of suspicious or even dangerous intruders). When you come back to the US, you’re likely to be quizzed a little bit by the immigration officer (and maybe also the Customs inspector), but in the half-dozen or so times I’ve been back so far, I’ve not been given a hard time at all.

Of course, past performance is no guarantee of future results, so one will always face the risk of more hassles down the road. But given that US border authorities already claim that even US citizens have no Constitutional rights at entry points, there are risks for everyone.

I didn’t expatriate because I expected it to make my life easier overall—it has not made it easier overall (at least for me). Yes, some things are easier now: I can open financial accounts overseas and invest directly in overseas securities, many of which have become effectively off limits to US individuals.

Also, I sleep better at night, relieved to no longer be even an unwilling, passive participant in the ever-escalating wars against the growing assortment of “evils” declared by Washington. And I no longer have to worry about making an honest mistake or omission on any of the ever-increasing IRS reporting requirements. But it’s at least somewhat more difficult to travel—this depends a lot on the other passport(s) one has.

Another significant trap to be wary of is the IRS’s Substantial Presence criteria, which risks you getting sucked back into the whole US tax regime (including all the overseas reporting requirements). This occurs if you stay too long while visiting in the US. Not only must one stay in the US no more than 182 days in any one year, you must also ensure that your weighted average number of days within the US over the most recent three years isn’t too high.

There are several other ways one may be required to continue dealing with the IRS after successfully expatriating, especially if you continue to have any US-based assets. At a minimum, in the first year after expatriation, it will be necessary to file Form 8854.

If you are considered a “covered expatriate”, preparing Form 8854 (and both of its associated 1040 forms) will be at least fairly complicated, and will almost certainly require the services of one of the small number of professionals who are experienced with Form 8854 and the “mark to market exit tax.”

I’m still in the early days of my post-expatriation life—really far too soon to judge with any certainty whether I made the right decision (even according to my own thinking, let alone what anyone else thinks). But so far, I’m satisfied that I did do the right thing—for myself. The “silence implies consent” credo is very deeply ingrained in my outlook; this tends to trump the drawbacks, at least for myself. I find implied endorsement of this thinking in Nassim Taleb’s Antifragile, especially in a number of passages in chapter 22. In the end, expatriation is a momentous decision and will be unique for each person considering it—there’s no one right answer for everyone.