Are you planning to relinquish / give up your US citizenship? However, you have never filed any US tax returns and are worried about the potential issues with the Internal Revenue Service (IRS)? In these situations, you should obviously consult with the appropriate tax and legal advice about your situation. One option the IRS has listed on their website is the Relief Procedures for Certain Former Citizens.
The 14th Amendment to the United States Constitution provides that “all persons born or naturalized in the United States” are citizens of the United States. With very limited exceptions for individuals born in the United States with diplomatic agent level immunity, all persons born in the United States acquire U.S. citizenship at birth. A person born abroad to a U.S. citizen parent or parents acquires U.S. citizenship at birth if the parent or parents meet conditions specified in the U.S. Immigration and Nationality Act (Section 301 and following sections).
Some individuals born in the United States to foreign parents or born outside the United States to U.S. citizen parents, may be unaware of their status as U.S. citizens or the consequences of such status. By law, U.S. citizens, regardless of whether they live in the United States or abroad, are required to report their income and make tax payments (if necessary) to the IRS based on their worldwide income, including disclosure of their financial accounts/assets.
As such, the IRS had launched this “Relief Procedures for Certain Former Citizens” for certain persons who have relinquished, or intend to relinquish, their United States (U.S.) citizenship and who wish to come into compliance with their U.S. income tax and reporting obligations and avoid being taxed as a “covered expatriate” under section 877A of the U.S. Internal Revenue Code (IRC).
Who qualifies for the Relief Procedures?
Only taxpayers whose past compliance failures were due to non-willful conduct may use these procedures. All the following criteria must be met.
- You have relinquished your U.S. citizenship after March 18, 2010.
- You have no filing history as a U.S. citizen or resident;
- You did not exceed the threshold in IRC 877(a)(2)(A), related to average annual net income tax for the period of 5 tax years ending before your date of expatriation;
- Your net worth is less than $2,000,000 at the time of expatriation and at the time of making your submission under these procedures;
- You have an aggregate total tax liability of $25,000 or less for the five tax years preceding expatriation and in the year of expatriation (after application of all applicable deductions, exclusions, exemptions and credits, including foreign tax credits, but excluding the application of IRC 877A and excluding any penalties and interest).
- You agree to complete and submit with your submission all required Federal tax returns for the six tax years at issue, including all required schedules and information returns. See FAQs 11, 12, and 16 for information on how to complete these returns.
Only taxpayers whose past compliance failures were due to non-willful conduct may use these procedures. All eligibility criteria must be strictly met to use these procedures.
Hypothetical Situation (Aggregate Total Income Tax Liability Below Threshold):
Alvin was born in the United States. Shortly after he was born, his family returned to Country A. Alvin is a citizen of Country A and lives and works in Country A. Alvin renounced his citizenship on October 1, 2020 and received a Certificate of Loss of Nationality. He has never filed a U.S. income tax return and never applied for or received a Social Security Number.
Alvin wants to use these procedures to come into compliance with his U.S. tax obligations. He must report his worldwide income on Form 1040 for 2020 and the preceding five tax years to determine the total tax. For tax years 2015 through 2020, Alvin submits the following tax returns required under these procedures:
- 2020 Form 1040-NR U.S. Nonresident Alien Income Tax Return (with Form 1040 U.S. Individual Income Tax Return attached as an information return reporting worldwide income through October 1, 2020).
- 2019 Form 1040 U.S. Individual Income Tax Return.
- 2018 Form 1040 U.S. Individual Income Tax Return.
- 2017 Form 1040 U.S. Individual Income Tax Return.
- 2016 Form 1040 U.S. Individual Income Tax Return.
- 2015 Form 1040 U.S. Individual Income Tax Return.
For more detail information, you may refer to the IRS website https://www.irs.gov/individuals/international-taxpayers/relief-procedures-for-certain-former-citizens.
If Alvin has met the requirement to file a Report of Foreign Bank and Financial Accounts (“FBAR”) for any year(s) included in the Relief Procedure, Alvin should also file the FBAR accordingly. As the FBAR rules can be extremely complex, we have not included much detail in this article.
Relinquishing U.S. citizenship and the tax impacts of relinquishing U.S. citizenship are serious matters that involve irrevocable decisions. Again, remember, you should consult with the appropriate legal counsel and U.S. tax experts before making any decision about relinquishing U.S. citizenship and U.S. tax compliance.
Disclaimer: This information has been prepared for informational purposes only, and is not
intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors or consult us regarding your own personal tax situation as this article was intended to be general in nature.