Difference Between Renouncing vs Relinquishing U.S. Tax Status

Difference Between Renouncing vs Relinquishing U.S. Tax Status

Renouncing vs. Relinquishing U.S. Tax Status

When it comes to the process of formally expatriating from the United States, (aka ‘expatriation’) there are two primary categories of U.S. taxpayers who may be subject to the expatriation process. The first category of taxpayers are U.S. Citizen taxpayers who are going to give up their US citizenship. This is generally referred to as renouncing U.S. citizenship and the process can be very complicated. Alternatively, for certain Lawful Permanent Residents who are considered to be long-term lawful permanent residents, the process of giving up their green card/permanent residency status is referred to as renouncing or terminating their permanent residency resident status — since they are not technically ‘renouncing’ citizenshipbut the terms ‘relinquish’ and ‘renounce’ can be used interchangeably for citizenship purposes as well. While the concepts are similar, the processes are different. Let’s look at the difference between renouncing and relinquishing US taxpayer status.

Renouncing vs. Relinquishing US Citizenship

When it comes to citizenship specifically, the IRS provides the following:

      • Date of relinquishment of U.S. citizenship.

        • You are considered to have relinquished your U.S. citizenship (and consequently, have an expatriation date) on the earliest of the following dates.

          • 1. The date you renounced your U.S. citizenship before a diplomatic or consular officer of the United States (provided that the voluntary renouncement was later confirmed by the issuance of a certificate of loss of nationality).

          • 2. The date you furnished to the State Department a signed statement of your voluntary relinquishment of a U.S. nationality confirming the performance of an expatriating act (provided that the voluntary relinquishment was later confirmed by the issuance of a certificate of loss of nationality).

          • 3. The date the State Department issued a certificate of loss of nationality.

          • 4. The date a U.S. court canceled your certificate of naturalization.”

Important Facts About Renouncing/Relinquishing U.S. Citizenship

If a taxpayer is considered to be a U.S. citizen — either by birth or naturalization — and they want to give up their US citizenship they are required to formally renounce/relinquish their US citizenship.  When renouncing U.S. citizenship, there are a few requirements taxpayers need to be made aware of.

      • First, taxpayers typically must renounce their US citizenship at an embassy or consulate outside of the United States.

      • Second, the taxpayer must already have citizenship in a different foreign country at the time they renounced or else the US government will not approve their renunciation, because the U.S. government does not want the taxpayer to be orphaned.

      • Third, it may require multiple meetings with the consulate slash embassy.

      • Fourth, it requires the preparation of many Department of State forms which range from DS-4079 to DS-4083.

For taxpayers who want to renounce their US citizenship but do not have lineage or the opportunity to become a citizen of a foreign country may consider purchasing a citizenship-by-investment. Several countries offered this type of citizenship.

Terminating/Relinquishing A Green Card

The process for a taxpayer to terminate or relinquish a green card is typically much simpler from an immigration perspective. That is because to relinquish your green card, all that is typically required is that the taxpayer complete Form I-407. While there are other methods available to relinquish the green card, all the taxpayer has to do is prepare the form and submit it to USCIS. Previously, taxpayers could submit the documentation in person, but the locations are no longer required to accept it by hand. Nevertheless, some locations may allow the taxpayer to walk the I-407 in along with the green card to relinquish the green card.

Expatriation has Two Prongs

In general, there are two prongs required to formally expatriate from the United States. There is the immigration aspect of expatriation along with the tax aspect of expatriation. Depending on whether the taxpayer is considered a covered expatriate and whether they have to calculate an exit tax would determine how simple or complicated the expatriation process will be. Taxpayers who are considering expatriation may want to speak with a Board-Certified Tax Law Specialist to get an understanding of what the process is and how it may apply to them. It is also crucial that all taxpayers who are considering expatriation are U.S. Tax Compliant before expatriating from the United States.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure

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