It's significantly more than $2350 for many people - you may be required to pay capital gains tax on all of your assets as though you disposed of them all on your last day as a US citizen. Same applies to people who have held a green card for more than 8 of the 15 years preceding abandonment. [1]
Responses to this seem to be missing the point. When you renounce citizenship, you pay tax on your assets EVEN THOUGH you did not dispose of them. It amounts to having to buy your freedom for a price based on your financial worth.
> Crowded Building Collapses in Foreign Country, Two Americans Die
...because those two were the only balance-sheet relevant humans in the building. If you don't have to write off the debt when they die, why bother accounting for their lives at all?
Not taxes that you would owe if you weren't renouncing, or if you kept a green card for less than 8 years. You could make the same argument for the $2350 fee as "yes you have to pay the costs that the USCIS incurred processing your renunciation." After all the USCIS generally operates on a cost recovery basis. [1]
> USCIS funding comes primarily from fees we charge applicants or petitioners requesting immigration or naturalization benefits. These fee collections fund the cost of fairly and efficiently adjudicating immigration benefit requests.
Capital gains is deferred every year that you don’t sell an asset, but that doesn’t mean it isn’t an obligation. The only way to avoid it in the US is to die at which point your beneficiaries get to enjoy a tax loophole.
If renouncing citizenship would get you out of that obligation people would do so regularly as a tax break then reapply.
> Capital gains is deferred every year that you don’t sell an asset
I think that's a slightly odd way to think about it, the tax is due when you actually have a capital gain, which in the ordinary course of just owning something you don't.
Of course, many countries don't want to miss out on that just because you moved before you sold, so change in tax residency becomes an event that triggers it as if it had been sold.
What's unusual about the US (currently) is that citizens worldwide are considered resident for tax purposes (as other countries would call it I suppose, since it's typically more about residency than citizenship) whatever their living and working arrangement and wherever else tax may be due.
If it weren't for that, probably nothing about renouncing citizenship would be controversial, because it would be a much more niche desire. Surely the main reason to do it is because you moved and wish to be free of 'doing taxes' (maybe you moved somewhere where that's not even something you have to think about!) in the US?
> What's unusual about the US (currently) is that citizens worldwide are considered resident for tax purposes (as other countries would call it I suppose, since it's typically more about residency than citizenship) whatever their living and working arrangement and wherever else tax may be due.
For most people who aren't insanely rich or aren't getting most of their income via a trust fund, this isn't very relevant. You have the foreign income exclusion (somewhere north of $100k now) and the foreign taxes paid deduction to insulate you from playing taxes in the states. The problem becomes when you are making > $100k in a low tax place like Singapore or Dubai, but even then there is a housing deduction that works for most working class people.
> Surely the main reason to do it is because you moved and wish to be free of 'doing taxes' (maybe you moved somewhere where that's not even something you have to think about!) in the US?
It isn't hard to file if you have simply income to consider. I did it by hand for many years, it took around 15-30 minutes a year.
Your property taxes are adjusted to changes in the value of the land. So, you might owe twice as much on some investment property after you build a hotel, but capital gains on that land isn’t assessed every year.
Arguably it’s simply a question of practicality as nobody can accurately assess how much a painting is worth until it’s sold. Still, it definitely incentivizes bonds which pay on maturity rather than every year.
Beneficiaries still have to pay an inheritance tax.
The loophole is putting all your assets into a trust and declaring beneficiaries of the trust. When you die the beneficiaries only have to pay capital gains from value at the time the trust was _created_. IE the closer to death the trust was created the less tax they pay.
There is slow moving efforts to remove this loophole.
Critically, in years when estate taxes existed they treated cash identically to stocks so it was still a loophole. 13 million in appreciated assets counts the same as 13 million in cash. You only pay estate tax on the 80k over the $12.92 million threshold even their capital gains would have been 1.5 million that goes away.
If you inherit an asset your tax basis is its value when the owner died. This may be significantly less than what it is when you actually receive the asset, but it’s likely higher than when that person originally purchased it.
PS: Estates may chose an alternate date 6 months after someone died, which again generally helps.
Or keep a green card for less than 8 of the 15 years preceding abandonment. This is the crux of my argument: it feels punitive to impose the tax only on people who spend a long time in the US.
You pay income tax every year. Capital gains was accrued but the IRS defers taxing that as a tax break allowing you to compound interest on money you owe.
When you leave they want all accounts to zero out which seems eminently reasonable.
Respectfully that's not the argument I'm making. I don't think taxing people when their obligations end is inherently wrong. I think the choice to apply it only to people with 'stronger/longer term connections' to America is meant to disproportionately disincentivize renunciation in the same way that a high fixed fee does/did.
[edit] It's mostly problematic for people who find themselves subjects of the IRS, being born abroad for instance - and they may never have even realized their obligations. They are stuck with paying the IRS forever or renouncing and paying capital gains tax on all their assets. Meanwhile, someone who lives in the US for 8 years as an LPR and decides to leave is free to go after filing an I-407 and picking up their 1040-C sailing permit. The whole taxation on the basis of citizenship instead of residency is fundamentally unfair and broken IMO.
Taxing on residency creates a massive loophole. What if Jeff Bezos gains residency in a country without capital gains and sells all his Amazon Stock then moves back to the US. The year he’s gone saves him 25 billion in taxes for doing little more than sitting on an island somewhere.
Now, if you taxed capital gains when they occurred rather than when the asset was sold then I would absolutely agree it should be tied to residency. But by deferring it for decades suddenly there’s a major incentive to get out of that obligation.
Capital gains are due at disposition. If Bezos leaves America then he only owes the value accrued during his time in America. Any more than that there's no basis for whatsoever. If he wants to rule Amazon from the Bahamas and not spend enough days in the US each year to pass the substantial presence test, then go for it.
If Bezos paid up when he relinquished residency and then Amazon went down, should he get a refund? 10 years later? Why not - why should he only owe money if it goes up?
He can do the same exact thing by renouncing his citizenship today and paying the capital gains due, today. It's not a 'loophole' that doesn't already exist. In fact, that's exactly what Eduardo Saverin did. [1]
> If Bezos leaves America then he only owes the value accrued during his time in America.
That’s equivalent to what the IRS is doing only moving things forward to residency vs citizenship. The current system is actually better for Bezos or other multi billionaires because they can move anywhere around the world and keep deferring capital gains until death when it disappears.
Though this is a serious edge case. 2k people renounced American citizenship in 2019 some years it’s ~10k but only a fraction have any kind of meaningful capital gains liability. The general cases is Americans who get to defer liability not expats with a surprising bill.
Suppose you renounce citizenship, pay your capital "gains" taxes on some stock, and then the stock goes to zero the next day (or, rather, goes below your purchase price). Are you entitled to a refund?
That’s identical to someone selling a stock then falling to set aside capital gains and losing it all gamboling at a craps table.
Whenever you have a tax obligation like this, sell the stock and set the money aside. In the case of renouncing citizenship you can sell all your stock before you leave because you’re facing the same tax liability either way. The only risk is if you do something stupid.
Wrong. That's not how capital gains works. Capital gains is assessed at the sale of the underlying instrument. In your gambling example, if your underlying instrument went to below purchase price, you would owe nothing, or better yet, it would yield s deferrable tax credit.
You must have misunderstood something, renouncing citizenship is a taxable event the same way selling stock is. Thus:
> That’s identical to someone selling a stock then falling to set aside capital gains
You might think the only way to be forced to pay capital gains is on sale, but you’re literally complaining about people being forced to pay capital gains for something else.
True, but eg the UK has quite a tight definition of "residency" (the significant ties test) which catches many people who actually live outside the UK.
Yes, but it doesn't catch the equivalent of people like me, who are US citizens through birth, but with no other ties to the country.
Yet I therefore still have to navigate the nightmare that is their paper based (and "refund/allowance" obsessed) tax system, despite not having resided in the US since the age of 3.
For example, it's not enough for me to simply earn less than the "foreign income tax allowance".
Instead I need to calculate the tax I would owe on one form, calculate the deduction to that tax on a different form, then write the sum from one form on to the other form (god help if you make an error transcribing that number).
The US tax form is full of things like "Add the numbers in 11a through 11g together and deduct this number from the number in 13 and write it down in 15".
It feels utterly hostile, as if it's trying to catch the person out, instead of guiding them to the accurate number.
Yes. The US is also relatively unusual in continuing to bestow citizenship automatically on everyone born in the country which also means there are many people who have citizenship without any real ties to the country.
It's also unusual in having a tax system where the admin for the average person is a massive pain.
You're gaining something by not renouncing it. The minimal cost of some trivial paperwork that you could if you wanted to offload to someone for a nominal fee is a really odd complaint.
> god help if you make an error transcribing that number
Why do people have such fear of taxes? No, it's not God. When you make an error the IRS helps you. They compute your taxes anyway and they send you a letter with your error and the updated number.
"The minimal cost of some trivial paperwork" - the US tax filing system is a joke and the paperwork is anything but trivial. Especially given the potential consequences of getting it wrong.
> When you make an error the IRS helps you. They compute your taxes anyway and they send you a letter with your error and the updated number.
You make this sound so simple. And yet, speaking from experience, it drags out for months and ends up costing 5-figures in penalties. If they can so easily compute the correct number anyway why continue with the whole charade of making us answer a whole bunch of barely decipherable questions?
> If they can so easily compute the correct number anyway why continue with the whole charade of making us answer a whole bunch of barely decipherable questions?
You should look up what Intuit and H&R Block lobby for. They spend massive amounts of money to stop the IRS from just sending you a prefilled out form for you to verify. It's called return-free filling. There have been countless bills to introduce this but they always die. The IRS could technically do it easily, but it isn't authorized to by Congress.
This is one of those stories that breaks every year or two in major newspapers and people are outraged but it never gets better.
The summary is that if you have a full time job outside the UK or have spent less than 46 days in the UK (less if you were previously a UK resident) then you are never classed as a resident.
If that doesn't apply then working full time in the UK, spending at least half the year in the UK, or only having a home in the UK and using it for more than 30 days will automatically make the a resident.
If those don't apply, then there's a test to say if you have "significant ties" . The details for that are in the link and are applied on a sliding scale based on the number of days you spent in the UK.
To me, it looks pretty fair. You have a spend most of the year in the UK, have lots of "ties" here (property, family, etc), and not have a job elsewhere to be classed as a UK resident for tax purposes.
In reality the detail is what pushes most people to have to consider significant ties because the full time work test excludes a lot of people and is hard to prove for many others. eg if you are retired, a non working (or part-time working) spouse bringing up children, or make money via something HMRC could consider as not being a "trade" (eg investing your own money) then you don't automatically qualify as non resident.
The definition of full time work is explicitly linked to actual hours worked (not contracted), so the admin involved in proving this is painful.
For friends who've left the UK for work, the only way to qualify without massive hassle has been to spend less than 16 days a year in the UK for the first 3 tax years (and thereafter less than 46 days).
On the other hand, exit taxes based on residency rather than citizenship are common. When you leave Canada, there will be a „deemed disposition“ that means the cra will assume all your assets (except real estate) were sold and immediately bought, so u need to pay taxes on the delta of market and book value.
Exiting Germany is similar, except they don’t tax stock of public companies when exiting, and they also allow ppl who only moved to Germany some years (up to seven?) ago to exit unscathed.
One would hope that the book value of your assets in the new country matches the exit value when leaving, otherwise you may get double taxed.
Most places have tax systems based on residence though.
Yes, but you wouldn’t be double paying taxes. If the taxes of the country you are residing in is low, then it would be rounded up to US taxes’ rate. There’s also the foreign earned income exclusion which would retain the lower tax rate up to a certain amount (~$105k). If the tax rate of the country you are residing in is higher, then you wouldn’t have to pay Us taxes.
Right, so my point that Canada taxes those who are living outside their boarder stands.
And the US has tax treaties with other countries as well, so if you pay taxes in say Japan or Canada you do not pay taxes in America as well. Unless you make over 150k a year, then you only pay the marginal difference.
> And the US has tax treaties with other countries as well, so if you pay taxes in say Japan or Canada you do not pay taxes in America as well.
That isn't by tax treaty, which is usually related to payroll taxes. You can always deduct taxes you pay to any foreign government, with a couple of exceptions (Cuba maybe?), even if they lack a tax treaty with the USA.
Some accidental Americans may not even have known they owe capital gains tax. Not every jurisdiction taxes capital gains, and many have differing rules. It can be quite shocking to get a tax bill from a place you’ve never lived!
That sounds very cruel to the many accidental Americans out there, should the US have banned Boris Johnson [1] from ever entering the US just because of his place of birth? The more intelligent option for all countries would be to make citizenship performance based, if you live and contribute to a certain society, you ought to be considered part of it instead of current system of nonsense.
Some countries don’t allow dual citizenship. Japan might be one. I know someone who had to give up their citizenship to be able to live with family when they turned 18. What you suggest would be cruel and provide little value.
This is ridiculous. Why? If you don't want the protections that come with being represented by the US state department why should you pay anything? A tax loophole? It's beyond a tax loophole, you're losing representation and access to the services you no longer pay for, sounds like a fair deal to me.
Permanently barred from entry? Why should these people be treated any differently from any other foreigner?
Because the USA is a free and open society which should not punish someone just because they gave up their citizenship?
Honestly, your position is something I would've easily attributed to the Soviets at some point in time, and never thought an American would feel that way ...
Ironically this is bad news for Americans applying for German citizenship, because currently under some circumstances they can argue that they should not have to relinquish their existing citizenship as is normally required, on the basis merely paying the fee would cause them financial hardship.
Yeah, as an American who badly wants Leave to Remain in the UK and has several British friends who badly want an American green card, I wish there was some sort of swap program
Below is my personal opinion on this matter. I'm a U.S. citizen.
America is one of the countries that grants the most rights to its citizens. This is enshrined in the constitution.
The constitution has always been a thorn in the side of anyone who wants to establish a top-down dictatorship in America.
Imagine a case where such a person or people decide to target certain Americans.
If it is possible to renounce citizenship and the rights it comes with, people might target them with demands that they do so, hence depriving them of their constitutional rights and protections.
The entire bill of rights only applies to U.S. citizens.
For these reasons and to avoid this possibility, in my personal opinion in order to safeguard liberty, it should not be easy, or even possible, to renounce citizenship and the rights it comes with.
If it is possible to renounce constitutional protections, someone could force people to do so.
Hypothetically, imagine if a police officer broke into your home and handcuffed you to a radiator until you were willing to renounce your citizenship.
I personally feel that this is not a scenario that should be possible.
To avoid this scenario, I think that it should not be possible to renounce U.S. citizenship and the rights it comes with.
That what courts and police are for. I am pretty sure it would be invalidated if you proved that it was under duress. But i have never heard about anyone forcing citizenship renounciation. But some people have legitimate reasons to do so, e.g. bojo: https://www.theguardian.com/politics/2017/feb/08/boris-johns...
Perhaps part of why you haven't heard of anyone forcing citizenship renunciation is that renunciation is difficult and uncommon. I think that is a good thing and it should stay that way.
"I am pretty sure [the renunciation] would be invalidated if you proved that it was under duress."
I'm curious about your thinking on this point. Could you list the forms of evidence a person who renounced citizenship under duress could adduce to prove the renunciation was done under duress?
I'm pretty sure an audio tape of "Tell you what. Since you hate me and America so much, denounce your citizenship and I'll let you go live a peaceful life back wherever you came from" while the person is chained to a radiator would not count, even though under the circumstances this is a form of duress.
I don't think you are correct that any court would overturn it, regardless of any evidence introduced.
For this reason, I personally feel that it should not be possible to renounce citizenship, specifically to prevent this possibility from happening.
"no regard for the law, so why are they bothering" - police and other members of law enforcement go in front of judges all the time, it's very common for them to be in court.
I think you missed the point. It's not very common for them to imprison you in your own home until you renounce your US citizenship. Any police officer who did so is by that action demonstrating no regard for the law. In particular, they can't expect that your "decision" to renounce citizenship will be recognized as valid in court of law.
Why does it matter that they go to court all the time for other things? For this thing, were it to happen, the court would not recognize the validity of their actions.
I assumed that when you renounce your citizenship, there is no judge involved, it is automatic.
In that case, preventing coerced renunciations is easier than allowing anyone to renounce their citizenship but trying to allow the renunciation to be overturned and the citizenship reinstated afterward if it was based on coercion.
"It is automatic"? Depends on what you mean by "automatic".
In the hypothetical situation, a cop is holding me prisoner in my house until I say the magic words "I renounce my US citizenship", I'm pretty sure that nothing actually happens when I say those words. For example, my passport does not get revoked. (For that to happen when I say those words would require someone monitoring listening devices in my house, 24/7. We aren't there yet, fortunately.)
No, my passport would not be revoked until someone fills out and submits a form. (And some time after that, if I know bureaucracy.) Well, who fills out the form? The cop? Are the passport people going to accept the form from some random cop who recorded me saying the magic words?
Even if they accept the form from the cop... what am I going to be doing while the bureaucratic process does its thing? I'm going to be talking to my buddy the attorney, and my buddy the cop, and my buddy the retired cop, and my buddy the retired FBI agent. And somewhere along the way, someone is probably going to say something like: "Hey, he was trying to get you to renounce your citizenship - you should make sure that he didn't start something moving along those lines. And if he did, you should make it clear to them that it was under coercion, and therefore is not a valid request." And if I have to get a judge involved somewhere along the way, under the circumstances, I can probably do so.
So, it may be "automatic" - but it's not all that automatic.
Disclaimer: I don't work in citizenship law. I am just some rando on the internet. I say what I think, but I don't actually know how this would play out.
Within the philosophical viewpoint that led to the Declaration of Independence, yes. Almost all governments aren't operating within that philosophy, though. (In fact, the US isn't, either[1].) So in practice, most governments do not grant to their citizens the same rights that the US does, no matter whether or not people should have those rights simply by virtue of being human.
[1] "We hold these truths to be self evident, that all men are created equal, that they are endowed by their Creator with certain inalienable rights..." That is, God gave us certain rights, and nobody - not king or president, not parliament or Congress - has the legitimate authority to take them away. The US government does not operate on the basis of God-given rights; it operates on the basis of Constitution-given rights. It has done so, I think, ever since the Constitution.
