Introduction: A record number of US Citizens are renouncing their citizenship. As of today’s date over 4,400 people have already decided to let go of their US citizenship in 2017 alone. Experts say that more people are going to do so each year. This release addresses several issues: (1) why would someone want to let go of the most precious citizenship in the world; (2) how do you do relinquish your citizenship; (3) what consequences are there once you do; and (4) Will relinquishment help you avoid taxes and other offense against the United States.
Why would someone want to relinquish their citizenship?
In the United States there is a common phrase. You cannot avoid death and taxes. Most people release their rights because they want to avoid the tax consequences upon death. The phrase "death tax" is commonly used by the media to refer to an estate tax or an inheritance tax - in other words, it is a tax imposed on the transfer of property due to someone's death, be it based on the total value of the decedent's property or who is inheriting the property. In the United States, the death tax can be huge, with approximately 40% being taxed to an estate when someone dies.
Relatively speaking, the United States has few taxes while you are alive. This is unlike in other countries in Asia and Europe that can rise as high as 30-40% on your income and property. The belief is that if you are taxed while you are alive, your estate should be passed with little or no taxation.
This creates a situation where many citizens can amass a large amount of wealth during one’s lifetime, leaving a common problem – how do I avoid taxes against my estate so I can pass on the greatest wealth to one’s children.
As such, our research shows that the majority of people that give up their rights to citizenship is to allow their United States property to pass onto their children without taxes.
How do you do relinquish your citizenship?
Section 349(a)(5) of the Immigration and Nationality Act (INA) (8 U.S.C. 1481(a)(5)) is the section of law governing the right of a United States citizen to renounce abroad his or her U.S. citizenship. That section of law provides for the loss of nationality by voluntarily and with the intention of relinquishing nationality: "(5) making a formal renunciation of nationality before a diplomatic or consular officer of the United States in a foreign state, in such form as may be prescribed by the Secretary of State" (emphasis added.
If it is done incorrectly, you will not be allowed to claim (whether alive or dead) that you are no longer a US Citizen. A person seeking to renounce U.S. citizenship must renounce all the rights and privileges associated with such citizenship. In the case of Colon v. U.S. Department of State, 2 F.Supp.2d 43 (1998), the U.S. District Court for the District of Columbia rejected Colon’s petition for a writ of mandamus directing the Secretary of State to approve a Certificate of Loss of Nationality in the case because, despite his oath of renunciation, he wanted to retain the right to live in the United States while claiming he was not a U.S. citizen.
Therefore, the elements of renunciation are the following: (1) appear in person before a US consular or diplomatic officer; (2) in a foreign country at a US embassy or consulate; and (3) sign an oath of renunciation. Because of the provisions of Section 349(a)(5), U.S. citizens can only renounce their citizenship in person, and therefore cannot do so by mail, electronically, or through agents. In fact, U.S. courts have held certain attempts to renounce U.S. citizenship to be ineffective.
Consequences of relinquishing your citizenship.
Persons intending to renounce U.S. citizenship should be aware that, unless they already possess a foreign nationality, they may be rendered stateless and, thus, lack the protection of any government. They may also have difficulty traveling as they may not be entitled to a passport from any country. Statelessness can present severe hardships: the ability to own or rent property, work, marry, receive medical or other benefits, and attend school can be affected. Former U.S. citizens would be required to obtain a visa to travel to the United States or show that they are eligible for admission pursuant to the terms of the Visa Waiver Program. If unable to qualify for a visa, the person could be permanently barred from entering the United States. If the Department of Homeland Security determines that the renunciation is motivated by tax avoidance purposes, the individual will be found inadmissible to the United States under Section 212(a)(10)(E) of the Immigration and Nationality Act (8 U.S.C. 1182(a)(10)(E)), as amended. Renunciation of U.S. citizenship may not prevent a foreign country from deporting that individual to the United States in some non-citizen status.
Relinquishment does not mean you can avoid taxes and possible prosecution.
Persons who wish to renounce U.S. citizenship should be aware of the fact that renunciation of U.S. citizenship may have no effect on their U.S. tax obligations. In addition, the act of renouncing U.S. citizenship does not allow persons to avoid possible prosecution for crimes which they may have committed in the United States, or escape the repayment of financial obligations, including child support payments, previously incurred in the United States or incurred as United States citizens abroad.
Before you decide to let go of the most precious citizenship on earth to avoid taxes, you should consider the severe consequences of doing so. The rules are very strict and may create more problems than solutions. Please contact an attorney, a certified public accountant, and the United States Citizenship and Immigration Services (USCIS) of the Department of Homeland Security before you make a decision that could affect you, your children, and your estate.
Paul P. Cheng has been named as “Pasadena’s Best” attorney for over five years by Pasadena Magazine. Mr. Cheng is also a “Super Lawyer” in the United States, which is a designation given to only a select group of attorneys each year. Paul Cheng is a trial attorney and senior partner of a team of distinguished attorneys in Pasadena, California. He has extensive legal experience in small to large business operations and commercial realty transactions. Mr. Cheng has counseled individuals and businesses at all levels in a variety of transactional and litigation matters, including contract, land use, employment, franchise law, fraud, internet law, products liability, intellectual property, construction defect and general torts. He has also been featured on NBC, ABC, CBS, and Fox affiliates regarding legal issues.
Prior to entering private practice, Paul Cheng was a Deputy City Attorney with the City of Hesperia, California and a Mediator with the Los Angeles Superior Court.
Mr. Cheng is also an author of two books, the Success Blueprint co-authored with Brian Tracy, and the Legal Guide for New Immigrants in the United States.
The information provided is not legal advice. It is being sent out to quickly address issues that are current and relevant. Due to the quick turnaround of the article, please excuse the brevity and any grammar errors.