So, Just How Much Do You Like It Here?

Enough to turn your back on your own country forever?

Back in the bad old days of perpetual wars, the common law doctrine of perpetual allegiance denied an individual the right to renounce obligations to his sovereign. The bonds of subjecthood were considered to be forever and ever, and you weren’t going to get out of serving in the next Crusade by quitting your service to your king.

border-fence.jpgBut nowadays many countries have pragmatic policies that recognize the often arbitrary nature of citizenship, claims of other countries, and negative consequences such as loss of security clearance. People from some countries renounce their citizenship to avoid compulsory military service. Another example may be political refugees who would wish to rid themselves of the country from which they escaped.

Renunciation of citizenship is most straightforward in those countries which recognize and strictly enforce a single citizenship. Thus, voluntary naturalization in another country is considered as “giving up” of one’s previous citizenship or implicit renunciation.

People are dying to get into the United States. Literally. They die in the heat of the Arizona desert, or they don’t even make it that far, perishing instead on the long journey north through Mexico, as they make their way up from Central America.

Then you have the Americans who blithely give it all up to live somewhere else. It should be noted,  however, that those checking out of the United States are not about to live like the locals of wherever they’re fleeing to. How many Americans living here take the life-style of the locals? Not many.

But in the last few years the number of people formally renouncing their U.S. citizenship has grown hugely. Most of the reason for that is economic, isn’t that what drives most migration? (That would be a yes). But not always. In one case, Vincent Cate, an encryption expert living in Anguilla, chose to renounce his U.S. citizenship to avoid the possibility of violating U.S. laws that may have prohibited U.S. citizens from exporting encryption software. But even that was financial, he wanted to make a buck exporting software.

Most of this trend is tax driven. The United States is one of the few countries that extracts taxes out of its citizens no matter where they live or where they earned the taxable income. It is extremely difficult to shirk that obligation and getting more difficult all the time, what with computers and increasingly onerous international banking laws. That law is even closing in on us here, as Mexican banks are now obligated to rat U.S. citizens who have a local bank account to the IRS. Failure to report foreign accounts can lead to criminal prosecution and penalties of up to 50% of the account balance for each year that the account was open. In some cases, the penalties can exceed the amounts held in the account.

 As recently as November 2014, individuals renouncing U.S. citizenship have been waiting more than six months for the official certificate of renunciation. State Department bureaucrats blame the backlog on an increase in renunciations by dual citizens wishing to avoid IRS reporting requirements related to the recently enacted FATCA laws. The issuance of the certificate is important due to the fact that individuals born in the U.S. must prove to foreign financial institutions they are no longer US citizens. Many foreign banks refuse new U.S. customers or close U.S. customer accounts due to the exhaustive reporting requirements of FATCA. That’s what’s driving this current unprecedented stampede to the exits. Americans don’t want to pay taxes to the United States, no matter where they earned the money, but especially if they earned it offshore. And especially if they don’t plan on going back to enjoy the goodies their taxes have bought, like roads, bridges, and soldiers scattered around the world. (Just how does one enjoy those, anyway?) Anyhow, this is how it goes down:

 The United States requires that an individual go in person to a U.S. embassy or consulate outside the U.S. and sign in front of a consular officer an oath or affirmation that they intend to renounce their citizenship. During the expatriation procedure, (that even sounds scary, being expatriated. It sounds painful). Anyhow, the expatriated individual must complete several documents and demonstrate in an interview with a consular officer that the renunciation is voluntary and intentional. No accidental expatriations allowed. Depending on the embassy or consulate, the individual is often required to appear in person two times and conduct two separate interviews with consular officers over the course of several months. This is not an impulsive night’s whimsy.

In 1996, the U.S. changed its immigration law to include a provision to “name and shame” renunciants.  The Department of the Treasury became obligated to publish quarterly in the Federal Register the names of those citizens who renounce their citizenship. The 1996 law included a provision to bar entry, even for a visit, to any individual “who officially renounces United States citizenship and who is determined by the Attorney General to have renounced United States citizenship for the purpose of avoiding taxation by the United States.”  However, there is no known case of this provision, known as the Reed Amendment, having ever been enforced.

There were 235 renunciants in 2008, 731  in 2009, and about 1485 in 2010. Then in 2011, these things shot up to 1781  and in 2012 2,999 Americans renounced their citizenship.  In 2014 3,415 renounced their U.S. citizenship. There seems to be a trend here, and it is following the advancement of the new international banking laws. Uncle Sam is stalking its own citizens.

Formal confirmation of the loss of U.S. citizenship is provided by the Certificate of Loss of Nationality, (boy, does that sound creepy,) and is received by the renunciant a number of months later. Renunciation of U.S. citizenship was free until July 2010, at which time a fee of $450 was levied. That was increased to $2,350 last fall, justified as, “reflective of the true cost” of processing.

Although many countries require citizenship of another nation before allowing renunciation, the United States does not, and an individual may legally renounce U.S. citizenship and become stateless. Nonetheless, the United States Department of State warns renunciants that, unless they already possess a foreign nationality or are assured of acquiring another nationality shortly after completing their renunciation, they would become stateless and without the protection of any government.  That tax can quickly become very big bucks. (Calculations are complex. But, generally, those with a net worth of less than $2 million will not be forced to pay the exit tax.)

U.S. citizens who renounce their citizenship are subject under certain circumstances to an expatriation tax, which is meant to extract from the expatriate taxes that would have been paid had they remained a citizen: all property of a covered expatriate is deemed sold for its fair market value on the day before the expatriation date, which usually results in a capital gain, which is taxable income. Eduardo Saverin, the Brazilian born co-founder of Facebook, renounced his U.S. citizenship just before the company’s initial public offering; the timing prompted media speculation that the act was motivated by potential U.S. tax obligations and he paid the penalty. In 2015, the Mayor of London, Boris Johnson, threatened to renounced his U.S. citizenship after the IRS taxed his sale of his house in London.

So you’ve done it, you’ve quit the United States of America and paid all your getting out fees, and have your certificate in hand. Now what?

Renunciation does not mean that you will never be permitted to visit the US again, you will just need a visa if you are holding a passport from a country we require that of, like Mexico. You will now need to wait in line with the Mexicans, Einstein, was it worth it now? Because when you give up U.S. citizenship you do forego the right to whizz right into the country. And good luck if you forgot to arrange for a new country to call home before you tossed aside your U.S. citizenship. A U.S. passport has its advantages. In a recent ranking of the most powerful passports, it ranked at the top along with four other countries (Sweden, Finland, Germany, United Kingdom), all of which have passports that gain visa-free entry to 174 countries.

It is  not true that upon giving up U.S. citizenship you lose your pension, Social Security and Medicare. You’re still entitled to these if you have earned them. However, to use your Medicare you obviously have to be inside the U.S., so this would be limited to visits there. Still sure you want to give it all up, Bunky, just to save a few dollars? Are you sure you want to die in the local Suguro Popular hospital? That’s not such a comfortable place to be doing your dying. Better check it out before you do your renouncing. The local Suguro Popular hospital is behind Plaza Sendero. Go early in the day, and even then there are long, long lines.

So, if this is what you really want to do, now would be a good time, because in order to renounce your U.S. citizenship, you have to physically be outside the U.S. and it’s possessions. There is a United States Consular Agency in the Palmilla strip center, downstairs, in the basement, who will be glad to drum you out of the United States of America.  You just go right ahead and quit, just don’t expect to be taken back, because you won’t without standing in line behind about 3 billion people in the world who are trying to become Americans and who will be glad to pay the taxes, serve in the military, and who will be grateful to be a  citizen of the United States of America..  ,