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U.S. Government Proposes Reduced Fee for Renouncing American Citizenship

January 30, 2023

Are you renouncing your U.S. citizenship? The federal government has proposed to decrease the current renunciation fee from $2,350 to $450. Read more about their intent to reduce this fee here.

Planning on turning in your passport? Renouncing U.S. citizenship is a costly process…but those who wish to renounce in the coming years might be in luck. The U.S. government has recently shared its intent to reduce renunciation fees. We have the details here.

What is the issue at hand?

The Association of Accidental Americans and others have filed a complaint against the United States Department of State. The complaint alleges that by charging a fee for individuals to renounce their citizenship, they are violating the U.S. constitution and international law.

As a result, as of January 9th 2022, the U.S. government has begun to hear oral arguments regarding the U.S. State Department intent to reduce the fee for renunciation currently set at $2,350 to $450.

Currently, aside from paying a fee to renounce their citizenship, individuals may be subject to expatriation tax.

What is Expatriation Tax?

Expatriation tax, sometimes called exit tax, is levied on U.S. citizens and long-term residents, who have renounced citizenship or for federal tax purposes ended their U.S. resident status.

IRC 877A expatriation rules for individuals expatriating on or after June 17, 2008

You will be considered a ‘covered expatriate’ if any of the following apply:

  • Average yearly income tax for the 5 years ending before the date of expatriation or termination of residency is more than a specified amount that is adjusted for inflation ($162,000 for 2017, $165,000 for 2018, $168,000 for 2019, $171,000 for 2020, and $172,000 for 2021.)
  • Net worth is $2 million or more on the date of your expatriation or termination of residency.
  • Fail to certify on Form 8854 that you have complied with all U.S. federal tax obligations for the 5 years preceding the date of your expatriation or termination of residency.

The expatriation rules fall under the mark-to-market regime, meaning that the entirety of property owned (both foreign and domestic) by the covered expatriate is deemed sold on the day before the formal date of expatriation.

If you are considering expatriating or would like to discuss planning options, reach out to us, we would be happy to help.

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