As I've mentioned in a previous blog entries, many Americans are seriously considering giving up U.S. citizenship and passport. (Click here to learn why).
My firm has experienced a big surge in clients considering expatriation, and other professionals I've spoken to tell me they're also handling a record number of expatriations.
The fact that the Department of State recently imposed a $450 fee for expatriation also may signify that the consular offices of U.S. embassies that handle expatriations are increasingly overburdened. Now, I've learned of another development that indicates the numbers of expatriates are exploding: increased delays in obtaining a document called a "certificate of loss of nationality," or CLN.
Before I explain what a CLN is and why you need it, let's review the steps you must take if you're a U.S. citizen and wish to expatriate:
• Acquire citizenship and a passport from another country, if you don't already have a second nationality.
• Decide where you want to live after giving up your U.S. citizenship. This may be in the country that issued your passport, or another country. If it's another country, you'll probably need to apply for a residence permit there.
• Make a personal appearance at a U.S. consulate and complete some forms indicating that you understand the consequences of expatriation. (At some consulates, there's a waiting period of up to a year for an appointment.)
Once you've signed these documents at the consulate, you're no longer a U.S. citizen for tax purposes. Most importantly, with a couple important exceptions for certain "covered expatriates," you have no additional tax obligations with reference to non-U.S. income AFTER that date. But to confirm your non-citizen status, you must receive back from the State Department a CLN.
A CLN serves two purposes. Without it, your loss of U.S. nationality isn't legally binding. That means if for some reason the State Department doesn't approve it, the IRS wouldn't view you as a non-U.S. citizen. Secondly, once you receive your CLN, you can apply for permission to re-enter the United States. But in the interval between your consular appearance and the time you receive your CLN, you can't legally re-enter the United States. You're in sort of a no-man's-land; no longer a U.S. citizen, but not quite a non-citizen, either.
But once you receive the CLN, you're officially separated from the IRS. And, you can use it to apply for a visa in your new passport to re-enter the United States. Or, if you have a passport from a visa-waiver country, to prove your non-U.S. status.
Because the CLN is so important, it was disturbing for me to learn recently that an increasing number of expatriates are experiencing delays in receiving this official notification. Until now, I advised clients they could generally expect their CLNs back from the State Department in three months or less. But I have now received a copy of correspondence from a U.S. consulate indicating three months is not a "standard" interval in which to expect a CLN. (It has been in our experience, although in one case, it took a client nearly a year to obtain a CLN.) According to this communication, the State Department has reduced staffing in Washington, D.C. (where all CLNs are issued) to deal with humanitarian concerns in Haiti, Chile and other countries that have experienced natural disasters.
I confess to harboring a certain delight at the image of State Department bureaucrats being shipped off to Haiti to pick up shovels and begin clearing rubble from the recent earthquake there. However, I suspect the actual reason why State Department personnel have been redeployed to these countries is to process emergency applications for admission to the United States as refugees, for hospitalization, etc. Hopefully, the delay is temporary. But it does underscore that those U.S. citizens seeking to expatriate may have a lengthy wait for a CLN.
To learn more about expatriation, check out my BILLIONAIRE'S LOOPHOLE report in our bookstore. And if you believe you're ready to take this admittedly radical step, my firm can assist you in every phase of giving up U.S. nationality or long-term residence. contact us for a consultation.
Copyright © 2010 by Mark Nestmann
(An earlier version of this post was published by The Sovereign Society, https://banyanhill.com/)
