Since the United States taxes its citizens, no matter where they live, the only way for a U.S. citizen to eliminate U.S. tax liability is to give up U.S. citizenship. The only way for U.S. permanent residents to achieve this goal is to give up their green card. This process is called expatriation.
If you expatriate, the agency you’ll need to deal with is the Department of State. The process is relatively simple. You make an appointment at the consular section of whatever embassy you’ve chosen. At the appointed time, you show up, sign some forms, turn in your passport, and depart. Once you receive your “certificate of loss of U.S. nationality” (CLN), you’re done.
Unfortunately, the procedure is often much more convoluted than this. To begin with, each consulate has its own rules for expatriation. Some consulates require as many as three visits, up to one month apart, in order for you to complete the expatriation process. One consular official told me this is required, “so the prospective renunciant can reflect on the profound consequences of giving up U.S. citizenship and passport.”
Well, excuse me! Anyone with the balls to show up for an appointment at the consulate with the intention of giving up their U.S. citizenship surely understands the consequences of the act. I can understand a one-day “cooling off period,” as imposed by one consulate to which we often refer clients. But to extend the process over a two month period is ridiculous.
Another State Department initiative is charge a $450 fee to process your expatriation. This began last year, to “help defray a portion of the total cost to the U.S. Government of documenting the renunciation of citizenship.” The State Department says this fee represents less than 25% of the actual cost of “providing this very costly service.” That may be true, but a great deal of those costs are self-imposed by the State Department. Simply streamlining the procedure so that only a single brief visit is necessary would cut costs considerably.
Another example of “pushback” from the State Department has come in increasingly long waiting periods to obtain a CLN. In most cases, you need this document in order to obtain a visa to re-enter the United States on your non-U.S. passport. (If you have a passport from a visa-waiver country, you won’t need to apply for a visa to re-enter the United States. Without a CLN on file, though, you may need to present proof that you’ve started the expatriation process.)
Consulates are now advising us that our clients should be prepared to wait up to six months before receiving their CLN. In practice, it doesn’t take as long; one client got their CLN after only a three-week wait. I had hoped (in vain, it turns out) that new fees might be used to accelerate the process of issuing CLNs. But the State Department is, in effect a monopoly. It has no competition in the business of expatriating U.S. citizens. And so it has zero incentive to improve “customer service.”
Is expatriation for you? The decision to give up U.S. citizenship is a serious one. You should take this step only after consulting with your family and professional advisors. But it’s the only way that U.S. citizens and long-term residents can eliminate U.S. tax liability on their non-U.S. income, wherever they live. And it’s a tax avoidance option that may eventually be foreclosed by Congress.
