Firm Requests Relief for Citizens Seeking Expatriation

August 9^th, 2021

Hon. Charles P. Rettig
Commissioner
Internal Revenue Service
1111 Constitution Avenue, NW
Washington, DC 20224

Hon. Mark J. Mazur
Deputy Assistant Secretary for Tax Policy
1500 Pennsylvania Avenue, NW
4064C MT
Washington, DC 20220

Re: Expatriation during the COVID-19 Pandemic

Honorable Sirs,

The Internal Revenue Service and the Department of the Treasury have taken many steps to help taxpayers throughout the continuing COVID pandemic. To the government's credit, the Internal Revenue Service used various sources of statutory authority to provide relief to taxpayers. Indeed, the Service's website lists at least 48 COVID-related notices and 19 COVID-related revenue procedures which granted various kinds of relief to taxpayers. Two such examples are Rev. Proc. 2020-27, waiving the time requirements of the physical presence test for the foreign income exclusion under Section 911, and Rev. Proc. 2020-30, allowing temporary activities by US individuals and businesses without creating a foreign branch.

Unfortunately, no relief has been offered so far to those US citizens who live overseas and wish to renounce their US citizenship. The IRS has recognized that US embassies and consulates have limited or suspended services, such as processing renunciation of citizenship requests during the pandemic. Yet rather than modifying procedures for citizens wishing to come into compliance with their tax and reporting obligations before expatriating, the Service has effectively told them not to try, instructing taxpayers not to submit partial submissions, including those without proof of loss of US nationality.¹

We suspect this guidance was issued without understanding the consequences of the long delay in the availability of renunciation appointments and the negative consequences for some of those affected by it. US citizens have the right to renounce their citizenship. Doing so is also the only way to exit the US tax system. In some cases, delay in being able to exercise this right works a genuine hardship on some individuals, particularly accidental Americans, as they remain stuck in the US tax system for an extended period. We respectfully ask that the Service take action to provide relief to taxpayers caught in this pandemic-created situation by allowing loss of citizenship to be dated as of the date that the taxpayer can establish that he or she first sought to expatriate.

Effectively, closure of consulates around the world during the pandemic prevents US citizens from renouncing their US citizenship. No US consulate has accepted a renunciation appointment since March 2020. Based on recent developments around the world, it does not appear that renunciation appointments are likely to resume in 2021.

While it is understandable that US embassies and consulates must restrict access to in-person services during the pandemic, elimination of such in-person appointments effectively removes expatriation as an option for those who wish to do so because renunciation requires an in-person visit to a US consulate in order to take the formal oath of renunciation before a consular officer. The date that oath is taken is the date that the US citizen ceases to be a citizen and is the date that appears on that person's Certificate of Loss of Nationality of the United States (“CLN”). A CLN must be submitted to the Service with that person's Form 8854, Initial and Annual Expatriation Statement, that must be included with his or her final Form 1040 and be filed separately with the Service (formerly with Philadelphia, now with Austin).

Every person born or naturalized in the US is a citizen.² US citizens are subject to federal income tax whether they reside within or outside the US.³ Thus, dual citizens with US citizenship, living outside the US are subject to US federal income tax and remain so until they take action to abandon their US citizenship. Over the past several years, many “accidental” Americans — those born in the United States while their foreign citizen parents were here for work or other reasons and who may have left while still infants — have elected to renounce their US citizenship because they have no family or other connections to the US. Other dual citizens, who have been long time residents of the countries of their other citizenship, after discovering that they must comply with US tax and financial reporting laws, have opted in increasing numbers to renounce US citizenship.

US law protects US citizens from unwittingly losing their citizenship. Thus, today there is only one way to get rid of US citizenship, namely, to “appear before a diplomatic or consular officer of the United States in a foreign state.”⁴ Therefore, to renounce US citizenship, a person must make a formal renunciation in-person in a foreign country. If no in-person opportunities are available to renounce US citizenship, a person has no means to exercise the right to expatriate.

This right is fundamental.⁵ The US has “supported the right of expatriation as a natural and inherent right of all people.”⁶ As early as 1795, the US acknowledged this right, even requiring new naturalized citizens to renounce any other citizenships.⁷ In 1868, Congress passed an expatriation statue, explicitly stating that “any declaration, restriction, opinion, order, or decision of any officer of the United States which denies, restricts, impairs, or questions the right of expatriation, is declared inconsistent with the fundamentals of the Republic."⁸

What a person must do to renounce US citizenship has changed over time, culminating with the current Section 349 of the Immigration and Nationality Act, but the right to do so has remained throughout the country's history. 8 USC § 1481(a)(5) and 22 C.F.R. § 50.50 require those wishing to expatriate to appear in-person. To date, the Department of Slate has not provided an alternative even though 8 USC § 1481(a)(5) explicitly permits the Secretary of State to prescribe the form of the formal renunciation.

We understand why the Secretary is unlikely to relax the formality of the process based on the constitutional protections laid down by the US Supreme Court. Thus, it falls to the Service and Treasury to provide an avenue of relief to those who have remained trapped in the US tax system they wish to leave because they cannot exercise their right to expatriate.

Documented efforts to seek advice on expatriation, contact a consulate regarding expatriation, or schedule appointments to renounce citizenship during the pandemic should be treated as if they were expatriating acts as those codified in 8 U.S.C. § 1481. We respectfully request that the IRS allow Form 8854 to be filed for the year in which those who initiated, tried to initiate, or started to seek advice on the renunciation process, but could not proceed with it because renunciation appointments were not available. A statement explaining the steps taken to commence the renunciation process and the timing of those steps together with evidence in the form of emails, etc. should be attached to the Form 8854.

Such individuals should still be required to complete the renunciation process as necessary once consulates resume taking renunciation appointments, but their date of expatriation should be the date that they first sought to expatriate, provided that the individual can document the attempt.⁹ When the CLN is received, those who filed under this proposed accommodation should be required file an amended Form 8854 attached to which is the original Form 8854 they submitted along with their CLN from the Department of State.

It is a consequence of US citizenship taxation that US citizens remain subject to US tax and financial account reporting as long as they remain citizens. Exiting the US tax system requires one to renounce US citizenship. That fundamental right cannot be exercised as long as US consulates remain closed to those seeking to exercise that right.

Thank you for your consideration.

Yours truly,

Stephen Flott
FLOTT & CO.PC ATTORNEYS
Arlington, VA