Lately, renouncing United States citizenship has become more and more fashionable with the full implementation of the “Foreign Account Tax Compliance Act (also known as “FATCA”), looming on the horizon.
I am now more often receiving inquiries about expatriation from the foreign parents of a child born in the United States while the parents were studying there or were there on some other temporary basis. Increasing inquires are also coming from parents of a child who was born overseas but to parents, only one of whom was a US citizen and who resided in the US for a certain time period before the child was born. In both of these cases, the children have acquired US citizenship “at birth”. In these sometimes frantic phone calls, the parents are protesting the child’s “involuntary” acquisition of US citizenship and want to know how soon it can be renounced. Lest everyone panic who is reading this post, it is important to note that children born in the United States to diplomats accredited to the United States are not subject to US jurisdiction and do not acquire US citizenship.
Brave New World — Assisted Reproduction (Sperm Donors and Egg Donor Can Transmit US Citizenship)!! What About Same-sex Marriages?
These issues are gaining prominence in the modern times in which we live and are very critical topics for Americans who are living abroad. According to Karl Jauch of the American Citizens Abroad Inc., based in Geneva, who has assisted many Americans with citizenship issues for several decades, the US Department of State applies a basic rule for recognizing US citizenship of children born abroad. Under this rule, what counts is the actual blood relationship and nothing else. In other words, if the donor is a US citizen, the donated ova or sperm can transmit the donor’s US citizenship to the future child. According to Mr. Jauch, “US citizenship is not automatically conferred by an American surrogate mother or a same-sex American partner. This situation can cause delight or anguish, depending on the circumstances, especially if the parent(s) were unclear about the legal situation beforehand.” So, before accepting that donated egg or sperm you had better check whether the child will be carrying the desirable? undesirable? US citizenship trait as well other traits!
Planning Will Help In Difficult Expatriation Cases
There are certain situations when giving up one’s US citizenship becomes extremely difficult, sometimes even impossible. In cases when a minor or mentally challenged individual wishes to renounce US citizenship special and very sensitive considerations come into play. In these cases, the individual should seek appropriate counsel as to what the US Consulate or Embassy will be looking for during an interview with the would-be renunciant and what factors are most important to the Department of State in approving the renunciation by issuance of that critical document called a Certificate of Loss of US Nationality (CLN) .
US tax planning in these cases is even more important. If the individual cannot expatriate currently, it is very important to structure his affairs to minimize any US tax bite during the time he remains a US citizen and in planning for a future expatriation. It the individual is under a permanent mental incapacity such that renunciation will never be possible, then proper planning of US tax matters becomes even more critical.
Next week’s blog post will cover the details and hurdles for expatriating minors and mentally challenged individuals.
In accordance with Circular 230 Disclosure
Virginia La Torre Jeker J.D., has been a member of the New York Bar since 1984 and is also admitted to practice before the United States Tax Court. She has 30 years of experience specializing in US and international tax planning as well as international commercial transactions. She has been based in Dubai since 2001; prior to that time she worked in Hong Kong for 15 years as a US tax consultant for international law firms, major banks (including HSBC) international accounting firms (Deloitte) and trust companies. Early in her career she worked in New York with the top-tier international law firm, Willkie Farr & Gallagher.
Virginia is regularly asked to speak at numerous conferences and seminars for various institutes and commercial organizations; publishes a vast array of scholarly works in her area of expertise, been interviewed by CNN and is regularly quoted (or has her articles featured) in local and international publications. She was recently appointed to the Professional Tax Advisory Council, American Citizens Abroad, Geneva, Switzerland. She was a guest lecturer at the University of Hong Kong, LL.M Program (Law Department) and served as an adjunct Business Law professor at the American University of Dubai and at the American University of Sharjah where she also taught the legal / ethical aspects of internet law and internet based transactions.
4 comments on “Help! I Want to Expatriate, But They Won’t Let Me… Part I”
I made this point what feels like a long time ago – that if a child can be denied US citizenship because neither biological parent is a USC, another child can be deemed a USC if either are. Considering the US is the world’s largest exporter of human sperm, the US’s tax base is about to grow considerably.
There is no such thing as proper tax planning for a mentally disabled child who must suffer the burden of the extraterritorial application of U.S. tax law. On the one hand the U.S. government hypocritically says that it cannot provide any taxpayer assistance for that child’s education, training, medical help etc. BUT yet it claims the right to tax the foreign currency that provides for the child’s care in all of those areas. Talk about having your cake and eating it too.
I know what I am talking about because I have just such a child. On the one hand U.S. tax law provides that the government tax free income that he receives in Canada is not taxed by the U.S. either. But then the U.S. forbids him from taking that tax free income and investing it tax free in a purely Canadian subsidized savings account for the disabled.
The real issue which the U.S. politicians can’t seem to comprehend is that taxation is just as much of a sovereign matter as is currency issuance. A country’s taxation policies are just as much about currency manipulation as are its policies on education, health care, housing etc. The only government body that is responsible for currency policy and taxation is the government which issues the currency that is being managed. This means that no other legislature has a right to tax the currency/treasury of another country.
The U.S. can’t spend its money on an extraterritorial basis in order to operate social or economic programs for its non-residents and thereby interfere with the policies of the treasury of another legislature so how does it think that it has the right to tax the earnings that are earned under the auspices of another legislature. There is no congruency in the logic that is used.
recalcitrantexpat knows the injustice of the burden of extra-territorial application of US citizenship-based taxation law. I do too. I am looking forward to reading Part 2.
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