Hans was born in the United States 43 years ago.  When Hans was 6 years old his parents moved back thot their native Denmark, where Hans has lived ever since.

As a young man Sarah’s father, a native-born citizen of the United Kingdom, worked in the United States.   He met Sarah’s mother when she was 20 years old, and had lived all of her life in the United States.  They married and then moved to the United Kingdom, where they lived ever since.  Their daughter Sarah was born in the United Kingdom.  Sarah has lived all of her 42 years in the United Kingdom.

Elizabeth was born in Texas when her parents were living there, and her father was employed there.  Native-born citizens of the United Kingdom, Elizabeth’s parents moved with Elizabeth to the United Kingdom in 1980, when Elizabeth was 3 years old.  Elizabeth has ever since lived in the United Kingdom.

The above individuals are U.S. citizens.  As a result, under the U.S. Internal Revenue Code, they must file an annual U.S. income tax return reporting their worldwide income.   Under the U.S. Bank Secrecy Act, they must file an annual FinCEN Form 114, Report of Foreign Bank and Financial Accounts, (“FBAR”), reporting their interests in foreign financial accounts.  They are subject to penalties for failure to comply with these requirements.  They can avail of Internal Revenue Service voluntary disclosure programs to mitigate the penalties. 

Many such “accidental Americans” seek to renounce their U.S. citizenship. To terminate obligations under U.S. tax laws, an individual must be compliant with U.S. tax laws for the preceding five years.  If necessary the individual will need to see a U.S. tax preparer to file or amend U.S. income tax returns over that period. 

Once compliant with U.S. tax laws over the preceding five years, the individual can make an appointment at a U.S. consulate.  At the U.S. consulate, a consular official will explain the renunciation process to the individual, and give him or her expatriation forms to fill out and return. 

Once the individual has completed the expatriation forms, he or she can make a return appointment at the U.S. consulate.  At the return appointment, the individual submits the completed expatriation forms and takes an oath of renunciation.  An individual who has been a dual citizen of the U.S. and of a foreign country from birth, such as the above individuals, terminates his or her U.S. tax obligations by completing Form 8854, Initial and Annual Expatriation Statement, and filing it with the U.S. Internal Revenue Service.

  If the individual fails to certify on Form 8854 filed with the IRS that he has complied with U.S. tax laws for the preceding five years, he or she incurs a mark-to-market tax on deemed sale of his or her property at fair market value.   

An individual can relinquish lawful permanent resident (“LPR” or “green card”) status by mailing his or her green card, by certified mail, return receipt requested, with a renunciation letter to a U.S. consulate. 

An individual who has relinquished LPR status terminates his or her U.S. tax obligations by completing Form 8854 and filing it with the IRS. 

The individual will incur a mark-to-market tax on the deemed sale of his or her property at fair market value if the individual meets any of the following tests:

1. The individual’s average Federal income tax liability for the five years preceding expatriation exceeded a threshold amount.  The threshold amount increases each year for inflation.  For individuals relinquishing LPR status in 2019, the threshold amount was $168,000.
2.  The individual’s net worth is at least $2,000,000.
3. The individual failed to certify on Form 8854 filed with the IRS that he or she complied with all of his or her Federal tax obligations for the five years preceding expatriation.

Stephen J. Dunn is a tax attorney in Troy, Michigan. He is the author of the treatise Foreign Accounts Compliance (Thomson Reuters 2017) and Foreign Accounts Compliance Blog. He is also an adjunct professor at Michigan State University College of Law.