Pop icon Tina Turner has just joined a multitude of famous – and not so famous – expats. Having recently acquired Swiss citizenship, Turner, a long-time resident of the canton of Zurich, voluntarily “relinquished” her US citizenship and passport.
Whereas Facebook co-founder Eduardo Saverin caused a media frenzy when he expatriated in 2012, the reaction to Turner’s move has been relatively subdued. I’ve not seen much condemnation, questions about her motives, or calls for retribution against her. Perhaps that’s because Saverin is much younger than Turner, lives a more public existence, and is frequently seen in the company of young, beautiful, and wealthy women. (Jealous, anyone?)
But Turner and Saverin share one thing in common: When reporting their expatriations, the mainstream media got it all wrong.
I have already discussed here how the media missed the mark in Eduardo Saverin’s case. With Tina Turner, they made additional mistakes.
Within hours of The Washington Post breaking the story, dozens of websites worldwide were repeating two fundamental misconceptions expressed in that article:
- Renunciation of US citizenship is a much more complex process than relinquishment, and
- There are no tax or other penalties associated with “relinquishment” of US citizenship. (The Washington Post subsequently corrected this error, but not the first.)
Let’s deal with each of these errors, one at a time.
Relinquishment vs. Renunciation: What’s the Difference?
The official procedures for giving up US citizenship are covered in Volume 7 of the US Department of State Foreign Affairs Manual (which, by the way, is a great antidote for insomnia).
Federal law prohibits the government from taking away your citizenship without proof that you intend to lose it. Therefore, if you want to relinquish, rather than renounce, you must prove your intent in some other way.
To relinquish your US citizenship, you must voluntarily perform an “expatriating act,” such as becoming a citizen of or pledging allegiance to another country.
Additionally, you must participate in a personal interview at a US consulate outside the USA. At some consulates, you may be asked to submit a written statement verifying your intent to give up your citizenship. You’ll also need to complete Form DS-4079, a very invasive questionnaire designed to judge your intentions.
Once you’ve filed the paperwork, you must wait several weeks to several months for the State Department to approve your expatriation.
Renunciation is much easier. You must still make a personal appearance before a US consular officer. But, crucially, instead of completing Form DS-4079, you just need to sign the oath of renunciation. This act removes any question of your intent to give up US citizenship. That’s why it’s so much easier.
One of my clients who wanted to relinquish received a “rejection letter” several weeks after he thought he had expatriated. His relinquishment had not been accepted, and his only option was to choose renunciation. This delayed the effective date of expatriation by several months – which could easily have wrecked his expatriation tax plan.
Which leads to the Post’s second mistake…
The Tax Consequences Are the Same
The tax consequences of relinquishing and renouncing are identical. You can read more about them here (scroll down), but basically, if you’re wealthy enough, you’re a “covered expatriate.” That means if you give up US citizenship or long-term US residence, you may have to pay an “exit tax” on your unrealized capital gains. There are also unpleasant tax consequences for your IRAs, pension plans, and some trusts. Future gifts or bequests to future beneficiaries are penalized, too.
Expatriation Is Complex
Expatriation is not something that the average journalist is equipped to write about. But because it’s politically controversial, the media, like moths drawn to a flame, can’t resist it.
Avoid getting “burned” by bad advice. If you have questions about expatriation, talk to experts. Don’t trust everything you read in the mainstream press.
Reprinted with the permission from Nestmann.com.