Relief Procedures for Certain Former Citizens

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Introduction

The IRS announced procedures for certain persons who have relinquished, or intend to relinquish, their United States (U.S.) citizenship and who wish to come into compliance with their U.S. income tax and reporting obligations and avoid being taxed as a “covered expatriate” under section 877A of the U.S. Internal Revenue Code (IRC).  Please read all information for these procedures including the Frequently Asked Questions and Answers (FAQs) to determine eligibility. Relinquishing U.S. citizenship and the tax impacts of relinquishing U.S. citizenship are serious matters that involve irrevocable decisions. Consider consulting legal counsel before making any decisions about relinquishing U.S. citizenship.

The Department of the Treasury, the Department of State, the Internal Revenue Service, and the Social Security Administration have prepared a brief “frequently asked questions” document on obtaining social security numbers, expatriation, and tax implications of expatriation.

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Background

The 14th Amendment to the United States Constitution provides that “all persons born or naturalized in the United States” are citizens of the United States.  With very limited exceptions for individuals born in the United States with diplomatic agent level immunity, all persons born in the United States acquire U.S. citizenship at birth. A person born abroad to a U.S. citizen parent or parents acquires U.S. citizenship at birth if the parent or parents meet conditions specified in the U.S. Immigration and Nationality Act (Section 301 and following sections).

Some U.S. citizens, born in the United States to foreign parents or born outside the United States to U.S. citizen parents, may be unaware of their status as U.S. citizens or the consequences of such status.  By law, U.S. citizens, regardless of whether they live in the United States or abroad, are required to report and pay to the Internal Revenue Service (IRS) all applicable taxes on their worldwide income, including on their income from foreign financial assets.

With the passage of the Foreign Account Tax Compliance Act (FATCA) on March 18, 2010, foreign financial institutions are generally required to determine whether their customers are U.S. citizens and, if so, report certain information about the customer’s account. Depending on when the account is opened, the customer may be identified by the financial institution as a U.S. citizen based on certain indicia, such as a place of birth in the United States. A customer who is identified as a U.S. citizen based on U.S. indicia must provide to the financial institution either his or her Social Security Number (SSN), or if the customer is no longer a U.S. citizen, documentation to rebut the determination, such as proof of loss of U.S. citizenship. A customer opening a new account with a foreign financial institution is generally required to provide a self-certification upon account opening, which includes the customer’s name, address, and SSN.

An adult U.S. citizen may relinquish U.S. citizenship consistent with requirements under Section 349 of the Immigration and Nationality Act, 8 U.S.C. 1481. See U.S. Citizenship laws and policies. The process of relinquishing U.S. citizenship abroad is administered by the Department of State. Citizens wishing to relinquish their U.S. citizenship abroad must commit one of the potentially expatriating acts, listed at 8 U.S.C. 1481(a)(1)-(5), voluntarily and with intent to relinquish U.S. citizenship.  One such expatriating act is taking an oath of renunciation of U.S. citizenship under 8 U.S.C. 1481(a)(5).  In accordance with the relevant statutes and regulations, such persons must appear in person before a U.S. diplomatic or consular officer at a U.S. Embassy or Consulate in a foreign country to complete the required steps.  The persons renouncing their U.S. citizenship must then take the prescribed oath of renunciation before the U.S. diplomatic or consular officer. See Renunciation of U.S. Nationality Abroad.

Set by the Department of State, the U.S. consular fee for “Administrative Processing of Request for Certificate of Loss of Nationality” is $2,350, and the fee cannot be waived.  Compliance with all U.S. income tax filings or obtaining a Social Security number is not a pre-condition to relinquishing citizenship under the Immigration and Nationality Act.

Individuals who seek to renounce or relinquish U.S. citizenship should be aware that expatriating may have U.S. tax consequences. To comply with existing tax law and to avoid significant tax liability under the U.S. Internal Revenue Code, U.S. citizens who renounce or otherwise relinquish their citizenship must comply with Federal tax requirements for the year of expatriation and for the five tax years prior to their expatriation, which includes using their SSN as their identification number on Federal Tax Returns.  IRC 877A contains a special set of rules for U.S. citizens who relinquish their U.S. citizenship, whether by taking an oath of renunciation or otherwise.  Under IRC 877A, individuals who are “covered expatriates” are treated as having disposed of all worldwide assets on the day before their expatriation date, are required to pay a mark-to-market exit tax on the gain (subject to an exclusion amount) resulting from the deemed disposition of their worldwide assets, and are subject to additional tax consequences with respect to certain deferred compensation items and trust distributions. With some exceptions that are not applicable in the context of these procedures, IRC 877(a)(2) will treat an individual as a “covered expatriate” if:

  1. The individual has an average annual net income tax liability of the five years preceding the year of expatriation that exceeds a specified amount adjusted for inflation (for example, $161,000 for 2016, $162,000 for 2017, $165,000 for 2018, and $168,000 for 2019) (“average income tax liability test”),
  2. The individual has a net worth of $2 million or more as of the expatriation date (“net worth test”), or
  3. The individual cannot certify, under penalties of perjury, on Form 8854, Initial and Annual Expatriation Statement, that the individual is compliant with all Federal tax obligations for the five tax years preceding the tax year that includes the expatriation date (“certification test”). 

To meet the requirements of the certification test, individuals must file a Form 8854, Initial and Annual Expatriation Statement, with their tax return for the year of expatriation and certify compliance for the prior five tax years. Certifying compliance for the prior five tax years requires that all Federal tax returns for the five tax years before the year of expatriation were properly filed, complete, and accurate. For more information, see Expatriation Tax and Instructions for Form 8854.

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Relief Procedures

Under the Relief Procedures for Certain Former Citizens (“these procedures”), the IRS is providing an alternative means for satisfying the tax compliance certification process for citizens who expatriate after March 18, 2010. These procedures are only available to U.S. citizens with a net worth of less than $2 million (at the time of expatriation and at the time of making their submission under these procedures), and an aggregate tax liability of $25,000 or less for the taxable year of expatriation and the five prior years.  If these individuals submit the information set forth below and meet the requirements of these procedures, they will not be “covered expatriates” under IRC 877A, nor will they be liable for any unpaid taxes and penalties for these years or any previous years.

These procedures may only be used by taxpayers whose failure to file required tax returns (including income tax returns, applicable gift tax returns, information returns (including Form 8938, Statement of Foreign Financial Assets), and Report of Foreign Bank and Financial Accounts (FinCEN Form 114, formerly Form TD F 90-22.1)) and pay taxes and penalties for the years at issue was due to non-willful conduct. Non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.

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Relief Procedures FAQs

The following Frequently Asked Questions and Answers (FAQs) explain how the Relief Procedures for Certain Former Citizens will work.  These procedures are effective immediately for those individuals who qualify.

The IRS is offering these procedures without a specific termination date. The IRS will make an announcement prior to terminating these procedures.

Only taxpayers whose past compliance failures were due to non-willful conduct may use these procedures.  All the following criteria must be met.

  1. You have relinquished your U.S. citizenship after March 18, 2010.
  2. You have no filing history as a U.S. citizen or resident;
  3. You did not exceed the threshold in IRC 877(a)(2)(A), related to average annual net income tax for the period of 5 tax years ending before your date of expatriation;
  4. Your net worth is less than $2,000,000 at the time of expatriation and at the time of making your submission under these procedures;
  5. You have an aggregate total tax liability of $25,000 or less for the five tax years preceding expatriation and in the year of expatriation (after application of all applicable deductions, exclusions, exemptions and credits, including foreign tax credits, but excluding the application of IRC 877A and excluding any penalties and interest).
  6. You agree to complete and submit with your submission all required Federal tax returns for the six tax years at issue, including all required schedules and information returns.  See FAQs 11, 12, and 16 for information on how to complete these returns.

Only taxpayers whose past compliance failures were due to non-willful conduct may use these procedures. All eligibility criteria must be strictly met to use these procedures.

No. If you filed a Form 1040NR (U.S. Nonresident Alien Income Tax Return) under the good faith belief that you were not a U.S. citizen, you may use these procedures.

For purposes of these procedures, the $2,000,000 net worth test applies without any exceptions, including the exceptions to covered expatriate status under IRC 877A(g)(1)(b). See FAQ 9, Hypothetical 4.

Yes, so long as your date of relinquishing U.S. citizenship was after March 18, 2010. Specifically, the date reflected on your Certificate of Loss of Nationality of the United States, Form DS-4083, in the field “That: he/she thereby expatriated __self on (Date) ______ under the provisions of Section…” must be after March 18, 2010. Or, the date on the copy of the court order described in IRC 877A(g)(4)(D) must be after March 18, 2010. See FAQ 11, item 1.

If you are not eligible to make a submission under these procedures and still make a submission, the IRS will process your returns using normal processing procedures. You will be liable for all taxes, penalties, and interest associated with the submission.

Note with respect to all hypotheticals: Please note that actual returns will have to be completed which will provide a more accurate and nuanced figure of the total tax, the simplification of facts and figures in the following hypotheticals are intended merely for purposes of general illustration and not reliance.

Hypothetical 1 (Aggregate Total Income Tax Liability Below Threshold)

John was born in the U.S. while his non-U.S. parents were attending university for post-graduate studies. Shortly after he was born, the family returned to Country E. John is a citizen of Country E and lives and works in Country E.

John renounced his citizenship on October 1, 2019 and received a Certificate of Loss of Nationality. John has never filed a U.S. income tax return and never applied for or received a Social Security Number. He wants to use these procedures to come into compliance with his U.S. tax obligations. He must report his worldwide income on Form 1040 for 2019 and the preceding five tax years (and may claim all available deductions and credits, including foreign tax credits, to the extent permitted) to determine the total tax. In each year, John had various sources of income, including small amounts of income from foreign mutual funds that are passive foreign investment companies. For tax years 2014 through 2019, John submits the following tax returns required under these procedures:

  • 2019 Form 1040NR (with Form 1040 attached as an information return reporting worldwide income through October 1, 2019), with a total tax of $1,000.00 USD
  • 2018 Form 1040, line 15, total tax $4,800.00
  • 2017 Form 1040, line 63, total tax $4,800.00
  • 2016 Form 1040, line 63, total tax $4,800.00
  • 2015 Form 1040, line 63, total tax $4,800.00
  • 2014 Form 1040, line 63, total tax $4,800.00

John uses his best efforts in computing his total tax for each year. John computed the income from his foreign mutual funds and reported them as ordinary income on the “other income” line of his Forms 1040. He should have also used Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, to make additional computations, but he failed to include that form with his return. John adds the “total tax” amounts for all his six tax returns submitted under the procedures; the amount is $25,000. John’s total tax liabilities are within the limit for these procedures. John is eligible to use these procedures.

Hypothetical 2 (Aggregate Total Income Tax Liability Above Threshold)

Assume all the facts in Hypothetical 1, except John’s aggregate total tax liability for tax years 2014 through 2019 is slightly over $25,000. John is not eligible to use these procedures because his aggregate total tax liability for tax years 2014 through 2019 exceeds the threshold for these procedures. If he makes a submission under these procedures, the IRS will process the returns using normal processing procedures. John will be liable for all taxes, penalties, and interest associated with his submissions. Under general IRS procedures, John may request relief for penalties under the First Time Abate Policy for tax year 2014 and request abatement of penalties based on reasonable cause for the remaining liabilities.  If he qualifies, John may file an Offer in Compromise.

Hypothetical 3 (Net Worth Below Threshold)

Jane was born in the United States. Her parents, citizens of another country, were in the United States on a temporary work assignment with a multinational company when she was born.  While on that temporary work assignment, Jane’s parents purchased a house in the United States. Jane and her family returned to their country shortly after she was born. Although they left the United States, Jane’s parents kept the house in the United States and rented it to tenants. Jane lives and works outside the United States. When her parents died, Jane inherited the rental house (with a fair market value of $300,000).

Jane wants to renounce her citizenship and use these procedures to come into compliance with her tax obligations. Jane has never filed a U.S. income tax return and never applied for or received a Social Security Number.  Jane must report her worldwide income on her U.S. income tax returns, including any income from the U.S. rental home. Jane renounces her citizenship on December 31, 2019. Then, Jane submits the tax returns required under this procedure for tax years 2014 through 2019 (including a Form 8854).

Assuming the aggregate total tax amount for tax years 2014 through 2019 is less than $25,000 and Jane’s net worth is below $2,000,000, Jane may use these procedures. 

Hypothetical 4 (Net Worth Above Threshold)

Assume all the facts in Hypothetical 3 except the value of the U.S. rental home is $3 million, and Jane’s total net worth exceeds $2,000,000.  Jane does not qualify for these procedures because her net worth exceeds $2,000,000.  (The exceptions to “covered expatriate” status, as provided in IRC 877(c)(2), are not applicable to these procedures.)

Hypothetical 5 (No “filing history as a U.S. citizen or resident”)

Assume all the facts in Hypothetical 3 except in tax year 2012 Jane filed a Form 1040NR reporting rental income and related expenses for the U.S. rental home. She had no other U.S. sourced income. Jane’s 2012 filing was based on the good faith assumption that she was not a U.S. citizen. Jane may use these procedures.

Hypothetical 6 (Foreign Tax Credit; 35% Tax Rate in Treaty Country)

Jane is a dual citizen of the United States and Country T and is a resident of Country T.  The United States has a tax treaty with Country T.  Jane has a net worth under $2,000,000 and has an average income tax liability for the past five years under the threshold of IRC 877(a)(2)(A). (For 2014 through 2018 this is $168,000 of average annual net income tax).  Jane’s only income over the past 5 years has been $200,000 of wage income that she earned from performing services in Country T for a Country T employer.  For the last 5 years Jane has been filing tax returns in Country T as a Country T resident reporting all her wage income. Jane was subject to an income tax rate of 35% in Country T in each year.  Assume the U.S. income tax rate for 2014-2019 is 25%. Assume further that Jane does not qualify to make an election under IRC 911.

Jane is planning to relinquish her U.S. citizenship in 2019 by taking an oath of renunciation.  After relinquishing citizenship, she wants to use these procedures to come into compliance with her U.S. tax obligations. Jane has never filed a U.S. income tax return and never applied for or received a Social Security Number. Jane renounces her U.S. citizenship on December 31, 2019. Then, Jane submits the tax returns required under these procedures for tax years 2014 through 2019 (including a Form 8854). Jane must report her worldwide income on her U.S. income tax returns, including the $200,000 of wage income.  She submits the returns without a Social Security Number.

Assume that Country T would have the primary right to tax Jane’s wage income and the United States would have a secondary right to tax the income based on her citizenship, after providing a credit for the income tax paid to Country T. Because Jane’s Country T tax liability is higher than her U.S. tax liability, and because Jane is not limited in the amount of the Country T tax she may claim as a credit, Jane would not owe any additional U.S. tax.  Thus, Jane would have an aggregate U.S. tax liability for 2014 through 2019 under $25,000.  Jane is eligible to use these procedures.

Hypothetical 7 (Foreign Tax Credit; 20% Tax Rate in Treaty Country)

Assume the same facts as in Hypothetical 6, except that Jane paid income taxes in Country T at a tax rate of 20%.  Assume the U.S. income tax rate for 2014-2019 is 25%.

As in Hypothetical 6, under the U.S.-Country T tax treaty, Country T would have the primary right to tax Jane’s wage income and the United States would have a secondary right to tax the income based on her citizenship, after providing a credit for the income tax paid to Country T. Because Jane’s Country T tax liability is lower than Jane’s U.S. tax liability, and even though Jane is not limited in the amount of the Country T tax she may claim as a credit, Jane still owes additional residual tax to the United States. Jane paid the equivalent of $40,000 of tax in Country T in each year.  After applying the U.S. foreign tax credit, Jane still owes $10,000 of additional tax in the United States in each year. Considering six years from 2014-2019, Jane owes an aggregate of $60,000 of tax to the United States, which would be greater than $25,000. Jane is not eligible to use these procedures.

Hypothetical 8 (Foreign Earned Income Exclusion; 25% Rate in Tax Country)

Assume the same facts in Hypothetical 6, except here is no applicable treaty, Jane may be eligible to make an election under IRC 911, and Jane was subject to a 25% income tax rate in Country T. Assume the U.S. income tax rate for 2014-2019 is 25%.

Because Jane is a U.S. citizen residing in a foreign country and working in that foreign country, Jane may be entitled to claim the foreign earned income exclusion (FEIE) under IRC 911, which would reduce Jane’s U.S. taxable income. Although Jane can claim a foreign tax credit (FTC), assume Jane chooses to first use the FEIE. Jane would be eligible for a FEIE amount (indexed annually for inflation) in each year as follows:

  • 2014 – $  99,200 ($200,000 - $99,200 =  $100,800 income not excluded under IRC 911)
  • 2015 – $100,800 ($200,000 - $100,800 = $99,200 income not excluded under IRC 911)
  • 2016 – $101,300 ($200,000 - $101,300 = $98,700 income not excluded under IRC 911)
  • 2017 – $102,100 ($200,000 - $102,100 = $97,900 income not excluded under IRC 911)
  • 2018 – $103,900 ($200,000 - $103,900 = $96,100 income not excluded under IRC 911)
  • 2019 – $105,900 ($200,000 - $105,900 = $94,100 income not excluded under IRC 911)

If Jane meets the requirements under IRC 911, Jane can claim the FEIE on IRS Form 2555/2555-EZ and exclude a portion of her earned income in each year.  To the extent that the FEIE does not cover all the income earned, Jane can claim a foreign tax credit with respect to the excess foreign source income (but cannot credit foreign taxes against amounts excluded under FEIE). Due to the FEIE and foreign tax credits, Jane would not owe any U.S. tax.  Thus, Jane would have an aggregate U.S. income tax liability for 2014 through 2019 under the $25,000 aggregate income tax threshold. Jane is eligible to use these procedures. See Foreign Earned Income Exclusion and Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.

Hypothetical 9 (Foreign Earned Income Exclusion; 17% Rate in Tax Country)

Assume the same facts in Hypothetical 8, except Jane was subject to a 17% income tax rate in Country T.  Assume the U.S. income tax rate for 2014-2019 is 25%.  Provided that Jane meets the requirements under IRC 911, Jane can claim the FEIE on IRS Form 2555/2555-EZ and exclude a portion of her earned income in each relevant year.  To the extent that the FEIE does not cover all the income earned, Jane can claim a foreign tax credit with respect to the excess foreign source income (but cannot credit foreign taxes against amounts excluded under FEIE). Because the amount of Country T tax that Jane can credit is less than her U.S. tax liability, Jane would owe U.S. income tax in each year.  For example, for 2014, $100,800 of the $200,000 of income is not excluded under IRC 911 multiplied by a 25% U.S. tax rate equals $25,200 of U.S. tax.  The amount of Country T tax allocated to the non-excluded amount is $17,136.  $25,200 of U.S. tax less foreign tax credits of $17,136 provides a difference of $8,064 of U.S. tax owed in 2014.  Thus, Jane would have an aggregate U.S. income tax liability for 2014-2019 of $46,944 which is greater than $25,000. Jane is not eligible to use these procedures.  See Foreign Earned Income Exclusion and Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.

Renouncing U.S. citizenship is a Department of State procedure. For more information, see Renunciation of U.S. Nationality Abroad.

  1. Certificate of Loss of Nationality (CLN) of the United States, Form DS-4083, or copy of court order cancelling a naturalized citizen’s certificate of naturalization (described in IRC 877A(g)(4)(D)).  If you supply Form DS-4083, the date in the field “That: he/she thereby expatriated __self on (Date) ______ under the provisions of Section…” must be after March 18, 2010.  The CLN must be stamped “Approved” by the Department of State.
  2. Identification: Copy of (a) valid passport OR (b) birth certificate and government issued identification.
  3. Year of expatriation: “Dual-status” return including Form 1040NR with all required information returns:
    • Form 8854;
    • Form 1040 attached as an information return reporting worldwide income up to date of expatriation; and
    • All other required information returns, including but not limited to Form 8938.

      See Notice 2009-85 for more information on dual-status returns.

  4. Five tax years preceding the tax year of expatriation: Forms 1040 with all required information returns.

On the first page of the documents submitted pursuant to these procedures write in red ink “Relief for Certain Former Citizens” at the top of the document.

No.  If you are eligible to use these procedures no payment is required.

If you had tax withholding relating to any tax year of your submission, it will not be considered.  These procedures focus on aggregate total tax liability. Withholding is not considered in determining the aggregate total tax liability.

Internal Revenue Service
3651 South I-H 35
Mail Stop 4301 AUSC
Attn: Relief for Certain Former Citizens
Austin, TX 78741

Taxpayers should write, in red if possible, “Relief for Certain Former Citizens” across the top of each return.

No. If you meet the eligibility criteria, make your submission to the designated address. Do not contact the IRS to request a “placeholder” for an anticipated submission.

If you do not have an SSN you may still make a submission under these procedures.  In this situation, and for purposes of these procedures, leave the boxes blank where an SSN is requested.  It is not necessary to obtain an SSN merely for the purpose of using these procedures. If you mistakenly applied for and received an ITIN in the past, please include your ITIN on your submission.

No. Returns submitted under these procedures will not be automatically subject to IRS audit. But they may be selected for audit under the existing audit selection processes applicable to any U. S. tax return and may also be subject to verification procedures in that the accuracy and completeness of submissions may be checked against information received from other sources.

Although filing FBARs is not an eligibility criterion, if you have an FBAR filing requirement, you should file them. If you are eligible to use these procedures and file FBARs before your submission or contemporaneously with your submission, the IRS will not assert FBAR penalties. If you fail to file FBARs, the IRS may assert FBAR penalties if your submission is selected for examination.

If you have an FBAR filing requirement, you must file FBARs electronically with FinCEN. On the cover page of the electronic form, select “Other” as the reason for filing late.  An explanation box will appear.  In the explanation box, enter “Relief for Certain Expatriates procedures.” 

If you do not have an SSN, you still must file an FBAR if you have an FBAR filing requirement. See page 13 of the BSA Electronic Filing Requirements For Report of Foreign Bank and Financial Accounts (FinCEN Form 114) (PDF) for information on filing an FBAR without an SSN or ITIN.

Taxpayers with questions about filing FBARs electronically may contact FinCEN's Regulatory Helpline at 1-800-949-2732 or 1-703-905-3975 (if calling from outside the United States). Also, you may find this webinar on efiling FBARs helpful.

Yes. After reviewing your submission to confirm that you meet the eligibility criteria, the IRS will send you a letter notifying you that your submission was received and complete.

The IRS will process notifications as quickly as possible, buy you should allow for at least two months before contacting the IRS if you have not received a response to your submission.

If you are not a citizen of the United States, specific rules apply to determine if you are a resident alien or a nonresident alien for tax purposes. You must determine your status as a resident alien or a nonresident alien and file in accordance with your status. For more details on resident and nonresident status, the tests for residence, and the exceptions to them, see chapter 1 of Publication 519, U.S. Tax Guide for Aliens.  For more details on how nonresident aliens are taxed, see chapter 4 of Publication 519, U.S. Tax Guide for Aliens.

No. Unless a finding of loss of U.S. citizenship is vacated by the Department of State, relinquishing U.S. citizenship is irrevocable.  There is no procedure for retracting an income tax return signed under penalties of perjury, though taxpayers usually can file amended tax returns.

You may call (267) 466-0020 and leave a message for IRS personnel. The purpose of the IRS Hotline for these procedures is to answer questions about how to make a submission. The IRS cannot provide tax or legal advice to you.


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