With the passing of the FATCA regulations in 2010, many US citizens living abroad became aware of their often-extensive filing obligation. Many would perhaps prefer to relinquish their US citizenship and as such be absolved of tax and filing obligation. What seems a simple solution is not always so simple, as we will explain below.

Expatriation is the relinquishment of US citizenship and/or residence. In order to accomplish this, one must follow the necessary procedure defined by the US Department of State. In addition to that however, the Internal Revenue Code demands compliance of certain filling obligations in order to be able to complete the expatriation process. Namely, the filing of a dual status returns for the year during which the expatriation procedure is carried out. This includes a Form 8854 which certified that the individual carried out his filing obligation accurately during the prior 5 tax years. Additionally, an exit tax is imposed under Internal Revenue Code 877A. This regulation usually deems all property of certain expatriates sold for its fair market value on the day before the expatriation date. This does not apply to compliant taxpayers with a net worth of less than $2,000,000, and an average net annual income tax liability of over $162,000 over the last five years.

Accidental Americans are how some US citizens are referred to. This means those born with US citizenship rights, but who were never assigned a Social Security number. It would include individuals born abroad and have at least one parent who is a US citizen and have thereby inherited the citizenship. Or, it could be an individual born in the US to foreign parents who resided temporarily in the US.

Since a US Social Security number of an ITIN (Individual Tax Identity Number) is always needed in order to file a tax return, the IRS have put in place specific procedures known as Relief Procedures for Certain Former Citizens for these accidental Americans.

This procedure allows an individual who falls in this category to file a tax return for the year of expatriation and five prior years without a SSN or ITIN, thereby being able to complete the expatriation process. This was made available after March 18, 2010.

The tax return for the year of expatriation must include the Form 8854. The tax returns and required information returns for the five tax years preceding the tax year of expatriation must be accurate and complete. A number of other documents must be included, as listed below. Specific wording needs to be included on the first page of the documents being submitted.

• A copy of Form DS-4083, Certificate of Loss of Nationality/or a copy of the court order canceling the certificate of naturalization for individuals who obtained citizenship via naturalization.  (To obtain Form DS-4083 a US citizen must appear in person before a US consular officer at a US Embassy or Consulate located in a foreign country and sign an oath of renunciation.  The US consular fee for processing the renunciation of citizenship is currently $2,350.)
• Identification of the individual such as a valid passport, a birth certificate or other valid government identification document.

There are a number of conditions that one must meet to qualify for this program.

1. Renouncement or intention to renounce citizenship after 2010.
2. One never willfully ignored their US tax filing or reporting requirements.
3. One had an aggregate tax liability of no more than $25,000 for the current tax year and five prior tax years (after application of all applicable deductions, exclusions, exemptions, and credits, including then Foreign Earned Income Exclusion and the Foreign Tax Credit.
4. Ownership of less than $2 million of net assets at the time of expatriation.