Hi,

As many of you know, the Department of State has instituted a $450 user fee in 2010 charged to people who renounced US citizenship. More recently, they increased the fee to 2,350. As was to be expected, some discussion regarding the rationale of charging a use fee followed as well as speculation that the fee was actually a way to punish renunciants.

The criterion providing a rationale for charging a used fee are set out in 31 USC § 9701 – “[e]ach charge shall be … based on … (A) the costs to the Government; (B) the value of the service or thing to the recipient; (C) public policy or interest served; and (D) other relevant facts.”

So, when I read a class action lawsuit against the IRS ( IRS Hit With Class Action Suit Over Tax Preparer User Fees ) for charging user fees to tax preparers, I could only wonder of a similar class action lawsuit would be possible for renunciants.

There are two differences between the 2 cases that would make it difficult:

  • In the IRS case, the IRS stated that the fee was above cost (fee of $64 ; vs cost of $13). Whereas the Department of State stated that the new fee was close to cost (not withstanding bureaucratic inefficiencies).
  • In the case of renunciants, there is a slight possibility that US courts might rule that they do not have jurisdiction to sue since no longer a US citizen and not US resident. This could be challenged by the fact that the fee was charged in a US consulate, hence US territory.

 

But the part that really got me wondering is that:

“Further, the plaintiffs claim that the under 31 U.S.C. § 9701, user fees may not “be charged with respect to fulfillment of a requirement that is subject to a penalty enforcement scheme because no special benefit is granted and the thing that is done is done involuntarily.””

There is no penalty for failing to pay the PTIN fee, except that you can not prepare tax returns for a fee anymore.

The sentence above, however, gets a whole other meaning when applied to renunciants. There is a penalty for US citizen (having to comply with tax rules, including convoluted informational returns, or face large monetary penalties otherwise), and there is no special benefit to no longer being a US citizen. Something to think about…

 

Best,

Tax Samurai

FREE U.S. tax guide for Americans abroad

FREE U.S. tax guide for Americans abroad

The only e-book about U.S. international taxation, which you need to read as U.S. expat:

1. Foreign Tax Credit vs. Foreign Earned Income Exclusion

2. What is the danger of holding a Controlled Foreign Corporation?

3. Why more and more people are renouncing U.S. citizenship?

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