Last week the IRS released the names of individuals who renounced their citizenship or terminated their long-term U.S. residency. 

People often wonder how the IRS receives the data and whether the list only includes individuals who are subject to the “exit tax.”  Section 6039G(d) of the Internal Revenue Code (the “Code”) provides that the individuals listed in the Federal Register include:

"[E]ach individual losing United States citizenship (within the meaning of section 877(a) or 877A) with respect to whom the [IRS] receives information under the preceding sentence * * *."

Losing United States Citizenship

Losing United States citizenship “within the meaning of section 877(a) or 877A” includes both individuals who have lost their U.S. citizenship (e.g., individuals who have renounced or relinquished their U.S. citizenship) and those who have terminated their long-term permanent residency in the U.S.  Code §§877(e) and 877A(g)(5).  A long-term permanent resident includes an individual (other than a U.S. citizen) who is a lawful permanent resident of the United States in at least 8 of the last 15 taxable years.  Code §877(e)(2).

Losing United States citizenship “within the meaning of section 877(a) or 877A,” does not require that the individual actually be subject to the special rules of Code §§877(a) or 877A (such as the exit tax).  Thus, the individual does not need to meet the net worth test or the tax liability test described in Code §877(a)(2) in order to be included on the list of names in the Federal Register.

Sources of Information

The IRS is required to publish the names of the individuals losing United States citizenship “with respect to whom the [IRS] receives information under the preceding sentence * * *.”  The preceding sentence lists three sources from which the IRS receives information. 

Source One – Form 8854

First, “any Federal agency or court which collects * * * the statement under subsection (a) shall provide” certain information to the IRS.  The statement under subsection (a) is required only for individuals subject to the special rules of Code §§877(a) or 877A (such as the exit tax).  However, if an individual does not certify that he has met his U.S. tax filing requirements for 5 years, the individual will be subject to those special rules. 

Form 8854, Initial and Annual Expatriation Information Statement, serves both the purpose of allowing an individual to certify that he or she has met his or her U.S. tax filing requirements for 5 years (see Part IV, Section A, Question 6 of Form 8854), and also serves the purpose of providing the statement required by Code §6039G(a).

Thus, under the first source of information, the IRS must provide to itself the Forms 8854 that have been filed by taxpayers.  We believe that all individuals that have filed a Form 8854 should be included in the Federal Register, because the form is only required for individuals losing their United States citizenship (as defined above). 

Source Two - Certificate of Loss of Nationality (“CLN”)

The second source of information is from the Secretary of State, which is required to provide to the IRS “a copy of each certificate as to the loss of American nationality under section 358 of the Immigration and Nationality Act which is approved by the Secretary of State.”  Thus, when the Secretary of State issues a certificate of loss of nationality (“CLN”), it is required to provide that CLN to the IRS.  If the individual to which the CLN applies has also filed Form 8854, the IRS will have received duplicate information related to that individual.  Thus, the IRS presumably must cross-check the identifying information on the Form 8854 with the identifying information on the CLN to confirm that it does not duplicate the listing of the individual in the Federal Register.

Source Three - USCIS

The third source of information is from “the Federal agency primarily responsible for administering the immigration laws,” which is required to provide to the IRS “the name of each lawful permanent resident of the United States (within the meaning of section 7701(b)(6)) whose status as such has been revoked or has been administratively or judicially determined to have been abandoned.”  The United States Citizenship and Immigration Services (“USCIS”), a component of the United States Department of Homeland Security, is primarily responsible for administering the immigration laws.  Consequently, USCIS must provide information regarding the termination of the lawful permanent residency to the IRS.

A lawful permanent resident of the United States within the meaning of Code §7701(b)(6) includes all lawful permanent residents and not only long-term permanent residents.  However, the IRS is required to list in the Federal Register only long-term permanent residents terminating their lawful permanent residency.  It is not clear how the IRS would determine which of the individuals terminating their lawful permanent residency had been long-term permanent residents.  Perhaps when USCIS provides the list to the IRS it also includes the period for which the individual was a U.S. lawful permanent resident.

It is also important to note that the list provided by USCIS should only include the names of those individuals whose lawful permanent resident status “has been revoked or has been administratively or judicially determined to have been abandoned.”  If an individual’s green card expires without being renewed, that is not a revocation of the green card or a judicial determination of abandonment of the green card.  Such an expiration also would likely not cause an administrative determination of abandonment.  Thus, individuals who merely have their green cards expire, but are not formally determined to have abandoned their green card, should not be reported by USCIS to the IRS for inclusion in the list of names in the Federal Register.  Individuals who merely allow their green cards to expire (but do not formally abandon their green cards) continue to be considered U.S. tax residents and continue to be subject to U.S. tax on their worldwide income.

Similar to receiving information from the Secretary of State regarding CLNs, the IRS must cross-check the identifying information on the Form 8854 with the identifying information received from USCIS to confirm that it does not duplicate the listing of the individual in the Federal Register.

Summary

The list in the Federal Register is required to include all U.S. citizens losing their U.S. citizenship and all long-term permanent residents terminating their U.S. lawful permanent resident status.  The list does not only include individuals that are subject to the exit tax (for example, by meeting the net worth test or the tax liability test).  The IRS obtains the information to determine which names should be included on the list from three different sources: IRS Forms 8854, Secretary of State CLNs, and from USCIS.