Renunciation and Expatriation from the United States: What You Need to Know

For U.S. tax purposes, expatriation refers to two distinct events:

Renunciation of U.S. citizenship — A formal legal process in which a U.S. citizen voluntarily and intentionally relinquishes their citizenship. It must be done in person before a U.S. consular or diplomatic officer at a U.S. Embassy or Consulate abroad, or before certain other designated officials. It cannot be done by mail, online, or within the United States.

Abandonment of lawful permanent resident status — The process by which a green card holder formally surrenders their permanent resident status. This is done using Form I-407, submitted to USCIS, a U.S. border port of entry, or a U.S. Embassy or Consulate.

Both events have the same fundamental tax consequence: they end your status as a U.S. tax resident going forward. After expatriation, you are generally taxed only as a non-resident alien — meaning your U.S. tax obligations are limited to U.S. source income rather than worldwide income.

However, the year of expatriation itself involves specific and complex tax requirements — and the consequences of getting them wrong can follow you for years.

Why people consider renunciation — and what it does and doesn’t solve

People consider renouncing U.S. citizenship for a variety of reasons — simplifying their financial life, eliminating the ongoing compliance burden of U.S. worldwide taxation, resolving banking difficulties caused by FATCA, or simply a sense that they have no meaningful connection to the United States.

It is important to understand clearly what renunciation does and does not accomplish from a tax perspective:

What renunciation does:

• Ends your obligation to file U.S. tax returns on worldwide income going forward
• Eliminates the FBAR and other information reporting obligations associated with U.S. person status
• Resolves FATCA-related banking difficulties in many cases

What renunciation does not do:

• It does not eliminate existing U.S. tax liabilities or unfiled return obligations
• It does not eliminate the exit tax for covered expatriates
• It does not provide a way to avoid U.S. tax — if the IRS determines that tax avoidance was the primary motivation for renunciation, you will be treated as a covered expatriate regardless of whether you meet the financial thresholds
• It cannot be undone — renunciation is irrevocable

Renunciation is not a solution to a compliance problem. It is a separate decision with its own significant consequences. Anyone considering renunciation should understand their current compliance status and the potential exit tax exposure before making any decision.

Before expatriation is recognized for U.S. tax purposes, you must have filed U.S. tax returns for the five years preceding your expatriation date. This is not optional — it is a statutory requirement certified on Form 8854.

What this means in practice:

If you have unfiled returns, you must come into compliance before or as part of the expatriation process. The Streamlined Foreign Offshore Procedures are the most common path for expats with non-willful non-compliance. See our Streamlined Filing Compliance Procedures guide →

If you have never filed, you cannot simply renounce and walk away. The five-year compliance requirement applies to the five calendar years immediately preceding your expatriation date. Depending on when you expatriate, this may mean filing returns for years in which you were not previously required to file under your then-current understanding.

Compliance means more than filing the return. The five years of returns must be complete and accurate — including all required information returns such as FBARs, Form 8938, Forms 3520 and 3520A, and Form 5471 where applicable. A return filed without required attachments may not be considered compliant for Form 8854 purposes.

Getting to five years of compliant returns before expatriation is a process that takes time and professional assistance. It is not something to leave until the week before your consulate appointment.

The steps involved

For U.S. citizens renouncing citizenship:

1. Make an appointment at the nearest U.S. Embassy or Consulate. Appointments must be made in advance and wait times vary significantly by location — in some countries, waits of several months or more are common.
2. Attend the appointment, pay the renunciation fee (currently $2,350 USD — confirm the current fee with the Embassy or Consulate as this is subject to change), and swear a declaration of renunciation before a consular officer.
3. Receive Form DS-4083, Certificate of Loss of Nationality. This is the official document confirming your renunciation. Your expatriation date for tax purposes is the date you swear the oath of renunciation.
4. File a dual-status exit income tax return for the year of expatriation, including Form 8854. See the Form 8854 section below.

For green card holders abandoning permanent resident status:

1. Complete Form I-407, Record of Abandonment of Lawful Permanent Resident Status.
2. Submit Form I-407 to USCIS, a U.S. border port of entry, or a U.S. Embassy or Consulate, along with your green card.
3. Receive confirmation of abandonment. Your expatriation date for tax purposes is the date USCIS or the consular officer receives your completed Form I-407.
4. File a dual-status exit income tax return for the year of expatriation, including Form 8854 if you held your green card for at least eight years.

Note that for green card holders, Form 8854 is only required if you held the green card for at least eight of the fifteen calendar years ending with the year of abandonment. Green card holders who abandon status before reaching the eight-year threshold are not subject to the exit tax rules — though a dual-status return for the year of abandonment is still required.

Not all expatriates are subject to the exit tax — only those who meet the definition of a “covered expatriate” under IRC Section 877A. If you are a covered expatriate, the tax consequences of expatriation can be significant.

The covered expatriate definition

You are a covered expatriate if you meet any one of the following three tests:

Net income tax liability test: Your average annual net U.S. income tax liability for the five years preceding expatriation exceeded the threshold amount — $190,000 for 2023, adjusted annually for inflation. Confirm the current threshold with your Tax Specialist or at IRS.gov before your expatriation date.

Net worth test: Your net worth was $2 million or more on the date of expatriation. All assets worldwide — not just U.S. assets — are included in this calculation.

Certification test: You fail to certify on Form 8854 that you have complied with all U.S. federal tax obligations for the five years preceding your expatriation date. This is why compliance is a prerequisite — failing to certify makes you a covered expatriate by default, regardless of your income or net worth.

The exit tax — what it means

If you are a covered expatriate, IRC Section 877A imposes a mark-to-market exit tax. In plain terms:

All property you own on the day before your expatriation date is treated as if it were sold at fair market value on that day. Any gain above an exclusion amount — $821,000 for 2023, adjusted annually for inflation — is subject to U.S. tax at capital gains rates in your final U.S. tax year.

This deemed sale applies to virtually all property you own worldwide — real estate, investment accounts, business interests, and other assets. There is no exemption for assets held in foreign countries or assets that would not otherwise be subject to U.S. tax.

Special rules for retirement accounts and trusts

Retirement accounts — including IRAs, 401(k)s, and foreign retirement accounts held by covered expatriates — are not subject to the deemed sale rules. Instead, they are treated as if the entire account balance was distributed on the day before expatriation. The distribution is subject to U.S. income tax at ordinary rates, and the normal 10% early withdrawal penalty does not apply. This treatment can result in a significant tax liability for covered expatriates with substantial retirement account balances.

Non-grantor trusts in which a covered expatriate holds an interest are also subject to special rules — distributions from such trusts after expatriation may be subject to a 30% withholding tax.

Avoiding covered expatriate status

The most straightforward way to avoid covered expatriate status is to ensure you are fully compliant for the five years preceding expatriation — which addresses the certification test — and to expatriate before your net worth reaches $2 million or your average tax liability exceeds the threshold. For individuals who are approaching these thresholds, timing and planning can make a meaningful difference, and a consultation well in advance of any intended expatriation date is important.

Form 8854 — the expatriation tax return

Form 8854, Initial and Annual Expatriation Statement, is the central document in the expatriation tax process. It is required for all former U.S. citizens and for green card holders who held their card for at least eight years.

Form 8854 serves several purposes:

• It certifies that you have complied with all U.S. federal tax obligations for the five years preceding expatriation
• It establishes your expatriation date for income tax purposes
• It reports the computation of the exit tax if you are a covered expatriate
• It reports the mark-to-market deemed sale and any resulting gain or loss on each asset owned on the date of expatriation

When and how Form 8854 is filed

Form 8854 is filed as part of your dual-status exit income tax return for the year of expatriation. The return itself consists of:

• A Form 1040 statement covering the portion of the tax year up to your expatriation date — reporting worldwide income for that period
• A Form 1040NR covering the remainder of the tax year — reporting only U.S. source income for that period
• Form 8854 attached to the return

The return is due on the standard due date for your tax year, including extensions.

Consequences of not filing Form 8854

Failure to file Form 8854 when required has serious consequences: you are not considered to have expatriated for U.S. income tax purposes. This means you continue to be treated as a U.S. tax resident — subject to worldwide income taxation — until Form 8854 is filed, regardless of when you actually renounced your citizenship or surrendered your green card.

In other words, renouncing your citizenship at the consulate does not end your U.S. tax obligations. The legal expatriation and the tax expatriation are separate events, and the tax expatriation does not occur until Form 8854 is filed.

Once you have properly expatriated — meaning Form 8854 has been filed and accepted, all exit tax obligations have been settled, and you are no longer a U.S. citizen or green card holder — your ongoing U.S. tax obligations are significantly reduced.

Going forward, you are taxed as a non-resident alien. This means:

• You are subject to U.S. tax only on U.S. source income — not on worldwide income
• You are generally not required to file FBARs or Form 8938
• You may be subject to U.S. withholding tax on certain U.S. source income at a flat 30% rate, subject to reduction under any applicable tax treaty
• If you have U.S. rental property or other U.S. trade or business income, you may still be required to file a Form 1040NR in years when such income is received

The Reed Amendment

One practical consequence of renunciation that is worth being aware of: the Reed Amendment, codified at 8 U.S.C. Section 1182(a)(10)(E), makes former U.S. citizens who renounced citizenship to avoid taxation inadmissible to the United States. In practice, this provision has rarely been enforced, but it is a legal risk for those who renounce for tax avoidance reasons — another reason why the stated motivation for renunciation matters.

How AET helps

Renunciation and expatriation is one of the most consequential financial and legal decisions a person can make, and the tax component is only one part of it. AET’s role is specifically on the tax side — we cannot advise on the legal or immigration aspects of renunciation, and we strongly recommend working with a U.S. immigration attorney in addition to a tax specialist.

On the tax side, AET can help with:

Getting compliant before expatriation — If you have unfiled returns, the Streamlined Foreign Offshore Procedures are the most common path. We will assess your situation, prepare the required returns, and ensure you are in a position to certify five years of compliance on Form 8854.

Assessing covered expatriate status — We will help you determine whether you meet the net worth or income tax liability thresholds, and what your exit tax exposure looks like before you make any decision.

Preparing the dual-status exit return and Form 8854 — The year-of-expatriation return is one of the most complex individual returns in the U.S. tax system. It requires accurate valuation of all worldwide assets as of the expatriation date, proper computation of the deemed sale and exit tax, and correct dual-status treatment of income for the year.

Pricing: Form 8854 preparation is available on an hourly basis. Contact us to discuss the scope of your situation.

If you are considering renunciation, a consultation with an AET Tax Specialist is the right first step — well before you make your consulate appointment.