13 June 2018
Media across the globe has recently paid significant attention to the growing number of US citizens relinquishing their citizenship. Many different factors effect one’s decision to expatriate, though most commentators agree the primary driver is the growing complexity of the US tax system. The US is one of the few countries taxing its citizens and long term permanent residents on their worldwide income, while simultaneously employing new and aggressive legislation (e.g., FATCA) to identify those failing to report their offshore income and investments. However, recent coverage has failed to highlight the increasing number of minor US citizens and green card holders also relinquishing their US citizenship.
Contrary to popular belief, it is possible, albeit more difficult, for a US person under the age of eighteen to expatriate. For expatriating adults, some US embassies require two in-person appointments with a US consular official following the submission of identifying documents and various paperwork. However, there are some embassies, like the US embassy in London, which generally only require one in-person appointment. Minors must submit the same documents and paperwork as their adult counterparts, however, US State Department guidance states that all applicants under eighteen must have both an in-person informal appointment and an in-person final appointment with a consular official.
Though the minor has a six month opportunity to reclaim US nationality once he reaches eighteen (a generous option unavailable to an adult expatriate), a consular official must still ensure the minor’s relinquishment is voluntary and undertaken with a full understanding of the implications and potential consequences. Not only is there a presumption regarding a lack of maturity to appreciate the irrevocable nature of the expatriation, but there is also suspicion regarding the free nature of the act and whether it is coerced by a parent; the younger the minor, the more influence the parent is assumed to have over the decision to expatriate. As a result, parents are forbidden from accompanying their minor children through the interview process.
If the consular officer determines the minor acted voluntarily and knew the consequences of his actions, the US State Department will uphold the expatriation. Similar to an adult, the minor is responsible for submitting Form 8854, Initial and Annual Expatriation Statement. This is true even though he may have no other US tax filing requirement or reportable income. Notably, qualifying minors are not subject to the mark-to-market ‘exit tax’ applicable to covered expatriates so long as he has been a resident of the US for not more than ten taxable years before the date of relinquishment. For those children who may become entitled to a trust fund or other source of significant income upon reaching eighteen, this exception proves very favourable.