Renouncing US Citizenship? IRS Relief Procedures Explained

The US operates under a citizenship-based tax system, which requires all US citizens and Green Card holders to report and pay taxes on their worldwide income, no matter where they live. For many Americans abroad, these ongoing tax and reporting burdens have led them to consider giving up their US citizenship altogether.

Whether you are an Accidental American who only recently discovered your US tax obligations or an American abroad who’s decided to cut ties, it’s important to know that the IRS introduced a special program in 2019.

The IRS created this initiative for people who have already given up their US citizenship or plan to do so and need to resolve outstanding tax obligations.. The program allows qualifying individuals to catch up on their filings, become compliant, and avoid being classified as covered expatriates, a status that can trigger costly exit taxes.

In this article, we’ll break down the eligibility requirements and explain how the process works.

Renouncing Your US Citizenship

Giving up US citizenship is a formal legal process handled at a US Embassy or Consulate abroad. It involves appearing in person, taking an oath of renunciation, and paying a fee (currently $2,350). While the Department of State manages the citizenship side, the IRS looks at the tax side. Being a US citizen comes with both benefits and obligations, and relinquishing citizenship means stepping away from both.

Under US tax law (IRC 877A), the IRS may treat citizens who give up their nationality as “covered expatriates” if they have a high net worth, a high average annual tax liability, or fail to stay tax compliant. Covered expatriates may face an exit tax on their worldwide assets.

To avoid this, the IRS introduced special Relief Procedures for Certain Former Citizens in 2019. Qualifying individuals, typically Accidental Americans and Americans with modest assets and low tax liability, can catch up on tax filings and avoid covered expatriate status through these procedures.

How US Citizenship Is Acquired

Most people become US citizens automatically at birth if they are born in the United States. The only narrow exception is for children of foreign diplomats, who are not considered US citizens under the 14th Amendment.

Others may acquire citizenship at birth outside the US if they have an American parent who meets certain residency requirements. In some cases, individuals may not even realize they are US citizens until much later in life. These individuals are commonly known as “Accidental Americans.”

Accidental Americans

Accidental Americans are people who hold US citizenship without actively seeking it, and often without knowing it. This can happen if someone was:

• Born in the US to foreign parents.
• Born abroad to US parents who met the residency requirements to pass on citizenship.

US citizens, whether they live in the United States or abroad, must file annual tax returns and report their worldwide income to the IRS. For many Accidental Americans, this obligation comes as a surprise, especially if they have lived their entire lives outside the US.

This issue became even more significant after the Foreign Account Tax Compliance Act (FATCA) was passed in 2010. FATCA requires foreign banks to identify US citizens among their customers and report certain account details to the IRS. Often, an individual’s US birthplace or passport is what triggers the bank to flag them as American. In many cases, this is the moment an Accidental American first learns they are subject to US tax rules.

Who Qualifies for IRS Relief Procedures

There are a few stipulations in place to satisfy tax compliance rules through this new IRS program. To qualify for the penalty and tax relief procedures and to avoid being classified as a “covered expatriate,” each “Certain Former Citizen” must meet all of the following requirements:

• Net worth of less than $2 million at the time of expatriation
• Expatriated after March 18, 2010
• Aggregate tax liability of $25,000 or less for the year of expatriation and the five previous years

In addition, the IRS specifies that these procedures are available only to taxpayers whose prior failure to file required returns (income tax, gift tax, FBAR, and other information forms) was due to non-willful conduct, meaning it wasn’t intentional tax evasion.

Need Time to Think?

Considering giving up your US citizenship? It’s a serious decision and once relinquished, it’s permanent. If you’re weighing your options, our team at MyExpatTaxes can walk you through the tax side of expatriation so you know exactly what to expect.

IIf renouncing isn’t right for you, we can also help you catch up on back taxes. Through the IRS Streamlined Filing Compliance Procedures and our personalized support, we make becoming compliant as simple as possible. For those subject to the IRS exit tax, our platform provides full support with Form 8854 (Exit Form) to ensure compliance.

Our expat tax software is built specifically for Americans abroad. It simplifies complex IRS rules into clear, easy-to-answer questions, helps you maximize your benefits, and ensures you stay fully compliant.

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