During 2012, the tax consequences of U.S. citizenship became a major source of worry for U.S. citizens living in Canada. Widespread reports in the media of increased U.S. enforcement of the tax and financial account reporting obligations of U.S. citizens living outside the United States created considerable anxiety. They also spurred questions about the particulars of what constitutes U.S. citizenship.
Who is or is not a U.S. citizen is certainly important because the United States is the only country in the world to tax based on Citizenship rather than location.[1] Thus, U.S. citizens residing outside the United States are subject to U.S. income tax on their worldwide income even if they are also subject to tax on that income in the country in which they reside. U.S. citizenship taxation extends to estate taxes, too.
This is the first of an article series that will discuss the spectrum of U.S. citizenship law, from the very clear position of anyone born in the United States to the less clear positions of those who were born outside the United States when one or both parents are U.S. citizens.
Birthright Citizenship — The Absolutely Clear Case
All persons born within the borders of the United States are citizens. It does not matter if their mothers were in the U.S. legally (as tourists, for example) or illegally, or whether the children leave the United States the day they were born. It bears repeating: all persons born in the U.S. are automatically citizens. This is the absolute citizenship situation.
NOTES:
[1]. Technically, the United States is not the only country to tax based on citizenship. Eritrea imposes a special 2% tax on its citizens living abroad which is not imposed on its citizens in Eritrea. Eritrea does not tax its nonresident citizens on their worldwide income while the United States does. The rest of the world uses residence as the basis for taxing inhabitants. The United States also taxes permanent residents and those who are deemed “substantially present” in the United States on their worldwide income. 171 Birthright citizenship originated with the Fourteenth Amendment to the U.S. Constitution, Section 1, known as “the Citizenship Clause”, reads as follows: All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws. Since ratification of the Fourteenth Amendment on July 9, 1868, any person born in the United States is a citizen of the United States. Congress cannot limit or impair the citizenship of persons born in the United States.
[ 2.] This article does not address citizenship obtained by naturalization. Persons who are naturalized in the United States have elected to seek U.S. citizenship knowing that they are not entitled to it except by formal application and the swearing of an oath of allegiance to the United States. Those entitled to U.S. citizenship by birth do not take an oath of allegiance as their citizenship derives from the place of their birth or their U.S. heritage. 3. The U.S. Supreme Court in United States v. Wong Kim Ark, 169 U.S. 649 (1898), ruled that virtually everyone born in the United States is a U.S. citizen. The decision established the court’s defining interpretation of s. 1 of the Fourteenth Amendment. Wong Kim Ark, who had been born in San Francisco in 1871 to Chinese parents, was denied re-entry to the United States after a trip to China based on the so-called Chinese Exclusion laws, which restricted Chinese immigration and prohibited Chinese immigrants from becoming naturalized U.S. citizens. He challenged the government’s refusal to recognize his citizenship. The U.S. Supreme Court, deciding in his favor, held that the citizenship clause in the Fourteenth Amendment encompassed essentially everyone born in the U.S. — even the U.S.-born children of foreigners — and could not be limited in its effect by an act of Congress. The case settled the disagreement over the meaning of the phrase in s. 1, namely, “and subject to the jurisdiction thereof”. The court concluded that the phrase referred to being required to obey U.S. law. Using this interpretation, the language granted U.S. citizenship to all children born on American soil (a concept known as jus soli). The court’s dissenters concluded that the phase meant not being subject to any foreign power, i.e., not being a citizen of another country by way of jus sanguinis (citizenship derived from a parent). The minority objected that the majority’s interpretation would confer citizenship on “the children of foreigners, happening to be born to them while passing through the country”, which is precisely what it did. The jus soli principle enunciated by the Supreme Court in the Wong Kim Ark case has never been seriously questioned. See Statement of Walter Dellinger, Assistant Attorney General, Office of Legal Counsel, before the Subcommittees on Immigration and Claims and on the Constitution of the 172 Estates,Trusts & Pensions Journal [Vol. 3]
2“consensual” for anyone born within its borders. Citizenship is conferred simply by the fact of birth in the United States and in Puerto Rico, the U.S. Virgin Islands, Guam, and the Republic of Panama.5