Flott & Co. recently contacted the Department of State, suggesting that Volume 7 (Consular Affairs) of the US Department of State Foreign Affairs Manual (“FAM”) be revised. To avoid inconsistencies in the treatment of similar cases across the world by American consulates, more specific guidance and clearer procedural rules are needed for consular officers on the subject of relinquishment of US citizenship.

The default position of US law is that a US citizen must affirmatively set aside US citizenship to lose it.  It cannot be taken away or “lost” inadvertently.  However, many former US citizens did not formally renounce their US citizenship when they became citizens of other countries.  Some thought they automatically lost US citizenship when they swore an oath of allegiance to another country and were content with that result.  Others simply didn’t think that they needed to do anything to “exit” US citizenship.  They ceased using their US passports, filing US tax returns, voting in US elections, and otherwise acting as US citizens.  They began using their new “foreign” passports, voting and paying taxes in their new countries, and otherwise acting like citizens of their new countries.  In their minds, they voluntarily ceased being US citizens when they became citizens of their adopted countries.

However, “undocumented” former US citizens, meaning those who have not received a Certificate of Loss of Nationality of the United States (“CLN”) from the Department of State, are still considered citizens under US law.  Thus, from the US perspective they are still subject to US taxation on their worldwide income and are required annually to report financial accounts and assets held in banks located outside the United States.  Indeed, as recent legislation (e.g., the Foreign Account Tax Compliance Act – FATCA, for short),  requires foreign financial institutions to report US account holders to the Internal Revenue Service. When FATCA comes into play in 2013, these undocumented former citizens are likely to be considered US citizens by their banks and financial institutions.  This is particularly true for those former US citizens who were born in the United States.  Thus, undocumented former US citizens should now consider taking affirmative steps to document their longstanding status as non-citizens by obtaining a CLN that reflects  the date  they gave up their US citizenship.

However, the process whereby a former US citizen may formally establish non-citizenship status is far from clear.  As Flott & Co. pointed out in its letter to the Department of State, the FAM   discusses relinquishment cases, but provides virtually no guidance on how to process them.  While the FAM is quite explicit on the process consular officers are to follow in renunciation cases, there is no such procedure outlined in the FAM for relinquishment requests.  The uncertainty of the process, the lack of familiarity with it, and the absence of guidance in the FAM has already resulted in quite different procedures being used at two consulates in Ontario.

Based on  experience with these pending cases, Flott & Co. decided to contact the Department of State regarding the limited guidance on relinquishment in the FAM.  It suggested four ways in which the FAM could be improved, specifically to address the process to be followed when a former US citizen seeks formal documentation of his/her relinquishment of US citizenship.  Contrasted with renunciation, which takes effect as of the date on which the US citizen takes the oath of renunciation, relinquishment involves confirmation that a fully voluntary expatriating act took place at some time in the past.  In essence, it is an application for a CLN to confirm an historic event, something that could have occurred many years in the past.  Flott & Co.’s objective is to achieve rules that ensure transparency and consistency in such cases across the entire network of US consular offices.