In a significant legal development, a group of former U.S. citizens who renounced their citizenship have filed a class-action lawsuit against the U.S. government, challenging what they say are exorbitant and unconstitutional costs associated with renouncing their passports.
The lawsuit, filed Thursday in federal court in Washington, D.C. by four people who renounced their U.S. citizenship, alleges that the U.S. government is unfairly benefiting from the “astronomical” $2,350 renunciation fee imposed on those who voluntarily renounce their status as Americans. Since 2014, Americans living abroad who no longer wish to be citizens or who cannot afford the notoriously high U.S. tax demands have been required to pay a $2,350 “waiver fee.”
According to the lawsuit, the fee is “arbitrary, capricious and illegal because, among other things, it was used to fund government functions completely unrelated to exemption services, in violation of federal law.”
Americans living abroad
Although exact numbers are not known, it is estimated that between 5 and 9 million U.S. citizens live abroad. Some are expatriates who moved for work or in search of a new life, others are “accidental Americans”: They were born in the United States and automatically acquire citizenship, but have never lived in the country for long.
The United States imposes some of the most demanding requirements on its citizens abroad, comparable to Eritrea, requiring all citizens, regardless of where they live, to file annual tax returns with the U.S. tax authorities.
Resignations have become increasingly common in response to such demands, even from prominent figures such as former British Prime Minister Boris Johnson, who renounced his citizenship in 2017 and called the tax demands “absolutely outrageous.”
Since the implementation of the Foreign Account Tax Compliance Act (Fatca) in 2010, banks around the world have been required to report to the Internal Revenue Service (IRS) the activities of anyone they suspect to be American. This makes it difficult for people to open new bank accounts or conduct routine financial transactions without having to complete cumbersome paperwork.
Waiver fees have increased over the years. Until 2010, the process to break off formal relations with the US was free, increasing to US$450, until the amount suddenly increased in 2014 to the current US$2,350.
reduce costs
The State Department has expressed its intention to lower the fee back to $450, but has not yet done so. The class action lawsuit estimates there may be more than 30,000 people who paid the “excessive” $2,350 fee over the last decade and seeks at least partial reimbursement.
Esther Jenke, one of the plaintiffs, highlighted the “astronomical” and “outrageous” nature of the fee, citing the challenges Americans face abroad, including the looming capital gains tax.
Fiona, an “accidental American” from Cambridge, UK, who renounced her citizenship in April, expressed similar sentiments and expressed surprise at being asked to pay a significant fee despite not having opted for US citizenship .
The lawsuit is supported by the Accidental Americans Association, which has its own ongoing litigation against the State Department over its handling of the resignations.
“Instead of solving the problems caused by Fatca and citizenship-based taxes, the State Department has continued to erect barriers to curb renunciation of American citizenship,” said Fabien Lehagre, the group’s president.
