In a striking legal move, four former U.S. citizens who voluntarily renounced their citizenship have filed a class-action lawsuit against the U.S. government. Their grievance centers on what they assert are exorbitant and unconstitutional costs associated with relinquishing their American passports.
The lawsuit, unveiled on Wednesday, was lodged in a federal court in Washington DC and levels allegations against the U.S. government, contending that it unjustly profits from imposing what they describe as “astronomical” fees upon those who willingly choose to cease their American ties. Since 2014, individuals living abroad who seek to shed their U.S. citizenship, or those who find it financially burdensome to fulfill the notoriously stringent U.S. tax obligations, have been compelled to pay a substantial “renunciation fee” amounting to $2,350.
This fee, according to the lawsuit, is deemed “arbitrary, capricious, and illegal” due to its utilization in funding governmental functions entirely unrelated to the provision of renunciation services, thereby violating federal law.
While the precise number remains unknown, estimates suggest that there are between 5 million to 9 million U.S. citizens residing overseas. Among them are expatriates who relocated for employment opportunities or in pursuit of a fresh life, while others fall into the category of “accidental Americans” – individuals who were born within U.S. borders, thereby automatically acquiring citizenship, yet have never established a significant presence within the country.
The U.S. subjects its citizens abroad to some of the most onerous obligations compared to any nation worldwide. It shares with Eritrea the distinct feature of requiring all its citizens, irrespective of their location, to file annual tax returns with the tax authorities.
Noteworthy figures who have challenged these demands and subsequently renounced their citizenship include former UK Prime Minister Boris Johnson, who decried the tax requirements as “absolutely outrageous” when he relinquished his citizenship in 2017 during his tenure as foreign secretary.
Since the introduction of the Foreign Account Tax Compliance Act (Fatca) in 2010, banks across the globe have been mandated to report to the Internal Revenue Service (IRS) on the financial activities of individuals they suspect might be American citizens. This bureaucratic burden has made it cumbersome for people to initiate new banking relationships or conduct routine financial transactions without navigating through extensive paperwork.
As a consequence of Fatca, the number of applications for renunciation has surged, accompanied by a corresponding escalation in costs. Prior to 2010, severing formal ties with the U.S. was cost-free, with the fee incrementally rising to $450 until it unexpectedly spiked to the current $2,350 in 2014.
The U.S. State Department has indicated its intention to reduce this fee back to $450, although this revision has not materialized. The newly-filed class-action lawsuit estimates that over the past decade, more than 30,000 individuals have borne the weight of this “excessive” $2,350 fee and demands at least partial reimbursement.
“The fee is astronomical, outrageous,” declared Esther Jenke, one of the plaintiffs. She hails from a small Iowa town, but at the age of 26, she relocated to Germany, where she now resides with her German spouse and two children in Hamburg. Jenke, now 55, only recently became cognizant of the arduous obligations imposed on American expatriates, including the looming threat of capital gains taxes if she and her husband ever decide to sell their home. She renounced her citizenship in 2018 and lamented that “Americans abroad are treated as criminals and tax evaders, when most of us are just normal people who live outside U.S. borders.”
Fiona from Cambridge in the UK, who renounced her U.S. citizenship in April, recounted expending as much as £15,000 ($18,100) in legal fees. She shared her sense of feeling ensnared by citizenship rules, deeming the requirement to pay such a substantial sum for renunciation as “corrupt.”
The class-action lawsuit receives support from the Association of Accidental Americans, which has initiated its own ongoing legal proceedings against the State Department over its handling of renunciations.
In the face of mounting concerns surrounding Fatca and citizenship-based taxation, Fabien Lehagre, the president of the Association of Accidental Americans, remarked, “Instead of resolving the problems caused by Fatca and citizenship-based taxation, the State Department has continued to put up barriers to slow down renunciations of American nationality.”
The lawsuit seeks to challenge these contentious fees, asserting that they are unjust and unfairly imposed on those who wish to sever their ties with the United States.
