updated 2:28 PM CEST, May 24, 2023

Accidental Americans' District Court moment focuses on expatriation fees; costs; constitutional issues

Exactly how much the U.S. government is justified in expecting American citizens looking to expatriate to pay to do so was extensively discussed and debated during yesterday's hearing in Washington, D.C.'s E. Barrett Prettyman District Courthouse, by the legal teams representing both sides in a two-year-long legal challenge of the current U.S. citizenship renunciation regime. 

Presiding over the hour-long debate was U.S. District Court Judge Tanya S. Chutkan, who also questioned how the current U.S. citizenship renunciation fee of U.S. $2,350 compared to the fees other countries around the world charge their citizens to renounce, and the extent to which the plaintiffs in the matter – a Paris-based association of accidental Americans known as l'Association des Américains Accidentals (Association of Accidental Americans, or AAA), in association with some 13 individual "accidentals" – could actually prove that any fee at all was, as they claim, unconstitutional. 

The defendants are the "U.S. State Department, et al."

Representing the plantiffs, New York- and Jerusalem-based lawyer Marc Zell (pictured above) assured the judge that no other countries came close to the U.S. in what they charge their citizens to expatriate; and with respect to the question of whether Americans have a constitutional right to renounce, he cited examples from a trove of documentary evidence that his legal team has already submitted to the court, much of which was cited and summarized in a 58-page memorandum filed in June of 2021.   

(A copy of this memorandum may be seen and downloaded on the website of the Association of Accidental Americans by clicking here (and scrolling down to the document dated June 17, 2021, and called "AAA – Opposition to State Department's Motion to Dismiss.")

Monday's hearing took place against the backdrop of a bombshell of an announcement late on Friday by the State Department of its "intent" to reduce the much-criticized US$2,350 fee that the U.S. currently charges those seeking to renounce their citizenships, to US$450, which is what it was before the fee was hiked in 2015.

As reported, in announcing its "intent" to reduce the fee by four-fifths, the State Department on Friday also requested that Monday's hearing not take place, and that all further proceedings having to do with the case brought against it by a group of so-called accidental Americans – in an effort to make it easier and cheaper for them and others like them to give up their U.S. citizenships – be deferred.

"Accidental Americans" is a term that's used to refer to persons who are deemed by the U.S. government to be U.S. citizens because they happened to have been born in the U.S., but otherwise lived the rest of their lives elsewhere, as citizens of other countries. Some "accidentals" were born abroad but to at least one American parent, and are therefore considered to be American, even though they have may never have set foot in the States.

Because they are considered to be American citizens, and because the U.S. taxes on the basis of citizenship (rather than country of residence, like almost all other countries), the U.S. expects such accidental Americans to file U.S. tax returns every year, and potentially to pay U.S. taxes and even penalties for failing to file such information documents as Foreign Bank Account Reports, even if they have never lived in the U.S., or earned money there. 

Also representing the plaintiffs yesterday in addition to Zell was Noam Schreiber, also of Zell & Associates International Advocates, while Laurel H. Lum, of the U.S. Justice Department, answered questions on behalf of the State Department. 

That US$450 fee

During the hearing, District Court Judge Tanya S. Chutkan asked a number of questions concerning the renunciation fee, which is a central element (but not the only one) in the accidental Americans' legal challenge, and repeatedly sought to know the government's rationale in setting the rates at the prices it did. 

One of her first questions – and one that many people currently in the process of giving up their citizenships are keen to know the answer to as soon as possible – was the date that the State Department is planning to officially drop the fee to US$450, (to which the answer was "not yet known").

Nor was it known whether the tens of thousands of Americans who have thus far paid the full US$2,350 to renounce would be eligible for a refund of the difference in the two amounts, but to those present, it sounded as though such a refund is unlikely to happen.

Asked why the fee had been increased by so much in 2015, the government's lawyer said it had been done to cover the actual costs involved in processing renunciations, although no answer was given as to whether this cost would now be subsidized by the government. Nor was there a clear answer as to how the fee the U.S. government charges for expatriation compares with other fees of a similar nature charged by the government, such as naturalization costs, the costs of getting a passport and so on. 

Zell told the judge that the accidental Americans he represents didn't suggest that the government could never charge a fee to defray its costs, but that these costs needed to be real, actual and reasonable, and added that under law, the government could only charge a user fee anyway for services that are a "special benefit" to a segment of the general public.

The US$450 fee, Zell told the judge, didn't reflect reality, but also, and more importantly, didn't show the proper respect for the renunciants' fundamental, natural, inherent and constitutional right to expatriate. He added that the "burden of proof" lay with the government to prove its "compelling" need to charge US$450 per expatriation service. 

Not mentioned at all during the hearing was what is widely referred to by expatriating Americans and those in the business of helping them as an "exit" tax" that the U.S. currently levies on those whom it deems to be wealthy individuals, who tick certain boxes that the IRS details in a document on its website. Of these, the main one is  having a net worth of US$2 million or more on the date of their "expatriation or termination of residency."  (Expatriates who fall into the category of having to pay this tax are called "covered expatriates.") 

Friday's State Department announcement of an intent to reduce the renunciation fee to US$450 also didn't refer to this extra tax on wealthier individuals, which is seen as having been intended to ensure that if rich expats were determined to leave the U.S. tax system, they would at least make a significant contribution on their way out the door. 

Concluding the session, Judge Chutkan said she would render her decision in due course, without giving a specific date, and in the meantime, she urged both parties in the matter to engage in discussions in such a way as to resolve their issues without need of a court ruling.

A transcript of the hearing will be made available, also in due course, court officials said.

AAA president Lehagre:
'Challenge is far from over'

In a statement on the AAA's Facebook page and on Twitter, AAA president Fabien Lehagre said that as nice as the government's "intention" of lowering the renunciation fee "so significantly" was, the decision to do so "raises serious questions as to the government's cost analysis" process, and added that the AAA's challenge over the matter was "far from over." 

 As reported, the plaintiffs in the case against the State Department, who are said to reside in some 13 different countries around the world, originally filed their complaint in December of 2020. At the time it was the AAA's first legal action in the U.S., but the latest in a series of similar cases it's brought in Europe since it was founded in 2017 by Lehagre, pictured left, a California-born accidental whose French father brought him back to France at the age of 18 months.

The AAA currently has some 1,400 members. Globally there are estimated to be tens of thousands to more than 100,000 accidental Americans, many of whom have been having increasing difficulty in maintaining banking and other financial accounts, as the U.S. increases pressure on non-U.S. financial institutions to provide it with details of all their accounts that are held by Americans, and such institutions increasingly are closing their doors to American expats, especially those who lack  U.S. Identification Numbers, which few accidental Americans have. 

Ordinary American expats are also expatriating in record numbers, many citing the cost and hassle of reporting their taxes to the IRS every year and potentially owing money to the U.S. government, even though they don't ever intend to return to live in the U.S. There were 6,705 renunciations in 2020, according to unofficial counts of renunciants' names posted on the Federal Register, compared with just 743 in 2009. (However, as the AXFNJ reported last year,  some 507 of the names that were posted on the four quarterly 2020 Federal Register lists had appeared previously.)

John Richardson is a Toronto, Canada based lawyer and dual U.S./Canadian citizen, who assists U.S. citizens and Green Card holders living outside the United States with their citizenship issues, while also advocating for fairer treatment for such expats and Green Card holders. He also frequently interviews such individuals and others for AXFNJ podcasts, which may be found and listened to by clicking here.