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1,795 thoughts on “Renunciation and Relinquishment of United States Citizenship: Discussion thread (Ask your questions)”

  2. Greenwood – (1) See 2A of Guidance for Expatriates Under Section 877A. A factor in the exclusion category is also extent of U.S. residence, not only dual citizenship from birth. (2) I don’t know how the “federal superannuation” that schubert1975 refers to stacks up as pension, but I do know, as surely as anything in this mess can be known, that defined contribution employer pension does add into the net worth calculation.

  3. hijacked2012 – Joint assets become problematic. Here’s a stab, but for sure you need to get some solid direct advice on your own particular situation. (1) Joint bank account – if you have put in all the money, all the money attributes to you. (2) Joint title to house. Maybe the same as foregoing, maybe not. If 50/50, your 50 is part of your net worth. If joint, at least some portion will be subject to capital gains in US – though not in Canada if principal residence.

  4. USXCanada I beg to differ. This is a good example of what a mess this is. The way I read the instructions for 8854, the expatriation tax return, a Canadian Gov’t pension plan would NOT be included

    line 7a specifically says do not include an interest in a foreign pension plan

    Quote “None of the amounts checked on line 7 are subject to the mark-to-market tax. Do not include them on line 8.

    Line 7a. Generally, a deferred compensation item is one of the following.
    1. Any interest in a plan or arrangement described in section 219(g)(5). This includes a qualified pension, profit-sharing (including 401(k)), annuity, SEP, and SIMPLE plan
    2. Any interest in a foreign pension plan or similar retirement arrangement or program.”

  6. KalC –

    Here’s assuming you are talking about the 7a in IV.B –
    If you are filling that part of the 8854 out then you already look to be a “covered expatriate.” So not good.

    Look at Part V Balance Sheet and Income Statement which the instructions for V.A.2 direct you to use to calculate “net worth on the date of your expatriation for tax purposes.” This includes V.7 Pensions from services performed outside the United States …

    PS I just looked at this form for the first time ever. I would never presume to try to read this gobbledygook for myself – or to trust what I thought I could read into or out of it. That task should be left to well-qualified specialists.

  8. @ everyone
    On details such as raised in the past few posts, to have any confidence about what you’re doing, you need to hire a tax lawyer and/or a CPA, and in both cases they need to be cross-border qualified. I’m neither a lawyer nor a CPA, and my opinions don’t constitute qualified legal or accounting advice.

    Yes lawyers and CPAs cost money, but not as much as doing it wrong might cost you down the road. In advice as in much else in life, you get what you pay for.

  11. usxcanada Isn’t it weird how the instructions for 8854 Part V skip from line 5a to line 8 and leave ‘pensions from services outside the US’ completely up to anyone’s guess.

  12. KalC – I did notice that skip-over in the instructions. My understanding is that nothing that is an asset (eg defined benefit nest egg) rather than a straight income stream (eg CPP & OAS) can be omitted here.

    Return question. Watcher posted this link earlier today:

    http://www.pwc.com/us/en/asset-management/investment-management/publications/assets/FATCA-faqs.pdf

    Did you notice what the FAQ said about pension funds under item 43 on page 8? This one is FATCA – nothing to do with the net worth issue.

  13. @usxcanada or @KalC or anyone who absolutely knows the answer / I haven’t been able to get the definition…

    For 8854:

    how would a company defined benefit pension be valued?

    how would RRSP / RRIF be valued?

    Present Value — and, if so, how do you get to that figure?

  14. usxcanada exemption for reporting rsp accounts fits with the draft regs.

    calgary411 Let me get back to you. Remember, I’m not a lawyer or an accountant. In your situation, I’d be tempted not to put anything but I’ll work on it

  15. @KalC — thanks.

    (Why can they not give clear, easy-to-understand instructions / perhaps a glossary of definitions?)

  16. it’s impossible to understand. I looked at the law and the instructions. RSPs appear to be ‘deferred compensation items’ I think one is supposed to enter the ‘present value ‘ on the day before expatriation. This is of course unfair because present value doesn’t take into account the fact that RSPs are taxed when the money comes out.

    There is no way that I’m aware of to determine the present value of a defined benefit pension plan. You would need an actuary.

    The law is written for americans who are presumed to have left the country for tax purposes after having made their fortune in the US. That is why there is no provision for canadian RSPs. If you are under the limit, it doesn’t matter.

  17. calgary411 i went back and read your story posted in Dec. I think if i were in your position, once I had renounced, I might just forget about the whole mess. They have bigger fish to fry. they will only persue cases where it is worth their trouble.

  18. Thanks, KalC. That is well what I might do.

    At any rate, I will have to complete the 8854 form. I don’t think I will be a ‘covered person’ but I am not sure, especially that I don’t know what is required for Net Worth regarding valuation of my defined benefit pension and RRSP / RRIF.

    Regarding my son, I can live with never again crossing the border in my family’s case. I would like the right to hold an RDSP and a TFSA for my son. I would like the same rights to travel as any other Canadian citizen.

    I would like a just solution for the many families as mine in similar circumstance — so the wheel does not have to be re-invented in each family’s case as they learn of this US citizenship-based tax absurdity. If, like Mr. Mopsick says, the law is the law, I want the law to be just for everyone, not just those able to afford US tax lawyers and cross-border accountants to comply.

    It’s a principle thing but I know I have to bow to not having just law if the monetary cost to me is too great. I want our government representatives to listen and act for those without a voice, that’s all. I think if I recognize a great injustice, I have some responsibility in its change — not all, but some.

  21. @ KalC — I found this / have you looked at it? http://www.stepjournal.org/journal_archive/2011/tqr_september_2011/advising_us_citizens_and.aspx

    which says:
    Anything that is not an eligible deferred compensation item is characterised by the Notice as an ‘ineligible deferred compensation item58.’ These items will be fully taxable in the taxable year of the covered expatriate, which includes the day before the expatriation date. The Notice requires the covered expatriate to provide Form W-8CE to the payer of the deferred compensation item. Within 60 days of receipt of Form W-8CE ‘the payer must provide a written statement to the covered expatriate setting forth the present value of the covered expatriate’s accrued benefit on the day before the expatriation date59’. Generally in the case of ineligible deferred compensation items, the amount included in income is the covered expatriate’s account balance on the day before the expatriation date60. However, in the case of a defined benefit plan, the present value of the covered expatriate’s accrued benefit will be determined using the methodology set forth in s4.02 of Revenue Procedure 2004-37, 2004-1C.B.1099. Early distribution taxes and penalties will not apply in computing the tax liability for ineligible deferred compensation items subject to the exit tax61. In the case of ineligible deferred compensation items, which represent interests in foreign pension plans or similar retirement arrangements or items of deferred compensation payable by a non-US employer (such as non-qualified deferred compensation), the present value of the covered expatriate’s accrued benefit will be determined by applying the principles set forth in Proposed Treasury Reg. s1.409A-4.
    AND
    Guidance is needed regarding the proper characterisation of RRSPs, RRIFs, and other retirement savings arrangements common in Canada. In certain respects, these savings arrangements would seem to not be properly characterised as deferred compensation items inasmuch as they do not seem to fit easily under the rubric ‘foreign pension plan or similar retirement arrangement or program’ because the RRSP or RRIF is linked to a particular employee not to a particular employer. In this respect, the RRSP would seem to be more analogous to an individual retirement account, which is characterised by Code s877A(e)(2) as a ‘specified tax deferred account’ instead of a deferred compensation item. However, unlike an IRA, there are no penalties for early withdrawals of amounts from RRSPs and the tax deferral (for US income tax purposes) is limited to the accrual of funds held in the plan or fund, not the contributions. Deferral of accruals is provided by para 7 of Article XVIII of the Convention between the US of America and Canada with Respect to Taxes on Income and on Capital (US-Canada Tax Treaty). The relief provided by Article XVIII of the US-Canada Tax Treaty extends to accruals under ‘a trust, company, organisation or other arrangement… operated exclusively to provide pension, retirement or employee benefits…’ Revenue Procedure 2002-23 explicitly recognises RRSPs and RRIFs as within the scope of arrangements covered by para 7 of Article XVIII of the US-Canada Tax Treaty, but did not characterise these savings arrangements as ‘pension plans’35. Finally, Notice 2003-25 and 2003-57 characterised RRSPs and RRIFs as trusts subject to the reporting requirements of Code s604836.

    If RRSPs and RRIFs and other similar retirement savings arrangements are regarded as trusts, they are clearly grantor trusts because of the access and control the covered expatriate has over the assets of the plan or fund. As explained above, the assets of a grantor trust are treated as owned by the covered expatriate and marked to market. As such, the difference between the contributions made by the covered expatriate to the plan or fund and the fair market value of the assets in which those contributions were invested as of the day before the date of expatriation will be recognised and subject to the exit tax to the extent not sheltered by the exclusion of Code s877A(a)(3)(A). In contrast, Code s877A(d)(2)(A)(i) treats deferred compensation item as having been ‘received’ by the covered expatriate and Code s877A(e)(1)(A) treats the covered expatriate ‘as receiving the entire interest in such account’. Characterisation of the RRSP, RRIF or similar retirement savings arrangement as a deferred compensation item requires the custodian to ‘deduct and withhold from any taxable payment to a covered expatriate with respect to such item a tax equal to 30 per cent thereof37.’ As such, the Notice requires the untaxed income of the plan or fund to be included in the final return of the covered expatriate or – if the item of deferred compensation qualifies as ‘eligible deferred compensation – subject to 30 per cent withholding when paid38.’ Because the market-to-market regime does not apply to either items of deferred compensation or tax deferred accounts, the USD600,000 exclusion of Code s877A(a)(3)(A) does not apply39

    Last fall I got what the company I worked for gave as a Present Value for December 1, 2011 for my defined benefit pension, and I guess I’ll have to get a revised figure for the day before I renounce.

    If I don’t have to also have a Present Value determined for my RRSP or my husband’s RRIF, I’ll be OK with the amount of my Net Worth — and not a ‘covered person’.

  23. You’re right, it is gobbledygook!!!!!! But I think it answers my question — to be confirmed as I’ve made too many mistakes already.
    You’re right, my husband’s RRIF will be in his Net Worth for his 8854 upon his renunciation.
    Really, thanks!!!!!

  24. calgary411 I tried reading your long 9:54 post again. It all applies to ‘covered expatriates’ only. Your goal, if you decide to send in 8854, is to avoid being a ‘covered expatriate’ If you are a ‘covered expatriate’ , you are committed to 10 more years of this BS. You must be sure to find a way to get under the 2 million dollar limit. Bonne Chance. My heart goes out to you. What you are doing is above and beyond the call of duty.

  25. @KalC

    I will have to do a Net Worth Statement for the 8854 and if I use the same “sort of definitions” that they give in that link, I think it says RRSP would not be valued at a Present Value. If that is the case, I am very safe. If what is said applies to a defined benefit pension, I will have to give a Present Value, so if that is the only “pension” that I have to do that for, I will be OK.

    But, the absurdity is that:
    1) we are not given clear instructions that we (me!) can understand in order for some of us to do our own taxes; and
    2) we have to expensive hire US tax lawyers, cross-border accountants to interpret the gobbeldygook and keep us safe — really how many of us can and how many are laying low hoping it will all go away — there is NO WAY their families can take on this extra expense; and
    3) hiring other lawyers, like immigration / nationality lawyers, human rights lawyers, etc., to protect the rights we should have —

    All to save our families from this US overreach.

    Thanks, KalC.

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