1,795 thoughts on “Renunciation and Relinquishment of United States Citizenship: Discussion thread (Ask your questions)”
@Lisa – to answer question 1, no I don’t think you can relinquish, you’d have to renounce. Relinquishment is where you perform a voluntary act with the intention of giving up US citizenship, i.e. taking an oath of citizenship of another country and declaring that you intend to give up your US citizenship at the same time. Because you have both nationalities from birth, this isn’t a voluntary intentional act as defined by the law. I’m the same as I have both US/UK nationalities from birth as my parents registered my birth with the British Embassy in the US where I was born.
@got kids? If they were born outside the US you could argue the point, but you might run the risk of border control not allowing them in without a US passport. It seems they are tightening up on that sort of thing nowadays. Any chance you can/want to get rid of your US citizenship? That would probably be the easiest way to deal with it, otherwise you may need to get US passports for them.
@Lisa, I was born in the US, learned at the age of 10 that I was Swiss since birth, have lived in Switzerland about 20 years, the past 11 uninterupted, and they had me renounce rather than relinquish.
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@Uncle Tell, @Medea, @SwissPinoy Thanks a lot. That answers my question. I was thinking that since I have to prove the blood tie to the country in question, that active solicitation of the passport might be grounds for relinquishment, especially if I decide that I am getting the passport with the purpose of committing an expatriating act. No, I will not have to swear allegiance to this country. So from what you said, if and when I choose to do expatriate, it will be via renunciation. Your information is much appreciated.
*For got kids? You should contact US Citizenship and Immigrations Services with your specific situation. I did this for my children a few months ago. They were born in Canada with one US mother (me) and a Canadian (non-US) father. My children have no claim to US citizenship per section 301(g) of the US Citizenship and Immigration Act. The one US parent needs to have been present in the US for at least two years after the age 15 for their children to have claim to citizenship. I left the US at age 13 and was not present there for any years after that. I e-mailed Citizenship and Immigration again and explained the tax situation and how the IRS may consider children born of a US parent to be US citizens. The gentleman I was dealing told me that the IRS cannot impose citizenship where a claim does not exist. Still, I am very reluctant to take my babies across the border. You’ll need to provide information like your age when you left the US, when your children were born, if the father is American, did you register them with a US consulate, etc, etc.
@Marie, you just need to memorize: My children have no claim to US citizenship per section 301(g) of the
US Citizenship and Immigration Act. The one US parent needs to have
been present in the US for at least two years after the age 15 for their
children to have claim to citizenship. I left the US at age 13 and was
not present there for any years after that.
Cross the border a time or two spouting that and it will end up on whatever record they keep on each of us for all the Border Guards to pull up on their screens.
The Immigration Officer you spoke to was correct. You can’t pass on your citizenship b/c you don’t meet the “feet on the ground” test. Just stand your ground and as my husband always says, if one border guard says no, you turn around wait a few hours and again at shift change. Border guards are like teenage girls. Their opinions on things vary from minute to minute.
Help with Form 8854 Part V Schedule A (7) Pension Outside US – Valuation
I have a Canadian Government defined benefit pension plan. Since there would be no payout or residual value to pass on to my estate on death can I enter “0” for this item, or do I need to make some calculation based on annual payout times estimated years left to live?
I have an RRSP which I would report the full value, but assume I do not need to report information for the Canada Pension Plan. Hope someone else has been through this, and can help me with some information or steer me to an appropriate web site.
Well, well, two of us seem to be working on the same issue at the same time.
My question is also on the same form 8854, Part V, Schedule A (7) pensions outside the US–valuation. I have a desperate need to know how to calculate the present accrued value of my Swiss
international organization defined benefit, which I assume is defined in Notice 2009-85 under section 5B(1)b.
Has anyone calculated this value using Proposed Treasury Reg 1.409A-4, as referenced in notice 2009-85? Can anyone advise? We calculated a value using revenue proc. 2004-37, but that is for pensions defined under section 5B(1)a, and I doubt that it is correct.
My wife and I have our renunciation appointment NEXT TUESDAY, and we need to know whether the pension amount will keep me under the USD 2 Million threshold or push me over. If I am going to be over the threshold when I file my 8854, or if we can’t find the answer in time, then neither of us will renounce next week.
Are there any pension experts who can help us?
Thanks to @Watcher for the tip in his 28 November post on “Are US renunciation figures being gamed” It frightened me into doing more research before our appointment.
“look at your exact pension balance on the day you expatriate, or get a valuation if it’s not a “transparent” plan; on form 8854 tick ‘yes’ for section B, question 7a; add your pension balance (or valuation) as “other income” to your 1040; calculate normal income tax; pay (or defer) it. Weep copiously.”
*@Lord Jim, I thought the IRS only charged income tax on the value of a personal pension fund if the person renouncing is a covered expat. If not, then very harsh indeed. Can anyone clarify?
This article sets forth the questions practitioners should ask their clients who have an interest in expatriating. These questions will allow the practitioner to elicit information necessary to advise clients properly regarding their exposure to the US exit tax.
Phil Hodgen’s is emailing chapters to a draft version of his Exit Tax book, and information related to it. His email address is phil@hodgen.com if you want to try to ask him that specific question. (I couldn’t find the answer to that specific question there.)
@monalisa,
I believe Lord Jim is trying to guesstimate if he will be a deemed a Covered Expatriate by determining formula to get the PRESENT VALUE of his Defined Benefit Pension and then determine if that amount added to other assets puts him over the $US 2 million threshhold. There is very little useful information I’ve found to answer this question from what I’ve tried to find.
And here is a comment I posted a year ago on the usefulness of help from the IRS:
Thought I would pass this along: I just got this message from the IRS EMail Tax Law Assistance…
There should be someone in the IRS U.S. expats are able to get “expert” answers from in making life-impacting decisions. To be safe, at least for the questions I ask, I need to hire professional help. This is cost-prohibitive for many / most.
From: TaxHelp@hal1.ausc.irs.gov
Sent: Tuesday, October 18, 2011 8:18 AM
Subject: IRS Email Tax Law Assistance
NOTE: Thank you for your inquiry. Our response to your tax law question appears below. I hope this information has been helpful. If you have a follow-up question or another general tax law question, please return to our web site at: Internal Revenue Service.
Please do not use your “reply” button to respond to this message. More helpful information is provided at the end of this message.
Your Question Was:
In determining if I DO NOT meet the qualifications for the EXIT TAX if I renounce my U.S. citizenship, how are the following valued?
1)The value of my home (gain since purchase?)
2)The value of my Canadian Defined Benefit Company Pension (present value or a value in the future?)
Thanks very much for this needed information.
The Answer To Your Question Is:
Thank you for your inquiry of October 13, 2011.
Unfortunately, your question regarding the valuation of assets for the purposes of determining your responsibilities regarding expatriation is beyond the scope of the service we intend to provide, due to its highly complex nature. The Internal Revenue Service’s tax law service is intended to work in partnership with the professional tax preparation community. Thus, we refer taxpayers to that resource when their questions involve complex issues and situations. You may want to seek the services of a tax attorney, certified public accountant or other tax professional. You may also find assistance in Publication 519, U.S. Tax Guide For Aliens, and in the instructions for Form 8854, Initial and Annual Expatriation Statement. We’re sorry for the inconvenience. You can find all U.S. forms and publications on our website Internal Revenue Service. If you need further clarification of these questions or you would like to ask additional questions you can submit another email or you can call the international help line Monday through Friday, at 267-941-1000 from 6:00 am to 11:00 pm EDT. This is a toll call. From inside the U.S. you can call 1-800-829-1040.
We hope this answer is helpful to you. Thank you for using our service.
We are interested in your opinion and providing the best possible service to you. Please take a moment to answer our survey at: Customer Satisfaction Survey
This answer is based on our understanding of the facts you presented in your question. Omission of facts may affect the answer given.
Here’s a tip for navigating the IRS web site. Use the “search” button at the right side of the web page. Enter key words or phrases for your topic in the entry box.
Our basic Electronic Tax Law Assistance service is designed to assist the general public in complying with their Federal tax obligations by helping them with questions they have about the tax law and procedural issues. Our goal is to provide complete and accurate responses to as many taxpayers as possible.
If you have additional questions, you may contact us either by phone at 1-800-829-1040 or by email through our web site Internal Revenue Service.
EMPLOYEE ID: 1000198461 Mr. Cahill Tel.:English–(267) 941-1000 Spanish–(800)-829-1040 msg#: 1860903
*Look up Dan’s approach to these issues. he has the answer.
@ Duke, could you elaborate ?
@ Calgary, you are exactly right.
My « European » retirement was always the missing piece of our renunciation and subsequent 8854 process to log out of the US. I had returned to it off and on since we made our renunciation appointment (back in June), and my wife and I were prepared to complete the 8854 by ourselves, as best we could, from the limited information available.
We had the actuarial amount of the retirement given to us by my organization, minus the monthly payments already received, and we were ready to use that for the 8854. We were ready to split that amount in half on each of our 8854s, 1) because we had always filed joint US returns, and 2) because my wife would receive half the pension amount if I were to die. When both of us die, the pension stops. In doing so, we would be well under the USD 2 million threshold and would be non-covered expatriates and not subject to and additional US tax. So we thought, with a little uneasiness….
@Watcher’s tip frightened me as our renunciation appointment approached, and I started my research again in greater earnest. I called the IRS hotline in Philadelphia and received excactly the same response as @Calgary. « The 8854 is a complex form, beyond the scope, blah, blah, we suggest that you seek professiional tax advice. » Phil Hodgen is busy until April 2013. On Monday I had a mini-consultation with one of the people on ACA’s PTAC, who told us that we could use the actuarial amount given by my organization, but that the total amount would have to be listed on my 8854. Yesterday we had a second mini-consultation with another person, international tax lawyer, who steered us to revenue proc 2004-37, as referenced in 877A. Of course he did not take us all the way to the end of the calculation. We were left with unanswered questions (I have already received retirement payments – how are they subtracted ?), and in any case the approach didn’t seem right to us. From 877A, it seemed that we should be using proposed treas. Reg. 1-490A-4 to make our calculation.
So here we are, exactly 6 days before our renunciation, Philadelphia down, two
international tax experts down, and we are no closer to having a clear answer. Treas reg. 1-409A-4 is so far incomprehensible to us and we can’t find its applicability to our situation (which is in our minds a simple retirement, the one which will provide our means of living in our country of residence – and where we pay taxes on it – for the rest of our lives – why should this be so difficult ?).
Does one of the lawyers who follow IBS know exactly what we have to do and would he/she be able to help us arrive at a conclusive answer before Friday @Myst needs help too.
If I follow one IRS thread, it seems to think that I will live to be 86 years old, allowing it to count accelerated payments for an additional 11 years beyond my accepted life expectancy age of 75. Is that is how a normal, non-covered expatriate can quickly become covered, facing substantial tax upon renunciation ? And this concerning a retirement derived entirely from work performed outside the US !
Conclusion : still looking, but resigning ourselves to the prospect that we cannot afford to take the risk of renouncing next week. Depressing. And if we can’t find an answer to the « simple » question of valuation of the present accrued value of a « foreign » pension, then maybe we will never be able to renounce. We will not even be in a position to do our cost-benefit analysis.
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@Lord Jim, so sorry to hear of your woes.
To elaborate Duke’s comment… I haven’t noticed Dan around recently, but he regularly posted one-liners a few months ago that usually suggested simply not telling the US (for otherwise how would they know?). There is much to be said for that, but it only works if you’re on the left end of the “full ostrich”/”under the radar” to “full compliance” spectrum.
On pension valuations, I guess I had it simpler. I had only a couple of DC plans to consider, so nothing complex. I don’t know how I would have handled DB plans.
One thought that might help. It sounds like you are both currently US citizens, and that you can get under the wire if you split your DB plan with your wife, but not otherwise. All money is fungible, so if you have to include the whole DB value on your 8854, could you instead first gift your wife a sum of cash equal to half your DB pension valuation? Your half of the house? Some appreciated stock? Some unappreciated stock? That way your 8854’s will come out with the same end value for you both as if you had been able to split the DB value, but you have followed ACA PTAC advice to the letter.
It’s even better if you can keep the “gift” under US gift tax allowances — that should be easy if you are both current US citizens. This way the IRS doesn’t get any visibility that you’ve shuffled assets around before renouncing. Not that there’s anything illegal about that, but always best to keep them in the dark whenever possible.
FWIW I “gifted” my spouse half of my home’s value before we did our 8854’s. Not for the exact same reason as you, but similar. Our accountant noted that many, many similar “gifts” between spouses happen in the US for tax reasons, and that there was no reason the IRS would question it. Who knows if he was right, but it’s been four years and so far, so good.
Dan is on the right path. Remember who the bad guys are.
I just corresponded with someone offline regarding upcoming Renunciation of US Citizenship by “Accidental American” son. I suggested the question be posed at Isaac Brock. Not done, so I will copy what I relayed so that 1) it may help others with the same question; and 2) others may step in to correct me if I have relayed bad information.
If you could ask this question at Isaac Brock, I will give the same answer (so others that might be affected, but do not have this information digested yet, benefit). It will also, of course invite others’ view on this if they think what I say is wrong. It is really an area to get legal advice if you have great concern as no one here practices law and can give absolute advice. I think your son, especially, will be OK – if he files all US tax returns he needs to and files Form 8854 by June 15, 2013.
As I understand it, one does not have to have filed all required tax returns before renunciation. But, after renunciation, in order to complete everything, all tax returns “must” be done, as you complete one more form, IRS 8854 – to determine whether or not you will be a “Covered Expatriate”.
[ For you: 1) Get CA Citizenship; 2) Relinquish (When you relinquish, you are essentially applying for that Certificate of Loss of Nationality. It is sent from the Consulate at which you relinquish to Washington, DC for determination. Some have gotten their CLN in a few months; others up to a year; 3)File 8854 by June 15 of the year following (as attachment to the last return for the partial year in which you relinquished (see some Phil Hodgen comment on Covered Expatriate definition; 8854 below. Note: The important thing is you don’t have to be in tax compliance for 5 years at the moment you relinquish, nor at the moment you file your expatriation forms at the consulate. You only have to certify you’re in 5 years compliance when you send in your 8854 by June 15th of following year.
If one relinquishes, I have heard that you would have to pay an exit tax….is that correct? Depends. See below for discussion on how to make yourself an “Covered Expatriate” and become eligible for the Exit Tax. You do not want to become part of that club if at all possible. ]
Your son, I believe, having been born in Canada, never having lived in the US will not be a “Covered Expatriate” even if he exceeds $2 million of “Net Worth” with Form 8854. He must, though, complete requisite number of back US tax returns, certifying that he is up to date on his tax responsibilities. See reference to Dual Citizen from Birth below
I have written an ebook about the exit tax. You are getting this because you wanted an early copy. This is a beta version. (That’s 21st Century language for “it’s a draft, not the final manuscript”.) Please tell me about stuff that should be fixed.
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Chapter 4. Are You a Covered Expatriate?
A Covered Expatriate is an Expatriate who is too wealthy, paid too much in Federal income tax, or failed the paperwork requirements in some way.
Section 1. Certification Test
You will become a Covered Expatriate if:
You are not up to date with all of your Federal tax obligations; or
You are late filing Form 8854 after your expatriation event; or
You tell somewhat less than the truth on your tax returns or Form 8854.
Certification
Specifically, you will be a Covered Expatriate if you:
“[fail] to certify, under penalties of perjury, compliance with all U.S. Federal tax obligations for the five taxable years preceding the taxable year that includes the expatriation date, including, but not limited to, obligations to file income tax, employment tax, gift tax, and information returns, if applicable, and obligations to pay all relevant tax liabilities, interest, and penalties (the “certification test”). This certification must be made on Form 8854 and must be filed by the due date of the taxpayer’s Federal income tax return for the taxable year that includes the day before the expatriation date.”
Prior Five Years
The IRS wants to know that you have tax returns on file and you have paid all of your taxes (all types) for the five years before the year of expatriation. If you do not have tax returns on file, your first job is to get that done, even if you had no requirement to file, because (for instance) you had zero income.
File Form 8854 On Time
The certification must be made on a timely-filed Form 8854.
Form 8854 is filed as an attachment to your expatriation year tax return.
For people living outside the United States, the filing deadline for a U.S. income tax return is usually (but not always) June 15. You can also get a six month extension to file your tax returns. This means if you have a June 15 filing deadline, you can have as late as December 15 to file a timely income tax return.
Absolutely file on time. If you do not, you automatically become a Covered Expatriate.
Someone who is “too poor” to be a Covered Expatriate—even someone who paid no income tax and has a zero net worth—will nevertheless be a “Covered Expatriate” if Form 8854 is filed late.
Certifying What?
The certification requirement applies to all Federal tax obligations, including information returns. Conceptually, then, this means all Title 26 (Internal Revenue Code) obligations are included in the certification.
What about obligations such as Form TD F 90-22.1, reporting signature control or a financial interest in foreign financial accounts? These are obligations under Title 31, and thus arguably someone out of compliance for filing these forms would nevertheless be able to certify compliance with his or her Title 26 obligations. This is an area of speculation and caution is urged until additional guidance is issued by the Internal Revenue Service. My suggestion is that you don’t get clever and attempt to skate past anything. You are trying to make a clean break with the United States.
Section 2. Net Worth Test
The most common way to become a Covered Expatriate is by having a net worth of more than $2,000,000. This is the “net worth” test.
The $2,000,000 figure is not adjusted for inflation.
The method for determining net worth is described in Notice 97-19 issued by the IRS.
What You Include
Assets
The assets that you look at are “any interests in property” that would be taxable as a gift if you gave them away the moment before you expatriated. Look at the gift tax rules to see if you would trigger a gift tax by giving the assets away.
An “interest in property” is a carefully defined term. It does not matter whether the property produces income or not. It includes the right to use property, as well as ownership.
For purposes of your analysis, you treat the assets you can give away as part of your balance sheet. However, gift tax exemptions and deductions are ignored in calculating net worth. These include the annual exclusion, transfers to certain minor’s trusts, transfers for certain medical and education expenses, the exemption for certain waivers of pension rights, and the exclusion of certain loans of artwork. In addition, the gift splitting, gift tax charitable deduction, gift tax marital deduction, and limitation on deduction rules are ignored for the net worth test in determining Covered Expatriate status.
Liabilities
Since it is a balance sheet test, you include debts as an offset to calculate your net worth. If you have a $1,000,000 house with a $600,000 mortgage, your net worth is $400,000.
How to calculate value
The method of establishing value is established by Section 2512 and regulations issued under that Section. These are the gift tax rules.
If you are thinking of using valuation discounts to reduce the value of the assets you own, too bad. You cannot invoke prohibitions or restrictions as a method for creating discounted value.
You may use good faith estimates of value. Formal appraisals are not required when you are determining whether you meet the $2,000,000 net worth test.
Beneficial interests in trusts
If you are a beneficiary of a trust, you must calculate the value of that beneficial interest to determine whether you reach the $2,000,000 threshold for being a Covered Expatriate.
The process of establishing the value for a beneficial interest in a trust requires an allocation of assets among all beneficiaries, followed by a valuation of the would-be expatriate’s beneficial interest.
Allocation among beneficiaries
First you will go through an allocation process.
Look at all the assets in the trust and allocate them among all the beneficiaries or potential beneficiaries of the trust. This is a “facts and circumstances” process. Look at the terms of the trust document. If there is a letter of wishes (or similar document), consider that, too. Look at the way trust distributions have been made in the past.
You are also instructed to consider the “functions performed by a trust protector or similar advisor.” To say this is unclear would be an understatement.
If, after looking at the documents, prior distributions, and the trust protector’s powers, you cannot determine the identity of the beneficiaries to whom the trust assets should belong, there is a default method for allocating ownership. You use the principles of intestate succession (use the trust settlor’s death as the starting point) as contained in the Uniform Probate Code. Whatever percentage you would inherit under the Uniform Probate Code is the percentage of trust assets you are deemed to own for the exit tax calculations.
Valuation after allocation
Once you have decided the identities of the beneficiaries who are deemed to own the trust assets, apply the valuation methodologies of Section 2512 (and the regulations under that Code Section), without regard to prohibitions or restrictions on the interest in the property.
Section 3. Net Tax Liability Test
A Covered Expatriate is someone who is sufficiently rich for the IRS to care about. (That’s a joke, not a statement of tax law.) Someone who pays a lot of income tax must be rich, at least according to the IRS.
$151,000 or more
Look at the five years of income tax returns you filed before the year of expatriation. How much Federal income tax did you pay each year? Add the five years’ amounts together, and divide by five. That is your number.
If the amount exceeds $151,000 (this is the current threshold) you will be a Covered Expatriate under the net tax liability test.
The $151,000 amount is indexed annually for inflation.
It is not simple
If only it were as easy as looking at a line on the last five years of Form 1040, doing a quick addition and dividing the result by five. Unfortunately, unnecessary complexity raises its head here.
“Net Tax Liability” Redefined
The rule to apply here is from Notice 97-19, Section III, 1997-1 C.B. 394. Even though this Notice applies to the prior expatriation tax regime under Section 877, it explicitly is applied to the current rules under Section 877A as well.
For purposes of the tax liability test, an individual’s net U.S. income tax is determined under section 38(c)(1). This means you will need to look at your tax returns for the five years before expatriation and make the adjustments required.
Married Filing Jointly
An individual who files a joint income tax return must take into account the net income tax that is reflected on the joint income tax return for purposes of the tax liability test.
This is not fair, but rules are rules. Let’s say you (but not your spouse) will expatriate. If you and your spouse filed joint tax returns and paid $200,000 per year of Federal income tax, you would think the logical (and fair) thing to do would be divide by two, and treat you as if you paid $100,000 of Federal tax per year. You would be wrong.
Part of the planning I do with people who plan to expatriate is to get them started with filing “Married Filing Separately.” That $200,000 of tax liability is then unambiguously a $100,000 per person net tax payment each year.
Section 4. Exceptions
If you fail the Certification Test to become a Covered Expatriate, there is no way out of that status. You are a Covered Expatriate. You are subject to the full brunt of the exit tax rules.
But if you become a Covered Expatriate because you have a net worth above $2,000,000 or you paid more than $151,000 of income tax on average over the prior five years? There are two exceptions. One might work for you. Satisfy one of them and you will be a mere Expatriate with a paperwork problem. You will not be a Covered Expatriate with a tax bill to pay.
Dual citizen from birth
Regardless of your financial status, you are not a “Covered Expatriate” if you satisfy all the following items:
You became a U.S. citizen at birth; and
You also became a citizen of another country at birth; and
On your expatriation date you “continue” to be a citizen of that country; and
On your expatriation date you “continue” to be taxed as a resident of that country; and
On your expatriation date you were not a U.S. resident for 10 of the 15 tax years that end with the year that you expatriated.
Note, however, that you will still have to certify that you are up to date with all U.S. tax requirements. Failure to do so will render you a Covered Expatriate even if you satisfy all the dual citizenship requirements.
Relinquishes citizenship before 18 1/2
The second way that you can cease to be a Covered Expatriate is by relinquishing your U.S. citizenship before age 18 1/2.
The specific requirements you must satisfy in this situation are:
You relinquish your U.S. citizenship before age 18 1/2; and
You were not a U.S. resident for more than 10 taxable years before the date of relinquishment.
By relinquishing citizenship before age 18 1/2 you will avoid the impact of the net worth or net tax liability tests. But you will still be required to certify full compliance with all U.S. tax requirements, and failure to do so will render you a Covered Expatriate.
“Income Tax Test
The expatriate’s average annual U.S. income tax liability over the 5 years prior to expatriation was over $145,000 (for renunciations as of 2010; the figure will be adjusted annually for subsequent years).
Net Worth Test
The expatriate’s net worth is at least $2 million.
Compliance Test The expatriate does not certify that he met all U.S. tax obligations for the five years before expatriation.
If any one of these tests applies to you on the date of your expatriation, then you are considered a “covered expatriate” and the provisions of the exit tax, or “billionaires’ amendment” as Senator Kennedy named it, apply to you.
There is only one exception for adults. If you received citizenship of both the U.S. and some other country at birth, if you continue to hold the citizenship of that country, if you are taxed as a resident of that country, AND if you have been a resident of the U.S. for no more than 10 of the 15 years prior to renouncing U.S. citizenship, you’re exempted from the exit tax provision. (A minor who relinquishes U.S. citizenship before age 18.5 and did not reside in the U.S. for more than 10 years is also exempted).”
It doesn’t say anything there about have to certify that you’re up to date on the tax side of things. Now, the rules may have changed a bit since this info was posted on the site as it’s quoting 2010 figures, but it’s worth a further check.
@Medea Fleecestealer,
It ‘s allhazyseems hazy, but see below*. This is from a Forbes article…
Fortunately not all expatriates face the exit tax; only “covered expatriates” do. Under prior law, you generally had to give notice you were expatriating to trigger the rules. Now if you relinquish your passport or green card, it’s generally automatic. But some expatriates, even under the new law, can escape the exit tax. The financial thresholds (see point five above) can still exempt you. Some people born with dual citizenship who haven’t had a substantial presence in the U.S. and certain minors who expatriated before the age of 18-and-a-half are also exempt. However, those people must still file an IRS Form 8854 Expatriation Information Statement.
The IRS Form 8854 certifies:
(from Mr. Hodgen:
Certification Specifically, you will be a Covered Expatriate if you:
“[fail] to certify, under penalties of perjury, compliance with all U.S. Federal tax obligations for the five taxable years preceding the taxable year that includes the expatriation date, including, but not limited to, obligations to file income tax, employment tax, gift tax, and information returns, if applicable, and obligations to pay all relevant tax liabilities, interest, and penalties (the “certification test”). This certification must be made on Form 8854 and must be filed by the due date of the taxpayer’s Federal income tax return for the taxable year that includes the day before the expatriation date.”Prior Five Years
The IRS wants to know that you have tax returns on file and you have paid all of your taxes (all types) for the five years before the year of expatriation. If you do not have tax returns on file, your first job is to get that done, even if you had no requirement to file, because (for instance) you had zero income.
File Form 8854 On Time
The certification must be made on a timely-filed Form 8854.
Form 8854 is filed as an attachment to your expatriation year tax return.
For people living outside the United States, the filing deadline for a U.S. income tax return is usually (but not always) June 15. You can also get a six month extension to file your tax returns. This means if you have a June 15 filing deadline, you can have as late as December 15 to file a timely income tax return.
Absolutely file on time. If you do not, you automatically become a Covered Expatriate. Someone who is “too poor” to be a Covered Expatriate—even someone who paid no income tax and has a zero net worth—will nevertheless be a “Covered Expatriate” if Form 8854 is filed late.
Certifying What?
The certification requirement applies to all Federal tax obligations, including information returns. Conceptually, then, this means all Title 26 (Internal Revenue Code) obligations are included in the certification.
What about obligations such as Form TD F 90-22.1, reporting signature control or a financial interest in foreign financial accounts? These are obligations under Title 31, and thus arguably someone out of compliance for filing these forms would nevertheless be able to certify compliance with his or her Title 26 obligations. This is an area of speculation and caution is urged until additional guidance is issued by the Internal Revenue Service. My suggestion is that you don’t get clever and attempt to skate past anything. You are trying to make a clean break with the United States.
Exception for dual-citizens and certain minors. Dual-citizens and certain minors (defined next) will not be treated as covered expatriates (and therefore will not be subject to the expatriation tax) solely because one or both of the statements in paragraph (1) or (2) above (under Who Must File) applies. However, these individuals will still be treated as covered expatriates unless they file Form 8854 and certify that they have complied with all federal tax obligations for the 5 tax years preceding the date of expatriation as required in paragraph (3) above (under Who Must File).
Certain dual-citizens.
You may qualify for the exception described above if you meet both of the following requirements.You became at birth a U.S. citizen and a citizen of another country and you continue to be a citizen of, and are taxed as a resident of, that other country.You were a resident of the United States for not more than 10 years during the 15-tax-year period ending with the tax year during which the expatriation occurred. For the purpose of determining U.S. residency, use the substantial presence test described in chapter 1 of Pub. 519.Certain minors. You may qualify for the exception described above if you meet both of the following requirements.You expatriated before you were18-1/2. You were a resident of the United States for not more than 10 tax years before the expatriation occurs. For the purpose of determining U.S. residency, use the substantial presence test described in chapter 1 of Pub. 519.
Thanks to all the well-wishers!!
I had my relinquishment appointment in Toronto on Monday. Despite showing up early, I still waited almost an hour and a half. Despite that, all seems to have gone well.
They were indeed very pleasant and did not in any way try to give me a hard time. I had the completed forms 4079 and 4081 in hand, in addition to a personal declaration, my Canadian passport, citizenship card, commemorative citizenship certificate, and drivers license; the latter was not required. After the long wait, the signing (by me) and countersigning (by the vice consul) took less than 10 minutes; everything now goes to Washington for processing.
According to the vice consul, the long waits (6 to 8 months this summer) have been “reduced significantly”; we’ll see how long it takes to get my CLN. I was also asked to fill out a personal contact form for when the CLN is granted; it appears they will email/phone me when it comes in and I can have it mailed to myself in London as opposed to making another trip to the consulate.
….on an otherwise gray day the sun came out briefly as I made my way across the cobbles in front of Osgoode Hall on my way back to my car.
*Thanks for that calgary411, it clears things up. I’m surprised the renunciation guide site hasn’t pointed that out though. It could be that the info has changed since they originally posted I guess, but an update would be nice.
A new Forbes article: “Renouncing One’s US Citizenship — Meaningful Trend Or Visceral Overreaction?”
From the article:
“Election outcome notwithstanding, I believe that the quite onerous US tax system (for years past as well as what may lie ahead) will remain the key driver of US expatriations.”
*Lost-In-London, Congratulations!! I am glad it went well for you. Thanks for sharing your experience.
Congratulations, Lost-in-London,
It is great to get an update from you that your Relinquishment appointment went without a hitch and you should expect to receive your CLN with a better turn-around than those past. I’ll post another update to the Renouce & Relinquish database we’re maintaining and Pacifica will update The Consulate Directory. Thanks for your part of those compilations.
Every positive report like this will buoy a lot of people to make their decision to make an appointment to claim their relinquishment of US citizenship (at least everywhere except Vancouver at present — we hope that will change!).
Super, Lost-in-London! Glad you’re all done.
That’s a good sign that both your Toronto VC and Mach73’s in Halifax yesterday said that CLN waiting times have been significantly reduced since last summer.
That was a long time in the waiting room (possibly the Brock record), but at least when they call you to the counter at Toronto they know what they’re doing and it goes quickly and, as you said, they’re very pleasant.
Thanks for the details you provided and I’ll add it to the directory this evening.
Re Calgary411,
“Every positive report like this will buoy a lot of people to make their decision to make an appointment to claim their relinquishment of US citizenship (at least everywhere except Vancouver at present – we hope that will change!)
And also except at Ottawa, as, amongst other problems there, we’ve had a couple of people, with impeccable uncontrovertable post-relinquishment conduct, report that Ottawa told them it was too late to claim their relinquishment. False — it is never too late to claim a relinquishment. (of course, we hope that consulate will change too!)
For the record, the only consulate in Canada from which we’ve heard no news of relinquishments is Montréal. However, they get high marks from everyone who’s renounced there, so I’d be quite comfortable doing a relinquishment there.
@Lisa – to answer question 1, no I don’t think you can relinquish, you’d have to renounce. Relinquishment is where you perform a voluntary act with the intention of giving up US citizenship, i.e. taking an oath of citizenship of another country and declaring that you intend to give up your US citizenship at the same time. Because you have both nationalities from birth, this isn’t a voluntary intentional act as defined by the law. I’m the same as I have both US/UK nationalities from birth as my parents registered my birth with the British Embassy in the US where I was born.
@got kids? If they were born outside the US you could argue the point, but you might run the risk of border control not allowing them in without a US passport. It seems they are tightening up on that sort of thing nowadays. Any chance you can/want to get rid of your US citizenship? That would probably be the easiest way to deal with it, otherwise you may need to get US passports for them.
@Lisa, I was born in the US, learned at the age of 10 that I was Swiss since birth, have lived in Switzerland about 20 years, the past 11 uninterupted, and they had me renounce rather than relinquish.
*
@Uncle Tell, @Medea, @SwissPinoy Thanks a lot. That answers my question. I was thinking that since I have to prove the blood tie to the country in question, that active solicitation of the passport might be grounds for relinquishment, especially if I decide that I am getting the passport with the purpose of committing an expatriating act. No, I will not have to swear allegiance to this country. So from what you said, if and when I choose to do expatriate, it will be via renunciation. Your information is much appreciated.
*For got kids? You should contact US Citizenship and Immigrations Services with your specific situation. I did this for my children a few months ago. They were born in Canada with one US mother (me) and a Canadian (non-US) father. My children have no claim to US citizenship per section 301(g) of the US Citizenship and Immigration Act. The one US parent needs to have been present in the US for at least two years after the age 15 for their children to have claim to citizenship. I left the US at age 13 and was not present there for any years after that. I e-mailed Citizenship and Immigration again and explained the tax situation and how the IRS may consider children born of a US parent to be US citizens. The gentleman I was dealing told me that the IRS cannot impose citizenship where a claim does not exist. Still, I am very reluctant to take my babies across the border. You’ll need to provide information like your age when you left the US, when your children were born, if the father is American, did you register them with a US consulate, etc, etc.
@Marie, you just need to memorize: My children have no claim to US citizenship per section 301(g) of the
US Citizenship and Immigration Act. The one US parent needs to have
been present in the US for at least two years after the age 15 for their
children to have claim to citizenship. I left the US at age 13 and was
not present there for any years after that.
Cross the border a time or two spouting that and it will end up on whatever record they keep on each of us for all the Border Guards to pull up on their screens.
The Immigration Officer you spoke to was correct. You can’t pass on your citizenship b/c you don’t meet the “feet on the ground” test. Just stand your ground and as my husband always says, if one border guard says no, you turn around wait a few hours and again at shift change. Border guards are like teenage girls. Their opinions on things vary from minute to minute.
Help with Form 8854 Part V Schedule A (7) Pension Outside US – Valuation
I have a Canadian Government defined benefit pension plan. Since there would be no payout or residual value to pass on to my estate on death can I enter “0” for this item, or do I need to make some calculation based on annual payout times estimated years left to live?
I have an RRSP which I would report the full value, but assume I do not need to report information for the Canada Pension Plan. Hope someone else has been through this, and can help me with some information or steer me to an appropriate web site.
Well, well, two of us seem to be working on the same issue at the same time.
My question is also on the same form 8854, Part V, Schedule A (7) pensions outside the US–valuation. I have a desperate need to know how to calculate the present accrued value of my Swiss
international organization defined benefit, which I assume is defined in Notice 2009-85 under section 5B(1)b.
Has anyone calculated this value using Proposed Treasury Reg 1.409A-4, as referenced in notice 2009-85? Can anyone advise? We calculated a value using revenue proc. 2004-37, but that is for pensions defined under section 5B(1)a, and I doubt that it is correct.
My wife and I have our renunciation appointment NEXT TUESDAY, and we need to know whether the pension amount will keep me under the USD 2 Million threshold or push me over. If I am going to be over the threshold when I file my 8854, or if we can’t find the answer in time, then neither of us will renounce next week.
Are there any pension experts who can help us?
Thanks to @Watcher for the tip in his 28 November post on “Are US renunciation figures being gamed” It frightened me into doing more research before our appointment.
“look at your exact pension balance on the day you expatriate, or get a valuation if it’s not a “transparent” plan; on form 8854 tick ‘yes’ for section B, question 7a; add your pension balance (or valuation) as “other income” to your 1040; calculate normal income tax; pay (or defer) it. Weep copiously.”
*@Lord Jim, I thought the IRS only charged income tax on the value of a personal pension fund if the person renouncing is a covered expat. If not, then very harsh indeed. Can anyone clarify?
@Lord Jim,
You may want to have a look at this: http://www.stepjournal.org/journal_archive/2011/tqr_september_2011/advising_us_citizens_and.aspx
Phil Hodgen’s is emailing chapters to a draft version of his Exit Tax book, and information related to it. His email address is phil@hodgen.com if you want to try to ask him that specific question. (I couldn’t find the answer to that specific question there.)
He also has a discussion on Exit Tax here: http://hodgen.com/exit-tax-is-a-one-time-tax/
@monalisa,
I believe Lord Jim is trying to guesstimate if he will be a deemed a Covered Expatriate by determining formula to get the PRESENT VALUE of his Defined Benefit Pension and then determine if that amount added to other assets puts him over the $US 2 million threshhold. There is very little useful information I’ve found to answer this question from what I’ve tried to find.
And here is a comment I posted a year ago on the usefulness of help from the IRS:
*Look up Dan’s approach to these issues. he has the answer.
@ Duke, could you elaborate ?
@ Calgary, you are exactly right.
My « European » retirement was always the missing piece of our renunciation and subsequent 8854 process to log out of the US. I had returned to it off and on since we made our renunciation appointment (back in June), and my wife and I were prepared to complete the 8854 by ourselves, as best we could, from the limited information available.
We had the actuarial amount of the retirement given to us by my organization, minus the monthly payments already received, and we were ready to use that for the 8854. We were ready to split that amount in half on each of our 8854s, 1) because we had always filed joint US returns, and 2) because my wife would receive half the pension amount if I were to die. When both of us die, the pension stops. In doing so, we would be well under the USD 2 million threshold and would be non-covered expatriates and not subject to and additional US tax. So we thought, with a little uneasiness….
@Watcher’s tip frightened me as our renunciation appointment approached, and I started my research again in greater earnest. I called the IRS hotline in Philadelphia and received excactly the same response as @Calgary. « The 8854 is a complex form, beyond the scope, blah, blah, we suggest that you seek professiional tax advice. » Phil Hodgen is busy until April 2013. On Monday I had a mini-consultation with one of the people on ACA’s PTAC, who told us that we could use the actuarial amount given by my organization, but that the total amount would have to be listed on my 8854. Yesterday we had a second mini-consultation with another person, international tax lawyer, who steered us to revenue proc 2004-37, as referenced in 877A. Of course he did not take us all the way to the end of the calculation. We were left with unanswered questions (I have already received retirement payments – how are they subtracted ?), and in any case the approach didn’t seem right to us. From 877A, it seemed that we should be using proposed treas. Reg. 1-490A-4 to make our calculation.
So here we are, exactly 6 days before our renunciation, Philadelphia down, two
international tax experts down, and we are no closer to having a clear answer. Treas reg. 1-409A-4 is so far incomprehensible to us and we can’t find its applicability to our situation (which is in our minds a simple retirement, the one which will provide our means of living in our country of residence – and where we pay taxes on it – for the rest of our lives – why should this be so difficult ?).
Does one of the lawyers who follow IBS know exactly what we have to do and would he/she be able to help us arrive at a conclusive answer before Friday @Myst needs help too.
If I follow one IRS thread, it seems to think that I will live to be 86 years old, allowing it to count accelerated payments for an additional 11 years beyond my accepted life expectancy age of 75. Is that is how a normal, non-covered expatriate can quickly become covered, facing substantial tax upon renunciation ? And this concerning a retirement derived entirely from work performed outside the US !
Conclusion : still looking, but resigning ourselves to the prospect that we cannot afford to take the risk of renouncing next week. Depressing. And if we can’t find an answer to the « simple » question of valuation of the present accrued value of a « foreign » pension, then maybe we will never be able to renounce. We will not even be in a position to do our cost-benefit analysis.
*
@Lord Jim, so sorry to hear of your woes.
To elaborate Duke’s comment… I haven’t noticed Dan around recently, but he regularly posted one-liners a few months ago that usually suggested simply not telling the US (for otherwise how would they know?). There is much to be said for that, but it only works if you’re on the left end of the “full ostrich”/”under the radar” to “full compliance” spectrum.
On pension valuations, I guess I had it simpler. I had only a couple of DC plans to consider, so nothing complex. I don’t know how I would have handled DB plans.
One thought that might help. It sounds like you are both currently US citizens, and that you can get under the wire if you split your DB plan with your wife, but not otherwise. All money is fungible, so if you have to include the whole DB value on your 8854, could you instead first gift your wife a sum of cash equal to half your DB pension valuation? Your half of the house? Some appreciated stock? Some unappreciated stock? That way your 8854’s will come out with the same end value for you both as if you had been able to split the DB value, but you have followed ACA PTAC advice to the letter.
It’s even better if you can keep the “gift” under US gift tax allowances — that should be easy if you are both current US citizens. This way the IRS doesn’t get any visibility that you’ve shuffled assets around before renouncing. Not that there’s anything illegal about that, but always best to keep them in the dark whenever possible.
FWIW I “gifted” my spouse half of my home’s value before we did our 8854’s. Not for the exact same reason as you, but similar. Our accountant noted that many, many similar “gifts” between spouses happen in the US for tax reasons, and that there was no reason the IRS would question it. Who knows if he was right, but it’s been four years and so far, so good.
*Lord JIm Twenty ways the IRS can locate US expatriates Dec 10 9:11 PM
Dan is on the right path. Remember who the bad guys are.
I just corresponded with someone offline regarding upcoming Renunciation of US Citizenship by “Accidental American” son. I suggested the question be posed at Isaac Brock. Not done, so I will copy what I relayed so that 1) it may help others with the same question; and 2) others may step in to correct me if I have relayed bad information.
*Not sure the Dual Citizenship note about tax filing is correct. This is from the http://www.renunciationguide.com site:
“Income Tax Test
The expatriate’s average annual U.S. income tax liability over the 5 years prior to expatriation was over $145,000 (for renunciations as of 2010; the figure will be adjusted annually for subsequent years).
The expatriate’s net worth is at least $2 million.
If any one of these tests applies to you on the date of your expatriation, then you are considered a “covered expatriate” and the provisions of the exit tax, or “billionaires’ amendment” as Senator Kennedy named it, apply to you.
There is only one exception for adults. If you received citizenship of both the U.S. and some other country at birth, if you continue to hold the citizenship of that country, if you are taxed as a resident of that country, AND if you have been a resident of the U.S. for no more than 10 of the 15 years prior to renouncing U.S. citizenship, you’re exempted from the exit tax provision. (A minor who relinquishes U.S. citizenship before age 18.5 and did not reside in the U.S. for more than 10 years is also exempted).”
It doesn’t say anything there about have to certify that you’re up to date on the tax side of things. Now, the rules may have changed a bit since this info was posted on the site as it’s quoting 2010 figures, but it’s worth a further check.
@Medea Fleecestealer,
It
‘s allhazyseems hazy, but see below*. This is from a Forbes article…http://www.forbes.com/2010/03/23/expatriation-exit-tax-limbaugh-obamacare-personal-finance-robert-wood_4.html
The IRS Form 8854 certifies:
Or not so hazy:
* http://www.irs.gov/pub/irs-pdf/i8854.pdf
Thanks to all the well-wishers!!
I had my relinquishment appointment in Toronto on Monday. Despite showing up early, I still waited almost an hour and a half. Despite that, all seems to have gone well.
They were indeed very pleasant and did not in any way try to give me a hard time. I had the completed forms 4079 and 4081 in hand, in addition to a personal declaration, my Canadian passport, citizenship card, commemorative citizenship certificate, and drivers license; the latter was not required. After the long wait, the signing (by me) and countersigning (by the vice consul) took less than 10 minutes; everything now goes to Washington for processing.
According to the vice consul, the long waits (6 to 8 months this summer) have been “reduced significantly”; we’ll see how long it takes to get my CLN. I was also asked to fill out a personal contact form for when the CLN is granted; it appears they will email/phone me when it comes in and I can have it mailed to myself in London as opposed to making another trip to the consulate.
….on an otherwise gray day the sun came out briefly as I made my way across the cobbles in front of Osgoode Hall on my way back to my car.
*Thanks for that calgary411, it clears things up. I’m surprised the renunciation guide site hasn’t pointed that out though. It could be that the info has changed since they originally posted I guess, but an update would be nice.
A new Forbes article: “Renouncing One’s US Citizenship — Meaningful Trend Or Visceral Overreaction?”
From the article:
“Election outcome notwithstanding, I believe that the quite onerous US tax system (for years past as well as what may lie ahead) will remain the key driver of US expatriations.”
*Lost-In-London, Congratulations!! I am glad it went well for you. Thanks for sharing your experience.
Congratulations, Lost-in-London,
It is great to get an update from you that your Relinquishment appointment went without a hitch and you should expect to receive your CLN with a better turn-around than those past. I’ll post another update to the Renouce & Relinquish database we’re maintaining and Pacifica will update The Consulate Directory. Thanks for your part of those compilations.
Every positive report like this will buoy a lot of people to make their decision to make an appointment to claim their relinquishment of US citizenship (at least everywhere except Vancouver at present — we hope that will change!).
Super, Lost-in-London! Glad you’re all done.
That’s a good sign that both your Toronto VC and Mach73’s in Halifax yesterday said that CLN waiting times have been significantly reduced since last summer.
That was a long time in the waiting room (possibly the Brock record), but at least when they call you to the counter at Toronto they know what they’re doing and it goes quickly and, as you said, they’re very pleasant.
Thanks for the details you provided and I’ll add it to the directory this evening.
And also except atOttawa , as, amongst other problems there, we’ve had a couple of people, with impeccable uncontrovertable post-relinquishment conduct, report that Ottawa told them it was too late to claim their relinquishment. False — it is never too late to claim a relinquishment. (of course, we hope that consulate will change too!)
For the record, the only consulate inCanada from which we’ve heard no news of relinquishments is Montréal. However, they get high marks from everyone who’s renounced there, so I’d be quite comfortable doing a relinquishment there.