Ask your questions about Renunciation and Relinquishment of United States Citizenship and Certificates of Loss of Nationality.
Please note that the guidelines for this discussion are published here.
Ask your questions about Renunciation and Relinquishment of United States Citizenship and Certificates of Loss of Nationality.
Please note that the guidelines for this discussion are published here.
@Pacifica,
Of course, Ottawa — how did I leave that out? I’m so focused on the discrepancies shown in Vancouver vs other consulates.
@ Calgary,
Probably because we tend to forget about Ottawa because we hear so little about it — once the stories started surfacing in Ottawa and, to a lesser extent, on Brock, people started to avoid the place.
Having to go out of town is a hassle for people. Good for Via Rail’s business, though — I think they should contribute to Brock 10% of every ticket an Ottawan buys to go to Montréal or Toronto for their CLN. Better yet, I’d like to see Ottawa “clean up its act,” as Schubert puts it. And given the volume of work at all consulates, presumably the other people who’d like to see that (almost) as much as us are the staffs of Montréal and Toronto.
*calgary 411. You left out an option for your correspondent’s son. Since he was born in Canada, he has the option of doing absolutely nothing. For an accidental born in canada there is no risk to this course of action. It may well be the best thing to do.
@Duke of Devon,
You’re right of course. That is an option.
This “Accidental American” has a renunciation appointment next week (and has been filing US returns). The question was regarding having all US tax returns completed and any taxes and/or penalties paid before the renunciation; also wants to be able to cross back and forth the border. In my long-winded way, I sort of answered that question.
Thanks to Lord Jim, Calgary411 and Watcher for your help in answering my question regarding pension evaluation on form 8854.
I have done my best to check out the information you have provided, but I am still not sure how to proceed. I have spoken to my pension provider who will not and can not provide me with a present or lump sum value, as the funds have been vested and there is no residual value. In terms of net worth calculation, they feel my plan has a value of “0”.
I did find a web site that provides a very useful calculator for determining present value of what I assume are defined contribution pension plans. The link is here.
http://www.pensionbenefits.com/calculators/cal_main.jsp?sub_item=lumpsum_cal
Since I have until June 2013 to complete this form, I will continue to monitor this and other expat forums in hope an answer acceptable to the IRS will show up. However, even in the worst case calculation using the above calculator, I should still be well under the overall two million limit. I just want to make sure I am doing it the right way.
I can understand why the IRS would want this information for pension plans that could have a significant payout value at death or can be cashed out at any time, since it would impact gift and inheritance taxes. I can’t gift any part of my pension assets while I am alive and after death those assets would have a value of “0”.
@Myst,
It would be great if it is determined the Present Value of a defined benefit pension is $0.00. Who knows, I (we)may get hit by a bus tomorrow and not have the full benfit of the pension, although part of it would go to our beneficiary. The HR department of the company that I worked for in Calgary (I have been retired since 2004) did obtain a Present Value for my Defined Benefit Pension, and mine, together with the appreciation of this old house that I’ve lived in since 1991, might have put me into dangerous territory for the dreaded Exit Tax. The value of my house went down in the last assessment period, for which I am (in this instance) grateful. In reassessing my “Net Worth” (which is all on paper and very much a part of the unrealistic house/property prices where I live vs other cities) is “comparing apples and oranges”. The IRS DOES NOT provide useful definition of what they require– and they will refer you to professionals to get your question evaluated, at great cost to the US taxpayer. How does anyone think it possible to interpret the gobbelygook of the US IRS tax code?
Your link is useful and there are several others online, each coming to different (but in the same ballpark) conclusions. Will this be acceptable to the IRS?
*Zero sounds good. Blank or ignore sounds even better.
@Myst, I take it you’ve read the part of IRS notice 2009-45 that talks about valuing DB plans:
There’s a table in Rev. Proc. 2004-37 that gives age-related “multipliers” for the annual payout from your pension. Perhaps that will do it for you. I get the impression that for you real accuracy or precision isn’t required here. Even being out by 50% might not matter if you are well under the threshold for the
Reichfluchtsteuerexit tax (under the threshold is under the threshold, it doesn’t make any difference at all by how much!). In that case I don’t really see a need to stress over it. If you put down the biggest figure it could possibly be and you’re still well under, nobody can argue with that. Borderline cases require a lot more finesse-ing, of course…And on your final paragraph, well, yes, it is just a load of crap, isn’t it? No real rhyme or reason. But practicality is not congress’ strong point these days, I’m afraid.
*Watcher Your reference seems to apply to US based pension trusts paying benefits to non resident aliens (love that term) (Reminds me of Battleship Galactica)
“This revenue procedure provides a
method for determining the source of a
pension payment to a nonresident alien individual
from a defined benefit plan where
the trust forming part of the plan is a trust
created or organized in the United States
that constitutes a qualified trust under
§ 401(a) of the Internal Rev. Code.”
It should be clear to all that it isn’t possible to get it exactly right.
@calgary411
I find it interesting that your company will give you a Present Value while mine, the Canadian Federal Public Service, will not. Maybe I should lean on them again. I would be curious to know if you felt the PV from your company is similar to the ones calculated with the calculator I provided in my last posting. Also, do you know what assumptions they used for interest rates and life expectancy?
One thing I disliked in the PV calculator, perhaps all PV calculators, was that it bases life expectancy from my current age rather than from the date I started to make contributions to my plan or the date when I retired. The older we get the longer our life expectancy becomes is not consistent with the terms of our defined benefit plan which was based on age at or before retirement. Also, the interest rate you use can have a big impact on the calculated PV result.
@Myst,
When I approached the HR Department of my former company last fall, the person that I spoke with had never had such a query (from anyone within that big o&g company). It took awhile to get an answer for me, which I think was prepared by a actuary from the pension provider (but gave no information on how it was arrived at). That figure I will use in preparing my Net Worth for the 8854, now one year less of my life expectancy for the value determined. It was in the ballpark of other figures from online calculators I found. If the IRS wants to question it, I guess they can go to the same source I did, which I doubt they will. And, as Duke of Devon points out:
Of course, the other ‘apples and oranges’ calculation is the big differences in house and property values from one region / one city to another. My 1991 bought house had a significant capital gain, which is only on paper. I will likely continue to live in the same house until I die. That same house elsewhere would have a considerably, considerably lesser value.
There is an article on Forbes, asking the question:
Renouncing One’s US Citizenship — Meaningful Trend Or Visceral Overreaction?
There is an excellent response by @NobleDreamer you will want to read. Go to the bottom, and expand ‘called out’ comments.
*I have made an appointment to renounce in Halifax in mid-January. From previous posts here, I understand that I can do it in one appointment. I would appreciate any feedback on the “Halifax experience” from other readers.
I have a question on form 8854. I do expect to get professional help completing this, but a few straightfoward issues may be known by other expats.
Many of my assets are co-owned by myself and my wife(such as our house). Do I report half the value of these assets on 8854? She is Canadian, and we file separately in Canada.
Hi Titus,
Halifax sounds like a pleasant and efficient consulate. Several Brockers have reported on it in our Consulate Report Directory. There’s five pages on Halifax.
*@Titus
Phil Hodgen has some useful info here:
http://hodgen.com/question-about-expatriation-from-reader/
*pacifica & iamquincy,
Thank you for your guidance. I did find Phil Hodgen’s advice reassuring.
I would like to hear from anyone who has used a professional to help prepare 8854. Do I need a U.S. attorney like Phil, a U.S. based accountant, or will a Canadian professional be able to help?
Many of the announcements on this thread come from people who convey,
with a mixture of relief and joy, that they have renounced/relinquished, or
that they have received their CLN. I had hoped to be among them.
It was not to be.
So, discouraged and resentful, I contacted the US Embassy yesterday to
cancel the renunciation appointment for my wife and me. We will not renounce our US
citizenship next Tuesday as we had planned to do for almost a year.
The reason ?
Uncertainty of what would follow in filing our 8854s. How could something as ordinary and
natural for a retired person as a pension become a major factor in determining
« wealth » or « net worth » in the eyes of the
IRS ? The value of that
pension, for me, is the distribution I receive every year, on which I pay taxes
in my country of residence (and to the US). If I die, my wife receives 50 %. If she dies, payments stop. But add the terms « foreign » and « defined
benefit » and « present value » to the pension and a host of
complications develop.
I received a quote two days ago to help calculate the present value of
my foreign, defined benefit pension – without this, I cannot calculate my net
worth, and cannot confirm that my wife and I fall under the USD 2 million
threshold. If one of us is even
one dollar over the limit, then we have to put the entire « present
value » of my pension on our 2012 1040 and pay an unacceptable tax on
it. So the quote was, given the
tight timeframe before our appointment, for three people – one lawyer, one CPA
and a third person – to work on it through the weekend and give me a formal
legal opinion. USD 9000. And this was to give me an amount that
my wife and I would each enter on one line of the 8854 (balance sheet, line
7). I do not in any way want to
denigrate the firm that provided the quote ; rather to underscore the
seeming complexity of the subject as far as the IRS is concerned. I followed the 877A path, and googled a
few rulings, regulations and scholarly articles on present values of
pensions. I found a mass of
statistics, tables and mathematical formulae. As Myst discovered, even the
difference of one per cent or of a few years of life expectancy can alter the
present value of the pension significantly.
I read that if the IRS was not satisfied with the method used by the
filer of an 8854 on line 7 to calculate the present value of a foreign pension,
it could impose its own actuarial and interest rate method – and come up with
its own amount for line 7. I
suppose that is the crux of the firm’s effort and its quote – to avoid any
possibility for the IRS to change the amount.
My wife and I determined that even if we paid the law firm the USD 9000,
their legal opinion and calculation could result in an amount that might push me even one
dollar over the dreaded USD 2 million threshold, one day before our
renunciation. In that case, we
would not have time to make adjustments, and so decided to stop the entire
process. We will take some time
off before we review what next steps we should take. Who said renunciation was easy ?
@Lord Jim,
Re:
It is baffling why the US IRS does not provide easy-to-understand, easy-to-calculate means of coming to the answer they require. They are again obstructionist and force USPs abroad to hire expensive legal and accounting professionals to come to the answer (which they, then, may not accept as correct). It is insane what you and others are put through in just this one piece of the puzzle presented to us.
God help us all out of this nightmare. I’m so sorry that you have had to delay your renunciation appointment because of information the US IRS does not properly define.
The renunciation itself may be easy (or at least not difficult) in most cases. Your and wife’s determination of whether or not it is wise to renounce and then be hit with the Exit Tax is another issue. I believe this is the reason many are not planning to renounce — they know they will be determined “Covered Expatriates” and all that prematurely brings in that taxes will be determined as if all assets had been sold as of the day before renunciation. That, for many, will entrap them with a perhaps unwanted continuation of US citizenship and the cost and stress of compliance year after year after year after year — and then perhaps for their children.
[And, then, we look at the case of Eduardo Saverin, who did everything he was supposed to do according to the existing US tax law to free himself from the hinderances his extraneous US citizenship would mean for his career. A sane business decision. But, the US was ready to then create additional punitive legislation for his (and others as his) re-entry into the US.]
*Lord Jim Take time that you need. .
In Ontario you should be able to get the FMV of your pension from the plan admin.
If not, here is a simple on-line calculation site
http://www.pensionbenefits.com/calculators/cal_main.jsp?sub_item=lumpsum_cal
For interest, I plugged in DoB 1935, monthly receipt of $4000 and interest of 3%. and ‘2012 applicable annuity table’ The calculation yielded a FMV of $415,000.
Who is to argue with the numbers?
*@Lord Jim
I’m so sorry you had to cancel the renunciation appointments for yourself and your wife – they’re not easy to come by, not to mention the preparation and emotional toll it takes to get to that point. I relinquished recently (no CLN yet) and although my date of expatriation is decades old and theoretically there should be no obligation to file 8854, still, in the wee hours of the morning I think “what if”.
However, the news of the school shootings in Connecticut this morning puts a bit of a different perspective on all this. I will give my granddaughters an extra hug today.
@Lord Jim:
Depending on how my application for non-US citizenship moves forward, I am planning to relinquish my USC in late 2013/ early 2014. There is a perhaps 50% probability that I will receive an inheritance before relinquishing that could, but may not, push my assets slightly over the limit and make me a “covered” expatriate. If this occurs, I am planning to do the following prior to relinquishment:
a. Convert my traditional IRA to a Roth IRA: this will reduce my total assets in the traditional IRA by the amount of tax due of approx. 30%. My traditional IRA will become taxable at the time of relinquishment at any rate but, as I understand it, the asset amount would still include the tax due for form 8854.
– It could be argued that I should convert my traditional IRA to a Roth IRA now instead of waiting. I am currently reviewing this possibility.
b. Contribute money to charity, relatives: if the traditional IRA to Roth IRA conversion does not reduce my assets sufficiently, I will plan to give gifts to charity and relatives.
c. If necessary, I will renounce at a later date instead of relinquishing to ensure that I am not classifed as “covered”.
Like you, I have no intention of becoming a “covered” expatriate and I should be able to remain or move myself below the limit with proper planning. Also, this planning may be unnecessary and I hope it is.
*Lord Jim DIY for nothing! or I’ll do it for $100 to your fav. charity.
Go to the US GOV. social security life table and determine your life expectancy. Round up.
http://www.ssa.gov/oact/STATS/table4c6.html
Go to present value calculator
http://financialmentor.com/calculator/present-value-of-annuity-calculator
Plug in your life expectancy, monthly payment and 3% for interest rate. I did this using same parameters as before and got the same answer. $4000/month for a person born in 1935 has a FMV of $414,000
Do the calculation. Then you will have a reasonable idea if you will be ‘covered’ or not. If not, you do not have to fill in Part IV section B or C
Are these tables for US-qualified and eligible pension plans? Can they be used for foreign and ineligible pensions, according to 877A?
Lord Jim,
I don’t know if this will help your situation, but you may want to have a look at this piece from Mark Nestmann:
http://sovereign-investor.com/2011/01/19/estate-tax-reform-provides-new-opportunities-for-expatriation-tax-savings/
*Lord Jim I think you are missing the point. Since you aren’t going to fill in Section B, it doesn’t matter what these tables are for. To be clear, the first one is a standard life expectamcy table. It happens to be issued by a US Gov agency. If you were to try Stats Can instead (as I did) you would find it to be incomprehensible. The second calculator is a standard simple present value calculation. The largest variable is the interest rate. The point is you can pay $9000 and your consultants have no better idea what interest rates will be than you or I. With low rates and a shorter time span, interest rates have less effect on the calculation so 3% is as good as any other number.
If you asked 25 different people including expensive actuaries for the FMV of your pension you would get 25 different answers but they would cluster around a mean. The bad guys have to accept any reasonable number. It is unreasonable for you to have to spend $9000 to come up with an answer.
Don’t forget who the villains are here. Not you, not me. Put in a number. Make it your best effort. You will have a good idea if you are close to the 2MM mark. If you have a decent cushion you are fine. Even if you don’t have a large cushion, what exactly are you afraid of? Ask yourself- What can they do? Go for it!