UPDATE: Michael J. Miller made a further comment based on a conversation with an IRS employee knowledgeable about expatriation (emphasis mine):
As a follow-up to my prior posts, I spoke today with someone at the IRS who is knowledgeable in the “expatriation” area to discuss the issue of someone who renounced prior to enactment of the American Jobs Creation Act in 2004 but never obtained a CLN. While the advice I received was not a formal expression of the IRS’s position on this subject, both she and the colleague that she consulted were of the view that it would be crazy for the IRS to treat such an individual as subject to the expatriation rules. I hope that those of you for whom this is a huge issue will take some measure of comfort from this update.
In an earlier post, Michael J. Miller made the following comment (my link to IRC 877A):
For those who properly ceased to be US citizens (e.g., by naturalizing in Canada with the requisite intention to no longer be US citizens) prior to enactment of the American Jobs Creation Act of 2004, the expatriation rules should not apply (notwithstanding the very poor manner in which section 877A of the Internal Revenue Code is drafted).
2004 is when the idea was first introduced that a person who had otherwise relinquished US citizenship could nevertheless continue to be treated as a US citizen for tax purposes until some “notice event” (my own, inarticulate term) took place. This new rule was set forth in former Code section 7701(n) and it is 100% clear that it was purely prospective in application. Thus, for example, as of 12/31/07 it was perfectly clear that a person who properly relinquished US citizenship in the 1970s, 1980s, 1990s, for example, was (quite properly) “grandfathered” and not affected by section 7701(n) in any way.
In 2008, section 7701(n) was removed and the rule providing for a person relinquishing citizenship to continue to be treated as a US citizen for tax purposes, until some “notice event” occurred, was incorporated into then-new section 877A. While section 877A is worded very poorly in terms of its effective date, I (and other specialists in the area) find it inconceivable that the provision was intended to take people who relinquished US citizenship many years prior to 2004, and who were quite intentionally grandfathered by 7701(n), and convert them many years after the fact into US citizens once again.
Even for the US, that would be outlandish (and this is said fully in the context of the many other notable events of the last several years). I note in particular that, if such an outlandish thing truly had been intended, there would have been some discussion of it in the legislative history — and yet there is none. If your CLN says 1776 (or even 2003) on it, rest easy. You’re not a citizen.
I did a Google search of 7701(n) and found the following information on an IRS webpage, agreeing (I think) exactly with Michael’s point (emphasis mine):
Expatriation after June 3, 2004 and before June 16, 2008
The American Jobs Creation Act (AJCA) of 2004 amends IRC section 877, which provides for an alternative tax regime for certain, expatriated individuals. Amended IRC 877 eliminates the tax avoidance criteria for imposition of the expatriation tax on certain types of income for 10 years following expatriation, and creates objective criteria to impose the tax on individuals with an average income tax liability for the 5 prior years of $127,000 for tax year 2005 ($131,000 for 2006; $136,000 for 2007; $139,000 for 2008) or a net worth of $2,000,000 on the date of expatriation. In addition, it requires individuals to certify to the IRS that they have satisfied all federal tax requirements for the 5 years prior to expatriation and requires annual information reporting for each taxable year during which an individual is subject to the rules of IRC 877.
Further, expatriated individuals will be subject to U.S. tax on their worldwide income for any of the 10 years following expatriation in which they are present in the U.S. for more than 30 days, or 60 days in the case of individuals working in the U.S. for an unrelated employer.
Finally, even if they do not meet the monetary thresholds for imposition of the IRC 877 expatriation tax, the new law (per IRC 7701(n)) provides that individuals will continue to be treated as U.S. citizens or long-term residents for U.S. tax purposes until they have notified the Secretary of the Department of State or of Homeland Security of expatriation or termination of residency. The implementation date of this provision is retroactive and applies to expatriations occurring after June 3, 2004. The expatriation is not effective until the notification and tax satisfaction certifications are filed with the IRS and the Department of State or of Homeland Security.
However, the devil is in the details. The following requirements remain in place:
Expatriation on or before June 3, 2004
The expatriation tax provisions (prior to the AJCA amendments) apply to U.S. citizens who have renounced their citizenship and long-term residents who have ended their US residency for tax purposes, if one of the principal purposes of the action is the avoidance of U.S. taxes. You are presumed to have tax avoidance as a principle purpose if:
Your average annual net income tax for the last 5 tax years ending before the date of the action is more than $124,000, or Your net worth on the date of the action is $622,000 or more.If you meet either of the tests shown above, you may be eligible to request a ruling from the IRS that you did not expatriate to avoid U.S. taxes. You must request this ruling within one year from the date of expatriation. For information that must be included in your ruling request, see Section IV of Notice 97-19. If you receive this ruling, the expatriation tax provisions do not apply.
The expatriation tax applies to the 10-year period following the date of the expatriation action. Individuals that renounced their US citizenship and long-term residents that terminated their US residency for tax purposes on or before June 3, 2004 must file an initial Form 8854, Initial and Annual Expatriation Information Statement. For more detailed information refer to Expatriation Tax in Publication 519, U.S. Tax Guide for Aliens.
To make this all the more clearer, Publication 519 states:
Expatriation Before June 4, 2004
If you expatriated before June 4, 2004, the expatriation rules apply if one of the principal purposes of the action is the avoidance of U.S. taxes. Unless you received a ruling from the IRS that you did not expatriate to avoid U.S. taxes, you are presumed to have tax avoidance as a principal purpose if:
- Your average annual net income tax for the last 5 tax years ending before the date of your action to relinquish your citizenship or terminate your residency was more than $100,000, or
- Your net worth on the date of your action was $500,000 or more.
The amounts above are adjusted for inflation if your expatriation action is after 1997 (see Table 4-1).
Reporting requirements. If you lost your U.S. citizenship, you should have filed Form 8854 with a consular office or a federal court at the time of loss of citizenship. If you ended your long-term residency, you should have filed Form 8854 with the Internal Revenue Service when you filed your dual-status tax return for the year your residency ended. Your U.S. residency is considered to have ended when you ceased to be a lawful permanent resident or you began to be treated as a resident of another country under a tax treaty and do not waive treaty benefits.
Penalties. If you failed to file Form 8854, you may have to pay a penalty equal to the greater of 5% of the expatriation tax or $1,000. The penalty will be assessed for each year of the 10-year period beginning on the date of expatriation during which your failure to file continues. The penalty will not be imposed if you can show that the failure is due to reasonable cause and not willful neglect.Expatriation tax. The expatriation tax applies to the 10-year period following the date of expatriation or termination of residency. It is figured in the same way as for those expatriating after June 3, 2004, and before June 17, 2008. See How To Figure the Expatriation Tax (If You Expatriated Before June 17, 2008) in the next section.
This seems to clear up whether all people who expatriated before June 3, 2004, had to file Form 8854: the current version of the form is only for people who expatriate after that date. Before that date, the so-called Reed Amendment was in effect but it was not applied systematically, and I would think that the IRS is not going to focus its ire on those who have an expatriation date on their CLN of earlier than 3 June 2004, but on those whose expatriation date is after June 16, 2008. As Miller says, those who expatriated before 3 June, 2004 (i.e., the expatriation date on the CLN) are properly grandfathered and don’t have to do a “notice event” (i.e., informing the Consulate of their expatriation). The provisions for making such people pay taxes or barring them from the United States (i.e., the Reed Amendment) were ineffective and that is why the law changed drastically in 2004. I open this to further discussion, because I myself am not an expert but am only trying to understand the requirements properly.
This post was original posted on June 15, 2012
Perhaps, once, a Brocker should just simply write, with certified copies of documents to prove their identity, and send it along with their passport straight to Hillary or her successor, and see if that doesn’t result in State sending a CLN, as was the case for Schubert. Try that instead of paying the $450 to the Consulate. You would do the Thirteen Colonies proud.
Interesting idea. I’m not interested “in making the 13 colonies proud” or being a hero, though. I just hate bureaucracy, and a foreign one even less…
Blaze:I was expecting possible problems the next time I crossed. Instead, the border guard looked at my Canadian passport with US place of birth, looked at the computer (I was thinking “Here it comes”), asked me where I live and where I was going and waved me on. Not even questions about purpose of trip, how long staying or goods to declare.
So, I think the only thing we know for certain is that nothing at the border is certain or consistent. I will continue to cross on my Canadian passport until they deny me the right to enter. I will not get a US passport.
Wow! no kidding it is inconsistent. Probably San Francisco airport is the worst in the world. I arrived from Mexico, one way ticket (red flag). At other times in other places my US birth place solicited comment, but in 2011 it got me a secondary questioning with the DHS who just so happens to be well established there. I have had secondary questioning before but I had never actually dealt or even seen DHS personnel. Even the acronym sends chills up my spine. Anyway, it didnt help that I had a couple of whiskies on the rocks courtesy of the airlines. I needed to catch the last BART rapid transit to the big City, so I was hoping to get out of there as quick as possible. No chance. Even though I was the only person there in the waiting room I was sternly told to sit down and wait — then the person left and I was all alone — they already had my Cdn passport. 20 minutes passed until an official occupied an elevated desk facing all the empty chairs. I sprung up on my feet to greet him. He told me, “sit back down”. Okay, that was nasty. A few minutes still watching him fiddle with his computer screen and my passport, he asked me where I was born. I answered “in this very City!” I sprung to my feet again and presented him with my birth certificate. He told me to back off and not come up to the desk until asked to do so. I went back to my seat, and immediately he told me to come forward to let him see my birth certificate! lol. He asked me why I had it, as if having it was unusual. I told him “it’s one of my primary docs and I only have one”. He informed me, as per what you said, that US citizens have to enter the US with a US passport and that I would need one. I said “really?, but I have always traveled on my Canadian passport, since acquiring citizenship in 1981, blah blah.” He was nasty and threatening, again.. Not only did I miss the last BART by that time, but I really thought they were going to arrest me. Meanwhile other DHS officers were listening in and while the bad cop was occupied, another one told me (a good cop) that it was no problem to get a US passport and that it would be the best thing to do under my circumstances. After 2 hours at 1am, they finally let me through and I paid $50 for a taxi to get to downtown.
It shook me up plenty, since I criss cross between Canada and Mexico quite frequently. Moreover, at that time there really wasnt good advice, either. My best advice from US and Cdn friends alike, was to get a US passport. I reentered the US at Blaine Wash. only 5 weeks later, still on my Cdn passport, obviously. I was afraid to take a plane, so I took a bus so if they refused me entry at least I could turn around without too much expense. They swiped my Cdn passport at the border and sure enough all the BS the DHS wrote on “my file” attached to my Cdn passport was there for the lowly Customs guy to read. It took him at least 5 minutes for him to read my file, then to ask me “have you got your US passport, yet?” Shit! I said “it’s in process” like I was dutifully doing what they were asking, and fearing they would delay me, hold me while my bus left me. I had been dreading this crossing for weeks. And here it was. Anyway, a couple of minutes later they let me through in my Cdn passport. I phoned family back in Vancouver from my still functioning cell phone at US Customs and said “I made it in!”. I swear there was a Customs guy who immediately came out and stared at me, as if he was listening in on my conversation! Is that possible? Sure. Is it probable? Who knows? Anyway, I passed uneventfully through the States and into Mexico.
The reason I was doing all this traveling was to prepare to enroll my 3 dual Cdn Mex kids to Canada for a school year. I now needed to fly them to Canada. I agonized about getting a US passport or to pay 4 non stop tickets to Canada. The clincher was when I found 4 tickets for $1000 as opposed to $3000+, but it stopped over in Houston with a ONE hour layover. Could I risk to travel to the US on my Cdn passport one more time? With 3 kids in tow? Could I afford non stop to Canada? Should I get a US passport, and what are the risks of that, of any? I lacked information about the US passport,,, the other alternatives were clear: I couldnt risk missing the connecting flight, and I couldnt risk being detained and God knows what would happen to my kids. So I got a US passport. Quick and easy as pie. Now I will relinquish and plead duress for getting a US passport, OR take a completely different action based on any new news that comes my way before that happens.
DOS means department of state. Since you left in 1981, you have no 8854 filing obligations; but getting a US passport could complicate the issue. On another thread, someone else also had a US passport, and they still got the CLN. I believe they explained to the Vancouver consulatethey thought they needed it travel to the US and would have problems at the boarder until they made it “offical” by getting a CLN. I made an appointment to get a CLN in two weeks and renewed my passport in 2004 (mutilated) for a trip; I will try to make it official. My official expatriation was in 2002. We’ll see how it goes. I don’t want surprises, and currently I am in a position that if I had to renounce, I could still certify on a later date, but obviously, I prefer them acknowledging my relinquishment route first.
I saw the following on the ecuadorian US embassy’s page:
Intent to relinquish
If you have voluntarily performed one of the seven expatriating acts, the government must determine whether you did so intending to relinquish your U. S. citizenship. This determination is made under guidelines based upon Supreme Court cases. The two most important cases are Afroyin v. Rusk and Vance v. Terrazas. The essential holding of each of these cases is set out below.
The time for the determination of the person’s intent with regard to retention or relinquishing of citizenship is the time of the performance of the designated act. An intent formulated at any time before or after the person performs the expatriating act may not be directly relevant to the question of relinquishment of citizenship.
@Tom and msd,
Correct. It was at Vancouver and the vice consul there actually contacted DOS HQ in Washington for guidance on this in September before he and David finalised David’s relinquishment-based CLN application(described in the Consulate Report Directory Vancouver section, currently on page 47), which resulted in an appropriately backdated CLN. A Brocker’s brother in Halifax, who had got a US passport under similar circumstances, also received his CLN.
Your experience, msd, is not only that DHS told you you were supposed to do get a passport, it’s downright duress and intimidation on top of it. I found it really chilling just to read it. Disgusting, really.
@msd Just got back to this thread. I really empathize with your concerns, not only on your own behalf but on your kids’ behalfs as well. What a nightmare.
Tom Benedict’s point about the Supreme Court rulings is really promising and important. It might be useful to get a printout of those rulings and file them away safe somewhere, maybe bring copies with you to the consulate when you go for your relinquishment, to shove under their noses if it gets testy (don’t go that shoving route unless you have to, though).
I wonder what a smart lawyer could do to the IRS’ claim on 8854 directions that “for tax purposes” your expatriation is when you tell State not when you commit the act, at least after 2004 — given those Supreme Court rulings. An amusing thought to contemplate … if anyone wants to spend the money hiring a lawyer to fight that in court.
In every single relinquishment CLN I’ve seen or heard of so far, the expatriation date has ALWAYS been the date of the actual expatriating act, not the date of the meeting with State. Moreover, in some cases (notably my wife’s) the CLN states in plain English in the blank space where they describe what you did, on the CLN form, “ceased to be a US citizen on ” the date of her Canadian citizenship (in the 1970s). That’s very clear, unambiguous, and non-legalise wording that I’d love to see some IRS bozo try to argue with in front of a judge who has even half of his/her brain cells functioning. If it ever came to court in Canada, I’m sure that the judge would throw the IRS’ case out onto the street in a heartbeat.
*Judges with functioning brain cells are difficult to find these days.
BTW, I saw the follwing in the IRS collections manual.
http://www.irs.gov/pub/irs-pdf/p594.pdf
“How long we have to collect taxes”
We can attempt to collect your taxes up to 10 years from the date they were assessed. However, there are exceptions to this time frame.
For example, by law, we’ll suspend and extend collection while:
–snip–
• You live outside the U.S. continuously for at least 6 months. Collection is suspended while you’re outside the U.S. and, if at the time of your return the normal collection period would expire before 6 months from the date of your return, the extended period won’t expire before the expiration of the 6 months after your return.
Sounds to me if you relinquish or renounce, and never go back to live, they aren’t coming after you as a matter of policy despite their bills. They’ll suspend collection forever…
Logically, I’d think any extraterritorial seizure attempts (rare) only apply to U.S. residents keeping assets outside the U.S.–not permanent expatriates
“Sounds to me if you relinquish or renounce, and never go back to live, they aren’t coming after you as a matter of policy despite their bills. They’ll suspend collection forever …”
@ Tom Benedict
Well that sounds right to me too … unless Flaherty goes back on his word and let’s the CRA become the IRS’s tax collector. I don’t think he will but all eyes are peeled now for his next announcement.
“… if at the time of your return the normal collection period would expire before 6 months from the date of your return, the extended period won’t expire before the expiration of the 6 months after your return.” — I couldn’t make heads nor tails of that so it must be coming straight from the IRS horse’s mouth.
This line is so badly written in the gobbledygook that even a scholar of obscure dead languages as myself cannot make heads or tails of it.
Yet this is clearly a good thing for Canadian renouncers. They can clearly say to the IRS “Up yours!” Even if and when they decide that you owe an exit tax or some other penalty. This is very very good. Thanks for finding it.
Hi All,
Just wanted you all to know I submitted my article (“Expats Live in Fear of Malevolent Time Machine”) on this issue to the publisher yesterday. I’ll let you know once it’s published, for anyone interested.
Thank you Mr. Miller. We are VERY interested. The title alone sounds like a winner.
Thanks, Michael! I am looking for forward to it!
BTW, the title is great — it really describes what this is. The “Malevolant Time Machine” has made my life disoriented and horribly surreal.
Yes, thank you. I know a number of people who would be very interested in such an article and a link to it. I can think of several Canadian politicians who need to see it. Also, I think there are numerous decades-ago expats (expats, as in “I wanted to and thought I did give up my US citizenship back then,” not as in “I’m an American temporarily living outside the country as a dual citizen”) whose friends and families think they are crazy or obsessing on something unbelievable. These folks would very much like to have a published article on this topic (notably in a US journal, I believe) to help educate and inform their still-in-America families and friends on what is happening. That it’s real, and that it’s horrible for them.
@ Michael J. Miller.
Absolutely, of course, we’re interested. We’ll look forward to what we know will be a literate, well-thought-out article. Thanks for your work and being part of this site.
@ Schubert,
Yeah, like you’re living in your home on a visitor’s visa, dreadfully disorienting. And the US, unlike most first-world countries, doesn’t seem to have evolved — it seems to have morphed — in the past 40 years. It is really unfamiliar.
The inaccurate information the Canadian media has propagated about our citizenships has caused a terrible sense of unreality in our lives. This reaction from people (I’m talking lawyers and accountants!) happened to me for months — people believing that there’s no way I could *not* be a USC because I didn’t renounce, like you’re crazy or really dumb.
And worse, trying to make you feel better by saying, “It’s not so bad (that you didn’t know you were a USC). See, you’ll be able to retire back home if you want to.” Home! I’ve lived in this one apartment longer than I’ve lived in the entire United States. No one ever talked to me like that before this misinformation garbage got into the news.
Or worse, that I really knew I was a USC all along and didn’t get a CLN because I was playing a game, keeping my options open.
The misconceptions, argh! I remember thinking, thank goodness by the time you reach this age, most people don’t even have a clue where you were born. I’m sure going to keep it that way on purpose from now on.
This fits right in with the conversation, what the US is doing to “its own” right now!
Renounce posted this on AARO, John F. Kennedy, Berlin 1963 — a different time / same story:
Good video, Calgary (and Renounce, too)!
Boy, you sure wouldn’t see that scene today of people in a foreign country wildly cheering for aUS President. For that matter, Mr. Kennedy (or Mr. Eisenhower – it’s not a partisan thing) probably wouldn’t even recognise today’s US is the same country they once led.
This makes me think back to when we lived there. The Americans didn’t call themselves “exceptional” then. I think that’s because as a strong world leader, they really believed they were great. In this century in declining shape, they don’t. So, they’re getting more isolationist and preaching “exceptionalism,” and turning on their own (and their “alleged” own with retroactive laws and other odd definitions of citizenship).
The irony in this speech, compared to today’s US “Berlin Wall,” is unbelievable.
*@Michael Miller
Again, I add my thanks for all the work you have done and are doing on this issue. I/we appreciate it more than I can say.
@Michael Miller Let me express my appreciation too. Let us know the link as soon as it is published. We can give it headline attention rather than just buried in a thread. I almost missed this one!
Seems there has been lots of rather confusing and even conflicting info on this in the last little while. So…what’s the bottom line on this for one who took the Canada citizenship oath (relinquishing all other citizenship) prior to 1985? Would that person, after having obtained a backdated CLN from DOS have do do AHYTHING with the IRS? If so, what? Any updates or further info / thoughts?
Woofy,
Will this help?
Thanks Calgary! I missed one of those. Still gotta say I find it rather confusing, but what else could one expect given the multitude of judges, lawyers, IRS agents, accountants, and legislators involved? And, by the way Calgary, is your birthday coming on Thursday (re 4/11)?
Woofy, it sure is confusing. Instructions from the IRS, on threat of penalties, undoubtedly could be written in language we all can understand.
Yikes, I have come up with a blank on my birthday coming on Thursday, April 11th. Did I do something on that day? It’s not my birthday birthday. Is it something else that happened on April 11th last year?
No – I was just wonderin cause of your alias here: Calgary411 might mean you are in Calgary and were born on 04/11 (which is Thursday) lol.