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
I am so confused and stressed. I recently found out I am an American when crossing the US border. They told me I need an American passport, and so does my 10 month old son (born in Canada, Canadian father). I was born in USA, but moved to Canada with my Canadian parents in 1986. I became a Canadian citizen in 1999 but I don’t have any other documents with this citizenship card (like an oath? How do I get a copy?). I have no ties with the US. I ALMOST filed taxes out of panic this week but realized this is unnecessary if I relinquish.
But have I already relinquished because I performed by expatriating act before 2004? I was 16 at the time of the act, hopefully this doesn’t matter. My parents informed me of my rights and that I was relinquishing my US citizenship.
Welcome to Brock. You will find others just like you. First, don’t do anything yet. Read the different posts to get good information. If you are in the Toronto area there is an information meeting on January 25th. Find the post ” Solving the problems of US citizenship – information sessions ” on the side bar. This blog is full of information. Brock is also having other sessions in other Canadian cities and one in UK if you are not in the Toronto area. http://isaacbrocksociety.ca/2014/01/14/solving-the-problems-of-u-s-citizenship-information-sessions/
You will find your questions answered. Be calm and know that some of us here have relinquished/renounced already or in the process. I am waiting for my CLN, citizen loss of nationality.
I came to Canada as a young adult in 1969. I became a citizen in 1993 and my CLN should be backdated to that year. It has been over 6 months since I went to the US Counsel. This is post on the sidebar of people who wrote of their experiences in the Consulate Directory under IMPORTANT INFORMATION…
We thoroughly understand your confusion and stress upon learning of all this. You will need to read a lot and, hopefully, can attend an upcoming information session http://isaacbrocksociety.ca/2014/01/14/solving-the-problems-of-u-s-citizenship-information-sessions/. Your job right now is to read, read, read, read and then read some more from the resources on this site and others — to be able to come to your own decisions on what you have to do. You were born a dual citizen (i.e. a Canadian from your Canadian father and US from being born there).
That combination, generally, is that you CANNOT relinquish, but there are exceptions to that rule, discussed once again here just yesterday, starting here: http://isaacbrocksociety.ca/2011/12/12/relinquish-dont-renounce-if-you-can/comment-page-12/#comment-1005933.
Be aware that we who post and comment here are not giving you legal advice. Each person has to make his/her own decision based on their very thorough research. We try to provide that here, along with emotional support. No one can understand what we are going through unless also going through it has been my personal experience.
Stay calm, start your research and ask questions here. We will TRY to help as much as we can.
Canadian firearms licences have nothing to do with Canadian citizenship or Canadian residency. US-resident US citizens can and do hold Canadian firearms licences. My USC mother had one for years and years. The application form doesn’t ask about citizenship.
@broken man in Halifax
I used mine for banking ID..not for citizenship. The bank was happy with that and my drivers license.
I think you have just confused me more. What do you mean I cannot relinquish? Aren’t we all dual citizens? If I was automatically Canadian because of my parents, then why would I have to get a Canadian citizenship card, which I did in 1999?
Forgive any duplication, but I was reminded in an email I got today of the following article that Michael Miller co-authored and got published, which spells out in very clear detail that, and why, no one with a pre-June 3, 2004 relinquishment has any reason to file a damn thing to the IRS under the relevant legislation.
If your browser has trouble opening this PDF (mine sometimes does), just hover your mouse over the link, right-click, select Save Target As to your desktop, then double-click on the downloaded PDF once it’s there, and Adobe Acrobat Reader will open it and you can read and/or print the article. Your computer almost certainly already has Acrobat Reader, but if it doesn’t, just Google it, pick the Adobe website link, download and install the free software.
How does one know if your bank knows your place of birth? I opened my bank account over 20 years ago and it seems to me they did not ask for a place of birth but I cant say for sure they didnt. I really dont remember. I opened up a line of credit last year and I dont recall every putting in my place of birth. So it seems to me that the vast majority of the time the bank would never know you were american,
I was born in the usa but my parents moved to canada when I was 18 months old. I have never lived there since nor worked there.
Another note..I received my canadian citizenship when I was 17 in 1984. I started working for the canadian government in 1989. It seems on both those counts my us citizenship was relinquished. I was even told by a us consulate official in the 1980s that at the age of 25 I would lose my us citizenship if I did not move back to the usa. I have been under the impression I am not a US citizen but it seems otherwise after reading many posts here.
If I understand correctly even if I had relinquished my us citizenship in the 1980s the IRS wont recognize it until the date of my CLN? I never requested a CLN so if I did now then I assume that the IRS would still expect me to file taxes to them since 1989..thats totally crazy??
Your questions will be best answered over on the
Renunciation and Relinquishment of United States Citizenship: thread…
If you read my comments and experiences since I posted in Feb 2013, you’ll get a lot of answers and benefit from my experience.
see my Jan 11, 2014 comments
Here’s a list of important reading for people who relinquished their citizenship prior to 2004. The current exit tax law did not exist in 1984. So, a backdated CLN would indicate that you were no longer a citizen at the time these tax rules came into effect.
Also Michael J. Miller has posted on Phil Hodgen’s website as well as the statements in the original post of this thread:
• Michael J. Miller says Aug 25, 2013 2:12 pm http://hodgen.com/relinquishing-u-s-citizenship-and-expatriation/
“For persons whose CLN shows a loss of citizenship date that is on or before June 3, 2004, section 877A should not apply. Even if the CLN is received today. I’ve discussed this with people at the IRS and they’ve informally stated that they agree.”
Yes I have read those links you provided but there still seems to be a lot of uncertainty. It really seems to depend on which lawyer you speak with..there doesnt seem to be anything definitive from the IRS to clarify these situations.
From what I understood it still appears that even if I get the CLN it may only be seens as appling from this year and not back in the 1980s. Thats the key..what time does the IRS think it applies to?
If I ask for a CLN am I not just giving myself away in a sense?
I also wonder..are the border guards able to stop and detain people who have US place of birth on their canadian passports? Could the IRS eventually target people that way?
Does anyone know?
If you naturalized to a country ‘x’ before 2004 – BUT AFTER 1997 – did you HAVE to put in a form (of some sort)
— *IF* you did NOT meet the criteria for a *presumption of tax avoidance*?
I.E. if you were BELOW the “expatriate’s net worth equaled or exceeded $500,000
(net worth test), or the expatriate’s average federal income tax liability over a specified five-year period
exceeded $100,000 (tax liability test)”
OR was *EVERYONE* supposed to fill in the form (as noted below) to inform the US authorities ‘correctly’.
……from Michael J. Miller’s article:-
“The 1996 Act also enacted Code Sec. 6039F (redesignated as Code Sec. 6039G in 1997) requiring
expatriates to file an information statement (eventually taking the form of Form 8854) with the IRS by a
I am also interested in the answer to “wondering says” question. I am currently in the process of requesting CLN with a 2001 expatriation date (effective the date I became Canadian). My net worth when I relinquished was a pittance and I was “no to low income” in the years leading up to and including 2001.
The $64,000 Question: What forms, if any, will I be required to file with the IRS once I receive my CLN?
The last time I filed a income tax return with the IRS was in the early 1990s covering the partial year I lived in both the US and Canada.
Thanks in advance for any informed replies.
Would I submit the old, more favourable form 8854 (please see attached)? Links attached:
I’m hoping someone can give me a simple answer. I was born in the UK to a British father and American mother in1972. I have a SSNumber, but have never lived or worked in the US. I needed one to help sort out family affairs when my mother and grandmother died. I have a US and UK passport. Do I have to fill in tax returns for US as I never have. If so, is it simple for me to give up my US passport. I have a UK limited company with a house and british wife. I pay all my taxes in the UK. What forms do I have to fill in and how long back. Planning for the future seems impossible with dual nationality unless you are happy to give huge chunks of money to lawyers/accountants or governments.
“Do I have to fill in tax returns for US as I never have.”
The simple answer: yes. Since you have a US passport and a SSN, you probably won’t be able to fly under the radar forever, especially considering the stringency with which UK banks are applying FATCA, from what is reported here. I’m sure others here will chime in with details, but I think (at least) 3 years of tax returns and 6 years of FBARs may be required to become compliant. Are you considering renouncing your US citizenship? Some here will advise you to forget about it, saying the IRS doesn’t have the resources to find you, nothing can happen, bla bla bla… It’s only a decision you can make, based on your risk tolerance. My advice: don’t panic, but do thoroughly inform yourself about the options and consequences before taking any action.
3 past years for streamlined. 5 past years if he wants to renounce.
@Themawads, To give up your passport see http://london.usembassy.gov/cons_new/acs/passports/renunciation.html
The general advice is to get up to date for the 5 previous tax years on your tax paperwork before you renounce.
Themawds. My advice is usually quite contrary to the accepted wisdom on IBS. you were born in the UK and are a UK citizen.
Don’t do anything. Let your US passport lapse. Bob’s your uncle.
Ask yourself – what can they do?
You have a UK limited company- you can’t imagine how difficult that will make complying with US tax returns
@KalC — Hodgen said it best:
Lorena Bobbit. The IRS could go on a binge of jilted-lover vengeance and attempt to tag our hypothetical dual citizen with U.S. tax liabilities and penalties for past sins. This is a risk if the Canadian tax authorities are playing footsie under the table with our IRS Overlords. If the Canadians have half a spine and tell the U.S. government to go bite tires, then there is no risk — unless our would-be goat decides to travel to the United States. I suspect there is no extraordinary rendition of Canadians to the United States for taxes owed to the USA. Yet.
“Hello, Lion. May I inspect your teeth?”. If our deliberate goat decides to travel to the United States, the consequences are unknown to me. If there is a criminal indictment, there would be the possibility of arrest. If it is a mere civil tax debt to the U.S. government, well, I thought we abolished debtor’s prisons a while ago. But don’t quote me on this–it’s a Brave New World we’re living in. So the better answer is to stay out of the United States for the rest of your life.
Happy Goat [covered expat]
In short, I think you could be a covered expatriate, and you keep yourself and your money out of the United States for the rest of your life, then you can be a happy goat.
Here are their tools
You can only be a covered expatriate if you expatriate. If you are unknown to them ( not in any of their systems) the chance of anything bad happening approaches zero.
Themawds has a US passport and an SSN… which hardly makes him unknown to them…
i understand that. There are 7 million overseas US citizens. Only a small fraction file. The IRS is overworked and underfunded. They can’t keep up. They will continue to go after wealthy us residents with offshore accounts & high profile expats- business entrepreneurs, celebrities and the like.
They will only bother people like Themawds if they are foolish enough to expose themselves.
The key for those with potential US citizenship by birth or parentage who grew up Canadian (or British, or whatever) in the “old days” (before 2004) is this: If you accepted another country’s citizenship with the intention of relinquishing your US citizenship, you DID relinquish your US citizenship THEN.
Before 1986 (I should check the exact year again) this could happen simply *by turning 18* without formally claiming US citizenship — you automatically reliniquished US citizenship, according to then-existing US law. The US Supreme Court has said that this couldn’t happen by *accident* (if you thought you were retaining US citizenship). But if you believed that you were intentionally relinquishing US citizenship at the time, then that’s sufficient; you were.
If you’re having trouble with your local bank or the US Border Patrol, you may have to go to a US Consulate to get a CLN, but you want to make it very clear that you relinquished your US ucitizenship way back then. Demand that they date the certificate back to when you turned 18 and believed that you’d given up US citizenship. And you don’t owe the IRS anything, because you haven’t been a US citizen since you turned 18.
Themawads: you can have an SSN without being a US citizen, and you can have a US passport without being a US citizen, but I’d go back and check your records to make sure you never *claimed* to be a US citizen. If you did claim to, you might have to renounce *now* rather than simply stating that you relinquished your US citizenship at age 18.
To a large degree, citizenship is about intention. This is why it matters what you say. If you’ve been talking about yourself and filing all legal paperwork as a sole-status UK citizen, keep doing so; don’t spoil your record.
@ Anon (the newer)
RE: “… and you can have a US passport without being a US citizen …”
Seriously? I had to check that out and found this:
Now, of course, if a US spy agency wants a non-USC to have a US passport for nefarious reasons then presto it’s done …. but we’re not supposed to know about that.