When it comes to compliance there is a lot of confusion as to:
- what day does loss of citizenship occur and
- what roles do f8854 and a
- Certificate of Loss of Nationality play?
The filing requirements are explored in two posts by John Richardson.
BRIEF SYNOPSIS
Before June 3, 2004 (before the creation of the “Tax Citizen”)
The date of your “expatriation”was determined solely by the provisions of the Immigration and Nationality Act.
June 3, 2004 – June 16, 2008 (after the creation of the “Tax Citizen”)
You continued to be treated as a “U.S. person” for tax purposes UNDER THE INTERNAL REVENUE CODE until you gave “notice” of your “relinquishment” to a government agency. For this period part of the “notice” was filing Form 8854 with the Internal Revenue Service. In other words, there was no way to cease to be a “U.S. person” for tax purposes until you had notified the IRS.
After June 16, 2008 –
A.The issuance of a CLN is confirmation that the State Department has agreed that you have relinquished U.S. citizenship. A CLN is a confirmation that you have met the “notice requirement” under the Internal Revenue Code.
B. The CLN is one way (a self-certification is also possible) to satisfy “foreign banks” that you are NOT a U.S. person for tax purposes under the Internal Revenue Code. (In other words, a CLN is a “sufficient” but not a “necessary condition” to prove non-USness.
Read more HERE
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1. Is the loss of U.S. citizenship for nationality purposes dependent on having a Certificate of Loss of Nationality (“CLN”)?
The answer is absolutely not.
349(a) of the Immigration and Nationality Act specifies conditions under which one relinquishes U.S citizenship.
2. Is the loss of U.S. citizenship for tax purposes dependent on having a Certificate of Loss of Nationality (“CLN”)?
Prior to June 3, 2004 – NO for either immigration or tax purposes
June 3, 2004 – June 16, 2008 – NO for either immigration or tax purposes.
After June 16, 2008 – No for immigration purposes – It is necessary as a confirmation of having met the “notice requirement” to end U.S. citizenship for tax purposes
3. What is the role of a Certificate of Loss of Nationality (“CLN”)?
For Immigration and Nationality Purposes – no relevance whatsoever
For Tax Purposes – The Internal Revenue Code
The accusation of U.S. citizenship is triggered by various indicia (U.S. place of birth, U.S. residence, U.S. phone number, etc.). The U.S. “place of birth” is the most dangerous indicia. Those with a U.S. place of birth can rebut the accusation of U.S. citizenship with either:
A. The CLN; or
B. A “Self Certification” (that must meet specific requirements) documenting why:
– the person has relinquished U.S. citizenship; and
– does NOT have a CLN.
A denial of U.S. citizenship will generally require proof.
In general, those who have relinquished U.S. citizenship under the Immigration laws of the United States prior to June 3, 2004 are more likely to be able to “self certify” that they are NOT U.S. citizens even though they do NOT have a CLN. This position is consistent with the August 2015
4. Why is the Certificate of Loss of Nationality (“CLN”) of value?
It’s simple. Unless you live in the United States, life as a U.S. citizen abroad, in a FATCA, FBAR and CBT world, will be an endless source of anxiety and difficulty. A Certificate of Loss of U.S. Nationality is becoming one of the most sought after documents in the world today.
5. What is the role of a Certificate of Loss of Nationality (“CLN”) in a FATCA inquisition?
June 16, 2008 – Present
IF (you relinquish U.S. citizenship under the Immigration and Nationality Act) THEN
You continue to be treated as a “U.S. person” for tax purposes UNDER THE INTERNAL REVENUE CODE until you give “notice” of your “relinquishment” to a government agency. The “notice” requirement is NOT to the IRS, but to the State Department. (See S. 877A(g)(3) and S. 877A(g)(4) of the Internal Revenue Code.) Once “appropriate” notice is given to the State Department you cease to be a U.S. taxpayer from the date the notice is given (on a prospective basis).
Read more HERE
@Aug – you can file your 8854 on time, regardless of whether your CLN has arrived. That’s what I did.
Aug you don’t need your CLN in hand to file your final exit forms.
Congratulations on completing your renunciation today, Aug!
Until receiving the CLN, I would bring the receipt for entering the US. Some consulates have specifically told people to do that. So far, people haven’t been reporting problems travelling to the US in the interim. They’ve been posting their experiences on:
http://isaacbrocksociety.ca/2013/09/19/question/
and: http://maplesandbox.ca/2012/crossing-the-us-border-on-a-canadian-passport-showing-a-us-birthplace/
BTW, that’s a pain having to have 2 appointments. If you’re comfortable saying, where did you renounce? We like to have an idea of how things are done at the different embassies.
Re your taxes, if you don’t have the CLN by tax time, file your final 1040 and 8854 anyway. There’s really nothing for DoS in Washington to reject with a renunciation, as you performed your relinquishing act right in front of a DoS officer, so the CLN will get issued. If the embassy officer had had doubts (say about your capacity or voluntariness), he’d have let you know right off the bat.
But since he said 6 months for the CLN, if it doesn’t arrive in 6 months, I’d follow up on it. I don’t foresee problems in the interim, but it’s definitely good to have!
“If you decided to file you need 5 yrs of back 1040′s + a partial for the year you renounced(unless you qualify for the FEIE foreign earned income exclusion) which now stands at 10,800/yr also 6 yrs of FBARS and the 8854.”
You have to file a partial for the year up to the day preceding the date of renunciation, even if you do qualify for the FEIE, which now stands somewhere over US$100,000 per year. The only way you don’t have to file is if your total income (before claiming FEIE) is under some other limit which might be around US$10,000.
Some people file a 1040 as their return for the partial year. I haven’t read if rules really changed recently, but when I renounced, I complied with rules which required a signed 1040NR as the return for the year with an unsigned 1040 attached as a schedule for the partial year. IRS transcripts have agreed, showing 1040NR not 1040 as the return filed for that year.
I have a feeling that in either case, renunciation or relinquishment, it should be OK to file a final return with 8854 by the deadline. The return reflects knowledge and belief that the filer has at the time. If the US later rejects the renunciation[*] or relinquishment, file a 1040X amended return.
[* Renunciation can be rejected, if the US decides that the renunciant was coerced by a person instead of being coerced by the US government.]
I agree with you, if it were a relinquishment, I’d go ahead and file the 8854 too. Was just pointing out renunciation is a pretty sure thing in the sense that if the embassy officer felt I was acting voluntarily, the guy at the desk in Washington wouldn’t have any reason to think otherwise.
@Norman,
Agree, as you said the need to file, 5 yrs + partial yr.
“You have to file a partial for the year up to the day preceding the date of renunciation, even if you do qualify for the FEIE, which now stands somewhere over US$100,000 per year. The only way you don’t have to file is if your total income (before claiming FEIE) is under some other limit which might be around .
The ‘unless’ I was referring to was the need to file 2555 FEIE….
It’s hard to be concise in a sentence or two.
Below is my standard post on renouncing but not filing; it’s from a Canadian perspective, but does have parts that universally apply. I will freely admit my bias towards making a clean exit out of the US tax system. Having said that, AFAIAC it’s up to each individual to come a decision based on his/her own circumstances and risk tolerance, once they’re aware of the ramifications of each potential path.
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If you are considering renouncing without filing those 5 previous years of returns, note that there is no statute of limitations on those unfiled returns, because they’re unfiled. So that will theoretically hang over your head for the rest of your life. It’s difficult to say what that means in practical terms (e.g., is there a real likelihood of the IRS catching up with you 20 or 30 years from now?), but it is worth keeping in mind.
By not filing returns, you have probably moved into the wilfully non-compliant category. I don’t know what the ramifications of that are, but I don’t see how it could be a good thing. FWIW, if you don’t file 8854, then you’re subject to a $10K penalty, and 8854 specifically asks about those 5 years of returns. Note that the IRS is supposed to get a copy of your CLN from the State Department.
By not filing returns (or not submitting 8854), you have definitely become a covered expat. That means, among other things, that you are subject to the exit tax. You will be taxed on mark to market capital gains subject to a $663K (2013) exclusion. As well, you will be taxed on the total (not gain, total) amounts in any pensions and RRSPs you may have, and there is no exclusion. RRSPs/pensions are, I believe, taxed at the highest marginal rate. The RRSP/pension tax is a major issue for covered expats IMO. [Note: because a RRSP is neither a real pension, nor a traditional investment vehicle, it is not entirely clear to me if it’s taxed on gain or total]
There have been no known reports of people who have renounced without filing being hassled about their non-compliance when attempting to enter the US. However, given increasing inter-agency and inter-country data sharing, it does seem possible that at some point in the future US border people will be aware of all former USC’s tax status. Should that come to pass, unless you like to live dangerously, travel to the US is out – that would include plane connections though any of the major hubs. For some people, not a big deal; for others, a very big deal. And, you’d always be concerned when flying over the US to, say, Mexico if you’re a risk averse type of person, due to the (admittedly unlikely) possibility of the plane making an unscheduled landing in the US.
The US-Canada tax treaty will protect you (at least in Canada) from the IRS if you were Canadian at the time the liabilities were incurred. I don’t see how there is any guarantee that the treaty could not be changed for the worse in the future. And although it would clearly be unfair if the changes were retroactive, nobody has ever accused the IRS of being overly fair (and the FATCA fiasco has indicated how much we can expect the Canadian government to stand up for fairness).
So, IMO, you would have to have a good reason to not file those returns and 8854. One concern people often have about filing those returns is the cost of getting someone to do it for them. A possible route is to DIY and just do the best you can. I’ll leave it to you to determine what “best you can” involves given that you’re almost certainly not a cross-border tax professional. At any rate, at worst you could be audited later and assessed some $$. If it’s a large amount of $$ that you are unable or unwilling to pay, you could then invoke your treaty right and not pay up; leaving you in more or less the same situation as having not filed. OTOH, at best you did a bang-up job on the returns that can withstand any amount of scrutiny, or, more likely, you can expect the IRS to not have the resources or inclination to worry about your piddly returns, leaving you home free (at least after the SOL runs out).
Phil Hodgen has a blurb on this subject: http://hodgen.com/will-your-future-self-hate-you/
Personally I’m not sure which is riskier – to file or not to file.
I did file 8854, but only because I have a US birthplace and a SSN. And having filed, I’m in exactly the same position I would have been in if I hadn’t filed – completely uncertain as to whether I’ll ever hear anything from them. Filing 8854 doesn’t lead to security, unfortunately.
Saw this old post. I have had CLN since 2014, never could file the 8854 as I am broke and have no capacity to do it properly without assistance. I know I’m now ‘covered expat’ but I have no assets so.. I don’t intend to ever go near the US again. I’ve never been contacted by the IRS to say “where is your 8854” etc. I hate that it is always in the back of my mind but not sure what else I can do for now. I keep saying, one day if my finances ever improve I will hire Hodgen and try to get it all taken care of but not sure that will ever happen (I live check to check). I’m just a minnow in New Zealand so, I mean gheez I think they would be wasting their time trying to get anything out of me. Maybe one day they can lock me up in prison, a 45yr old who’s never even had a speeding ticket and made a life overseas. What a world…
@pukekonz
No need to worry about it now as the irs rules state the 8854 needs to be filed with your returns for the year you gave up citizenship.
http://hodgen.com/when-to-file-form-8854/
You now share the distinction of being a’covered expatriate’ along with all those other lucky wealthy people.:-)
It might have been worth filling it in to the best of your ability with a bunch of zeros where necessary but too late now. But if you have no need to visit the US, who cares.
The only time I would ever want to visit the US would be if my mother or father dies which should be a ways off. I have already looked into telepresence and other devices to ‘be there’ for any major family event/death. There is one device used for remote workers, it looks like an iPad on top of a pole and you can drive it around, interact with others etc. I’ll just rent one of those and attend any funerals virtually from here. I can’t afford a trip to the US anyway.
Can anyone help, has anyone done this? Can you make a large gift tax and claim the unified credit and renounce in the same tax year? I have seen a Phil Hodgen post that says you cannot claim the unified credit in the same tax year that you renounce, because you are not actual a US citizen when you claim it at the end of that tax year! This seems mad as you are a US citizen for tax purposes and you were a US citizen when you made the gift tax.
Answered on the other thread. Of course it’s mad. The whole thing is mad. This is the IRS we’re talking about
Has anyone renounced and did not file 8854?
@jagz
Yes, some have renounced and not filed 8854, but then they effectively become a covered expatriate and have not effectively checked out of the US tax system. Usually it will be those who have no US connections, no US investments, expect no US inheritance and have no plans to travel there again.
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@jagz
Here is a link to advice from an accountant who is well respected here.
It covers risks to all aspects of filing or not filing
https://hodgen.com/will-your-future-self-hate-you/
Thanks Heidi
To my mind the only problem with covered expatriate status is giving or leaving money to a US resident, provided of course no US assets or other financial ties.
I’m not sure that covered expatriate status specifically would be a reason not to travel to the US. But if you renounce, you give the right to enter, so there’s always a risk of being kept out.
@nononymous
Re travel, yes you are probably right at the moment but who knows when the IRS will link computers with the immigration service especially now they are threatening US passport revocation for tax debts.
Covered expatriate status is not in and of itself a crime, nor grounds to be kept out of the country. Currently you’re only at risk of harassment if there are significant proceedings against you already.
But of course anything could happen in the future. It’s possible that all who renounce will be forever barred. It’s possible that one day those who didn’t exit the tax system properly will be denied entry. I’d say it’s unlikely, but nothing is impossible. So if access to the US is important to you, plan accordingly.
Can the irs prosecute u for not filling fbar and form 8854 if u gave up your green card?
“Can the irs prosecute u for not filling fbar and form 8854 if u gave up your green card?”
If you went through procedures to give up your green card, FBARs shouldn’t be necessary after that date, but if you had to file FBARs for earlier years and you didn’t, they might decide to prosecute you. It doesn’t seem likely but you asked “can” and I think they can.
If you don’t file Form 8854 you’ll be a covered expatriate. This status doesn’t violate a law. But suppose you buy a house, and 50 years later you sell it, and you’re a covered expatriate. If you don’t send the IRS the amount of tax they think they should get from your capital gain, they might prosecute you for tax evasion. Even if you get a job in a strip club, you can’t remove your covered status.
Man it feels like there’s no way to get out of the US other then OVPD
“Man it feels like there’s no way to get out of the US other then OVPD”
Consider this timeline:
A. Obtained green card.
B. Entered the US using your green card.
C. Informally abandoned your green card (let it expire, etc.).
D. Formally abandoned your green card.
If the difference between B and D is less than 8 years, you’re immune from expatriation law.
If C occurred before the expatriation crap was applied to green card holders, maybe you can stay off the radar as long as you don’t identify yourself.
Notice that A doesn’t really matter, but if you were already residing in the US on some other visa type then B is the same as A.