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
*****
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
However after gaining Geman citizenship through the hardship clause, I believe a relinquishment of US citizenship is possible and free of charge if you still want to get rid of it.
There’s no more free relinquishment, that changed a few years ago. (I nearly wrote “since a couple of years” as that’s a common Denglish formulation.) It’s $2350 for a CLN, doesn’t matter if you’ve relinquished or renounced.
Oh well, it was worth a try. I wonder if the German authorities will accept an undertaking, receipt, or some other proof you have renounced US citizenship in order to speed up the process? It takes long enough just to get an appointment but then many more months are wasted waiting for State Department to get around to sending a CLN. (Which they could easily accomplish in 48 hours if they wanted to.) You’d think for the $2350 they would at least offer some premium service.
Damn them, anyway. (The US that is, not Germany.) I don’t blame the Germans in the slightest for not wanting German/US duals. I expect other countries will start to do the same in the future. US citizenship has turned into a liability I wouldn’t wish upon anybody.
“It takes long enough just to get an appointment but then many more months are wasted waiting for State Department to get around to sending a CLN. ”
The German naturalization procedure might be able to accept the renunciation receipt as proof, rather than insisting on production of the CLN. The receipt carries the word “Renunciation” and the amount. Together with a credit card receipt it provides good substantiation that the deed has been done.
https://taxexpatriation.files.wordpress.com/2014/05/450-receipt-for-payment-re-renunciation.jpg
This was before the price rise.
Hey, too bad it shows the old price. Otherwise I’d photo shop it; you never know when a receipt like that could come in handy, bogus or not!
That’s why the German authorities would probably want also to see credit card evidence. 😉
Credit card in Germany? I bet they’d only accept proof of an Überweisung.
I was offered the choice of paying in cash (USD or euros) or card. Perhaps consulates in Germany are more flexible.
“(having held a US passport at any given point in time is considered proof of being a US citizen)”
When a citizen of American Samoa applies to the US government to get a certificate of US non-citizen nationality, the US government issues them a US passport with an endorsement near the back saying that the person is not a US citizen. This passport allows them to reside in the US for some length of time and acquire US citizenship if they wish, but they don’t have to.
“Hey, too bad it shows the old price. Otherwise I’d photo shop it; you never know when a receipt like that could come in handy, bogus or not!”
You can photoshop it anyway. So what if you pretend you renounced in 2011 instead of 2015. The US government likes falsified documents better than real ones. I wouldn’t try submitting it to the German government though.
After posting I realized that if you bother to photo shop at all then you could photo shop the price and date as well. It wouldn’t be smart to show it to government officials but it might be useful for “or another reasonable explanation” type situations. (You know, like: “The dog ate my CLN and I’ve applied for a duplicate but I haven’t gotten it yet”.)
@Pete
Folks saying that you’ll be fine by not filing 8854 and tax returns are going by what the current situation appears to be. However, nobody knows what the future will bring (e.g., FBARs were in existence for something like 40 years before the USG decided to let them loose on non-resident USCs) . So here’s a decidedly less optimistic look at what can happen. It’s a bit dated (e.g. mentions the exclusion for 2013) and is Canada-centric, but I believe it’s nonetheless food for thought.
FWIW, it makes no difference to me whether people renounce without filling a single form. I just want folks to be cognizant of what the dangers are, even if they are currently negligible.
This is my standard response re this issue, which many of you have already seen.
==============================
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, 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; logic says gain, but logic says a lot of things that are inapplicable to this stuff]
[Note: Phil Hodgen says that filing a late 8854 does NOT make you a covered expatriate – See: https://hodgen.com/filing-late-form-8854-covered-expatriate/ ]
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 through 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).
Another area of concern is estate settlement. If the executor of your estate is a professional of some sort and determines you did not cleanly exist the US tax system, he/she will almost certainly want to get your deceased self caught up on your US taxes. Depending on your situation this could result in massive taxes, interest, and possibly penalties being applied to your estate.
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).
FWIW, Phil Hodgen has a blurb on this subject: http://hodgen.com/will-your-future-self-hate-you/
These are important considerations. This is one of the reasons I recommend that non-compliant Canada-US duals simply stay off the radar without renouncing. It saves $2350 and your name isn’t sent to the IRS; currently FATCA is not a concern because you simply self-certify as not being a US person,
But in Pete’s case he has no choice but to renounce – ultimately because of Brexit.
Thanks tdott
I thought an expat was someone who leaves his home country to live somewhere else.
I have never lived in the US, have zero ties, no pensions, not even an SSN. If must avoid the place for the rest of my life …so be it.
Just for information:
My father simply stopped filing his taxes for the US many years ago. He never owed and he simply stopped doing it after accumulating a significant tax credit in the US which of course he will never get because he will never go back. He has traveled to the US many times since without trouble. My mother even gets a small US pention through him, again no problems. They have him on record for not filing for over 20 years and yet… nothing.
How and why would they the IRS ” come after me”. If they fine me and I don’t pay…what will they do?
If my German bank does not know I am a US citizen how would they share it with the IRS or FATCA?
Just for the record…I am not trying to dodge taxes. I would not owe a penny.
“Folks saying that you’ll be fine by not filing 8854 and tax returns are going by what the current situation appears to be.”
Correct. Otherwise known as reality.
“here’s a decidedly less optimistic look at what can happen”
No it’s your fantasy about what you imagine could happen; it’s not based on reality.
“is Canada-centric,”
Is America-centric.
“is there a real likelihood of the IRS catching up with you 20 or 30 years from now?), ”
He’s is a European, not a fugitive from justice. Why are you talking about him like he’s a criminal?
“By not filing returns, you have probably moved into the wilfully non-compliant category. I don’t know what the ramifications of that are,”
It’s a manifestation of the IRS tactic of referring to US taxpayers in terms that suggest they’re all naughty children who are in danger of being punished by being sent to bed without their
supperretirement savings.“but it is worth keeping in mind.”
No it’s not.
“if you don’t file 8854, then you’resubject to a $10K penalty,”
Nope. NRAs aren’t subject to US tax law.
“By not filing returns, you have definitely become a covered expat. T=hat means, among other things, that you are subject to the exit tax”
“Covered expatriate” is a label, not a state of being. It applies to some former USCs who have chosen to sign up for it and who have given the IRS a list of their worldwide assets and a calculation of how much money they want to give.
“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.”
This might keep airline middle managers awake at night; it’s not a concern for anyone else.
“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.”
Why?
“The US-Canada tax treaty will protect you.”
From what? Treaty mutual collection agreements are about one country collecting another country’s assessed tax debts. Not relevant for those with no such debts.
“Another area of concern is estate settlement.”
It’s sensible to keep a copy of the CLN with one’s will.
Et cetera.
Petetgepiper:
“My father simply stopped filing his taxes for the US many years ago. He never owed and he simply stopped doing it after accumulating a significant tax credit in the US which of course he will never get because he will never go back. He has traveled to the US many times since without trouble. My mother even gets a small US pention through him, again no problems. They have him on record for not filing for over 20 years and yet… nothing.”
Exactly.
I left America in the Sixties. The IRS sent me a refund cheque for my last part-year in the US (I didn’t file for it – I didn’t even know it was due.) I never heard another word from the IRS.
I too applied for SS, in due course, and I now receive my monthly cheque from the SSA, tax-free.
Apologies for mangling your name! Flippin’ ipad virtual keyboard!
maz57 – “you could photo shop the price and date as well. It wouldn’t be smart to show it to government officials but it might be useful for “or another reasonable explanation” type situations. ”
Maybe simpler to photoshop a CLN? 🙂
Or just sign the W-9 and resign oneself to the fact that the IRS will receive yearly reports on one’s very-low-value non-US bank account.
“If my German bank does not know I am a US citizen how would they share it with the IRS or FATCA?”
They wouldn’t.
The IGA signed by Germany and the US sets out the FATCA due diligence which banks must carry out. The first and most significant indicator they look for is US birthplace. Since you weren’t born in the US (and presumably don’t have US addresses or phone numbers littering up your bank records), you wouldn’t be visible as a US citizen.
Since then, Germany like most countries has signed up also to the Common Reporting Standard. In many countries, the due diligence for FATCA and CRS is merged into a single questionnaire, which usually asks
– your birthplace
– are you a US citizen yes or no
– list jurisdictions in which you are tax-resident and give your TIN
If you get asked these questions by your bank while you’re still a USC, you can decide whether you want to answer them (at which point you’ll be asked to sign a W-9 IRS form) or ignore them (perhaps risking closure of the account).
Then I am probably totally off the radar…
Have never been asked any of this by any bank or anyone. I think they are happy to classify anyone as an EU citizen if they have an option (like someone showing an EU passport). Saves them hassle too.
Yes – since you’ve no US birthplace, more than likely you’ll never get asked.
@plaxy
“Maybe simpler to photoshop a CLN?”
As always, you are way too sensible. But taking the thought a bit further, I now realize the best document for me to alter would be a copy of my own birth certificate. The reason? All I have to do is change the USA to CA and presto….I was born in Canada and was never a US citizen in the first place. There’s a town in Ontario with the exact same name as the town in the US where I was born!
CLN? I don’t need no stinking CLN!