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
“That’s why CRA got involved in screwing Dewees.”
‘The CRA got involved because the he didn’t bother to become a Canadian citizen.’
Yes, but ahead of that, the IRS couldn’t collect directly because Dewees and his money were in Canada, so the IRS had to get CRA to participate.
@ND
Let it go, man. As I said, unless you meet a very specific set of conditions (US citizen w/out Canadian/Danish citizenship living in Canada/Denmark) the IRS can assess you six ways to Sunday and it matters not one bit, because they can’t collect a cent. Whatever weird stuff you got tangled up in is quite different.
“As always, [US] courts didn’t give a flying fig.”
Of course not. They don’t, you know. They never will. It comes under the heading “Things you can’t change and might as well not keep fretting about”.
“Regarding Dewees, CRA had no choice but to collect, under the tax treaty, and frankly Dewees (via his lawyer) mostly screwed himself. In addition to attempting compliance, I believe he paid a fine in order to contest it, and lost.”
I’m betting Dewees paid that lawyer a lot of money for the spectacularly bad advice which resulted in an epic self-screwing. The moral? Don’t comply, stay the hell away from the condors, and become a Canadian ASAP.
His son died. Just at the moment when the lawyer (head of RO Canada IIRC) was pushing him to enter OVDP.
Me
“Folks saying that you’ll be fine by not filing 8854 and tax returns are going by what the current situation appears to be.”
Him:
Correct. Otherwise known as reality.
Me:
“here’s a decidedly less optimistic look at what can happen”
Him:
No it’s your fantasy about what you imagine could happen; it’s not based on reality.
—
Today’s fantasy is tomorrow’s reality. Because something is not the case today, does not mean it can’t be the case tomorrow.
FBARs were never meant to be used the way they are used today. Almost nobody thought sovereign countries would allow themselves to be bullied into one-sided FATCA “partnerships”. Nobody could have foreseen totally benign actors being royally screwed over in OVDP/OVDI.
Once upon a time, the US didn’t give much of a flying fig about non-compliant expats; now it does, bigly. And the next time a Democrat inhabits the White House, it’s not unreasonable to expect increased interest in this area.
The only thing rationale people can do is understand the situation as much as possible, assign probabilities to various possible outcomes as best they can, and assess their own level of risk aversion.
“Once upon a time, the US didn’t give much of a flying fig about non-compliant expats; now it does, bigly.”
That’s still a prediction for the future. At present the US only cares about screwing expats who try to be compliant.
@Norman
Just to follow up on what I wrote.
Prior to 2011 (I believe it was 2011), the US just didn’t seem to really care. Then in 2011 the US got serious and started wielding the FBAR stick, news of the big crackdown on expat “tax cheats” seemed everywhere, and then the horror stories of regular folks being put thru OVDI and being screwed over followed. Finally, after doing much damage to ordinary people, the US belatedly recognized (*without* apology or compensation for OVDI fines) that it had gone way overboard and instituted Streamlined.
AFAIK there have been no reports of expats putting themselves thru offshore Streamlined or doing quiet disclosures and having unexpected, bad outcomes. Yes, if you owe taxes according to US tax laws, you will be told to pay up (and we all know that can result in some decidedly unfair situations – e.g. significant tax on sale of principal residence), but that is to be expected. Lots of people have done offshore Streamlined or QD and lived to tell the tale. FWIW, I did the former and know of a few people who did so as well. If anyone is wondering, I got compliant in order to renounce in a manner consistent with my personal level of risk tolerance, YMMV :-).
‘Prior to 2011 (I believe it was 2011), the US just didn’t seem to really care. Then in 2011 the US got serious and started wielding the FBAR stick, news of the big crackdown on expat “tax cheats”’
Prior to 2011 the US was already viciously screwing non-residents who tried to comply.
I don’t remember when I first saw news articles about cracking down on “tax cheats” since I wasn’t a tax cheat and didn’t know yet my efforts to comply were one of the reasons they gave for screwing me. But that also must have been before 2011 because I tried to relinquish in 2010 and then renounced in 2011.
‘AFAIK there have been no reports of expats putting themselves thru offshore Streamlined or doing quiet disclosures and having unexpected, bad outcomes.’
On the other hand there have been no reports of expats ignoring the whole thing and having unexpected, bad outcomes, except of course that FATCA gets their accounts closed. It’s still only people who try to comply that get screwed.
“Nobody could have foreseen totally benign actors being royally screwed over in OVDP/OVDI.”
OVDP/OVDI would have gone mostly nowhere if it hadn’t been for the unholy alliance of the IRS and the compliance condor complex. Fortunately, people have learned from that horror show and now folks generally know how to avoid the pitfalls. Plus the IRS later slacked up when they rolled out Streamlined.
I not so sure the US government cares all that much about non-compliant expats because most owe little or no taxes. One thing is for sure, though. The ones that get wacked are the ones that volunteer.
The IRS has essentially zero budget to go after expats and that’s not likely to change anytime soon. They’re so strapped they can’t even keep on top of Homelander tax cheats.
@maz57
No real disagreement from me, except for a quibble on the last bit. A President Biden (or Schumer?), along with a Democrat controlled House, could make the IRS’ resource woes disappear, given that the Democrat’s have a major bee in their bonnet re tax cheats in general and offshore tax cheats in particular. And should that happen, minnows (i.e. those that owe little or no taxes) could be once again swept up in the sewage. A difference being that this time, FATCA info would be available to help track down at least some of those minnows.
I’m not losing much sleep over it. If the IRS received a vastly increased budget (not likely) they could start to sift through the massive FATCA data dump (which would eat up those increased resources like there was no tomorrow) and find some expats with foreign accounts. At that point the IRS would still have no clue whether any of them actually owed any tax.
The IRS could then expend even more of those resources to find the few who did, but in the process they would waste a lot of time and money because most would owe little or nothing. For the ones that did owe, the IRS would find it impossible to collect because by now, should the IRS get in touch, most expats are smart enough to tell the IRS to go pound sand. (Which is easily accomplished by totally ignoring them.)
There’s a reason nobody else has CBT; it is fundamentally impossible to enforce. The US government is so stupid and unresponsive that they alone continue with this folly but anyone who sends them any money does so entirely voluntarily. Even the nitwits at the IRS are smart enough to realize that in the unlikely event the other nitwits in Congress decide to give them an increased budget, they would get far more return on that extra investment by going after domestic tax cheats. In the end, by sticking with CBT, Congress is asking the IRS to go on a fool’s errand.
The only thing that could make me care about what the IRS thinks of me is renegotiation of the tax treaty such that my Canadian assets are at risk. And I think I’ll be long dead before that ever happens.
Otherwise the only reason I’m here is to warn others not to comply.
“There’s a reason nobody else has CBT; it is fundamentally impossible to enforce.”
Exactly.
It’s often implied that other countries use RBT out of a sense of fairness but it’s actually just practicality: collecting inland revenue is easy. Except in America where it mysteriously seems to become so immensely difficult that taxpayers must be stripped of rights and threatened and befuddled into obedience.
“minnows (i.e. those that owe little or no taxes) could be once again swept up in the sewage. ”
Non-US-resident minnows have never been swept up in US tax-filing, though some (minnows and non-minnows) file and pay voluntarily.
There has never been any danger from CBT. FATCA is a damned nuisance and a very good reason to renounce. Sending the IRS a list of your worldwide assets after you renounce is frankly weird.
I said:
An approach described rather nicely by one tax professional as in terrorem tax administration.
(http://www.pmstax.com/intl/n9811-9801.shtml)
“Sending the IRS a list of your worldwide assets after you renounce is frankly weird.”
Amen. I took one look at Form 8854, realized it that was, in effect, a convenient shopping list for the IRS, and immediately concluded it would be totally foolish to file it.
People renounce so they can avoid having to pay income tax to the US. Filing Form 8854 gives the IRS additional information they previously had no right to know. Even though they can no longer tax your income, filing that form gives them a shot at taxing your assets by creating fictitious “deemed” events. Why would anyone voluntarily play that game?
@maz57
People file 8854 in order to exit the US system as cleanly as possible, and so be done with the BS of CBT once and for all. That’s it.
Now I suppose it is possible that the IRS could invent fictitious “deemed” events based on the contents of 8854, but I reckon that’s a less likely scenario than the IRS deciding at some point to do “something” about 8854 non-filers. And yes I realize that that “something” would likely be ineffective (at least under current circumstances), but that’s cold comfort to the person who would in fact be mighty upset by a menacing letter from the IRS.
We all have different personal circumstances, different levels of risk tolerance, and different best guesses of what constitutes a current or future risk. As such, there is no one-size-fits-all answer to what an arbitrary individual should do w.r.t. this mess.
“People file 8854 in order to exit the US system as cleanly as possible, and so be done with the BS of CBT once and for all.”
You’re done with the US, and done with FATCA and CBT, the day you renounce. Getting back in touch by sending is … strange.
A kind of ambivalence perhaps.
“You’re done with the US, and done with FATCA and CBT, the day you renounce.”
Renouncing doesn’t absolve former USCs of their filing obligations as far as the US is concerned. I believe that point is even made on some form when renouncing.
If you want a clean exit from the US system, you play the game. If a clean exit is not important to you, you don’t have to. It’s up to the individual to decide what’s important to them and play, or not play, accordingly.
“Renouncing doesn’t absolve former USCs of their filing obligations as far as the US is concerned.”
A person changing citizenship is not in need of absolution.
US law doesn’t apply outside the US. and the renunciation of citizenship is not conditional on meeting deemed “requirements” dreamed up by the country you’re no longer a citizen of. It’s a bureaucratic process, that’s all.
Despite the comparisons sometimes drawn by hard pressed expats, US citizens are not slaves. Law is law, not slavery. US tax law treats people in America like shit. Be glad you don’t live there and can’t be forced to play their spiteful games and pay their tribute.
Note that the IRS understands very clearly that a person who has renounced US citizenship is not subject to US law. That’s why they’ve dreamed up an entirely novel category of post-renunciation “citizenship” – a citizenship consists of nothing but an obligation to do what the IRS tells you to do.
To escape from this pretend-obligation, you must give them a list of your assets so they can see if they can make you give them some of your money.
Or you can ignore them.
tdott:
You think? I agree with the alternative interpretation oft expressed on this website – that when the intake of OVDI victims slowed down, the IRS created Streamline to try to trick residents of other countries into inadvertently incriminating themselves while waiving any rights not to do so.
I said:
An interesting point about Canada’s position on collecting for other tax authorities: apparently Canada has collection agreements with Germany, the Netherlands, Norway, New Zealand, the UK, Spain and the US. Only the Canada-US agreement protects citizens of the requested country from collection.
That suggests (to me) that US-Canadian duals owe their immunity to the US, not to Canada. I hazard a guess that the IRS can’t collect Canadian tax debts from a US-resident US citizen, and therefore can’t request Canada to collect US tax debts from a Canada-resident Canadian citizen. What’s not sauce for the goose is not sauce for the gander.
I wouldn’t be surprised if this was also the reason for citizen immunity in other US tax treaty mutual collection agreements.
Regarding the streamlined procedures “non-wilfulness” certification – here’s a 2014 view from Charles Rettig, the proposed future IRS Commissioner:
http://www.taxlitigator.com/am-i-non-willful-under-the-irs-ovdp-streamlined-procedures/
Not clear to me what kind of objective facts there could be, but I think it says something when a future IRS Commissioner recommends OVDP as potentially safer than Streamlined.