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
@tdott
“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.”
It is the filing of Form 8854 that invents the fictitious (taxable) events because Form 8854 treats every asset as if you sold it on the day before expatriation. If you own a house, you calculate the gain as if it had been sold. If you have a pension, you calculate the value as if it had been sold (even if it can’t be sold). If you own securities you calculate the gain as if they had been sold….and so on. If the resulting imaginary gains exceed the allowable exemption (I think something like $650,000), then you pay the IRS real tax on those imaginary gains.
You talk about filing Form 8854 so as to have a “clean” exit from the US tax system but there is no such thing. People who file 8854 never hear from the IRS. People who don’t file 8854 don’t hear from the IRS, either. Will it be different in the future? Who knows?
“Playing the game” just gives the IRS the ammo they need to come back and screw you if and when they feel like changing the rules. They could do that whether you have filed a Form 8854 or not. Just ask some of the hapless individuals who got screwed under the “bait and switch” OVDI program how far playing by the rules got them. There’s no such thing as an absolutely-guaranteed-forever escape from the IRS criminals. The only thing that is certain is that the less the IRS knows about you, the better.
@tdott
You chose to file a Form 8854; I chose not to file a Form 8854. I think we both face a similar (very remote) level of risk. I may have a slight advantage because the IRS doesn’t know the specifics of all my assets whereas you told them all about yours.
The good news is that due to the fact that assets tend to change over time (houses get sold, accounts get closed, new ones opened, etc.) the IRS will know less and less about your current assets and whatever that disadvantage may be, however slight, it will gradually dissipate.
In a few years, the IRS won’t have the foggiest idea where to find either one of us and (as Martha likes to say) that’s a good thing.
As I’ve alluded to before, past performance is no indication of future results. Having said that,
Streamlined has been around for years now, and AFAIK there is no evidence supporting this theory. *Many* people have gone thru offshore Streamlined, including myself and people I know, and have not had unexpected outcomes.
At any rate, if anyone can reference someone having an unexpected bad outcome from offshore Streamlined I’d like to hear it.
An alternative, for those wishing to comply, would be just to backfile.
For those not seeking IRS absolution — renounce and rejoice.
A sovereign country’s laws are what it says they are, full stop. One can disagree with those laws, one can (try to) ignore those laws, those laws may be stupid beyond belief, but they are nonetheless the laws of that particular land.
And I imagine there’s not a single country in the world, where renouncing citizenship lets the renunciant off for previously committed infractions (as viewed by the country). Thought experiment: consider Canadian citizen John Pedo who goes to Thailand, has sex with underage kids, gets caught, then renounces his citizenship before he can be brought back to Canada. It’s unimaginable that Canada would not prosecute Mr Pedo to the full extent of the law should he once again find himself in Canada just because he is no longer a Canadian citizen.
Like it or not, the laws of a country are what that country says they are. And, one must govern oneself accordingly in the manner that bests suits him/her.
Yes, although Streamlined is the “official” means to get compliant, quite disclosure seems to work just as well.
“Yes, although Streamlined is the “official” means to get compliant, quite disclosure seems to work just as well.”
That’s what I did, with not so much as a peep out of the IRS*, before I eventually decided to blow them off once and for all. *(Not counting the $300 check they sent for a Bush tax credit that I didn’t even apply for, LOL!)
Some friends did the same (quiet disclosures) but they officially renounced, got their CLNs, and filed Form 8854s. They actually made money renouncing because this was before the big price increases. Who says the US government isn’t right on top of things?
“Thought experiment [edited to be offensive only to bankers, who thoroughly deserve it]: consider a Canadian citizen who goes to the UK, robs a bank, gets caught, then renounces his citizenship before he can be brought back to Canada. It’s unimaginable that Canada would not prosecute the bank robber to the full extent of the law should he once again find himself in Canada just because he is no longer a Canadian citizen.”
Leaving aside the slightly improbable idea that a bank robber’s first reaction to getting caught would be renouncing Canadian citizenship – in the real world the suspect would be charged and tried under local law and if found guilty would serve any custodial sentence in the UK. If he subsequently applied for a visa to visit Canada, presumably Canadian immigration law would determine whether to let him in or keep him out. If he was allowed in, he wouldn’t be arrested, having served his time.
“People renounce so they can avoid having to pay income tax to the US.”
That’s what our enemies say.
We should know that 99% of people renounce so that they can live a normal life even when they don’t owe any income tax to the US. 1% … well, I wonder, because for example Roger Ver still pays income taxes to the US on income that he receives after renouncing.
‘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’
They deem all your investments to have been disposed of the day before you renounced, even though you don’t have the proceeds of selling them. I reckon that’s a 100% likely scenario.
“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.”
I bet Rettig was talking about US residents and maybe didn’t even know what the US does to its diaspora.
No he was talking about non-US-residents. I don’t think Streamlined was available for US residents at the time the article was written.
I deliberately chose the example of the sex tourist because he broke Canadian law when committing his crime in Thailand, irrespective of Thai law. So, even if he were not caught in Thailand and was outed while living in a country in which pedophilia was not a crime (or in which a blind eye was turned to it), he would still be subject to prosecution by Canada.
What are you trying to say?
If a former US citizen visited the US you think s/he could/would be arrested for not filing Form 8854. Is that what you mean
What I am trying to say is that renouncing does not get one off the hook in the eyes of the country whose law/rule/regulation you violated.
@Norman Diamond
“People renounce so they can avoid having to pay income tax to the US.”
That’s what our enemies say.
You are right, I phrased that very poorly. We all know that most expats owe no tax, but any attempt to comply with the US system nevertheless imposes severe and unwarranted restraints on a person’s financial life.
A much better statement would have been: “People renounce so they are no longer subject to the US tax code and are therefore able to live an unfettered life in their chosen country.”
Off what hook? What is it that you think the US can, might, or would try to do to a former citizen who didn’t file 8854?
Hanlon’s razor: “Never attribute to malice that which is adequately explained by stupidity.”
My own belief is that the absolutely horrible way that non-resident USCs were treated in OVDP was due to indifference (and stupidity). There was no conspiracy or concerted effort to deliberately f*** over NRUSCs – they were just never thought about, and so became unintended collateral damage.
Having said that, not apologizing for this and being unwilling to rebate unjustified OVDP penalties were deliberate non-actions once the effects on NRUSCs were understood. And for that the USG deserves all the scorn that can and should be heaped upon it.
tdott:
plaxy:
It would be an interesting situation, if a former US citizen was arrested for not filing 8854 while legally visiting the US. Assuming the hypothetical person to be Canadian – for the first time s/he would be able to request Canadian consular assistance. What would Canada do, I wonder?
There’s a $10,000 fine for not filing 8854, so there’s that. [Phil Hodgen thinks it’s unclear whether someone who files late and is a non-covered expat is subject to this]
Additionally, by not filing 8854 one may be a covered expat, and is thus subject to the exit tax. [Again, Hodgen seems to think it’s *possible* that a late filing of 8854 does not automatically result in being a covered expat]
[I don’t think it’s currently the case that filing 8854 is necessary to terminate tax residency, although it was between 2004 and 2008. Anyone can confirm this?]
Yes, I realize that attempting to collect on the above is unlikely to be fruitful, but nonetheless that is the hook one is theoretically on.
Hodgen reference: https://hodgen.com/filing-form-8854-late/
It’s one of those US statutes that doesn’t make itself clear, I think Hodgen has said. The $10,000 fine is for not filing the 8854 but no due date is stated, so nobody’s sure when it hasn’t been filed at all and when it’s just not been filed yet.
Who can predict what irrational thing the US might do, but my guess is that they’d do nothing.
As far as I can tell, its not illegal to not file a Form 8854, it just means you have not yet formally exited the US tax system. Its very unlikely that one would be arrested for such a paperwork failure. Not filing the form may or may not cause you to be branded a “covered” expat, no one even knows that for sure. Also, exactly when the so-called failure occurred may matter because expatriation law has changed so much over the years.
In view of the fact that US citizens who have totally ignored their filing obligations for many years don’t get arrested it seems extremely unlikely that an ex-citizen with an imaginary paperwork violation would land in jail.
“As far as I can tell, its not illegal to not file a Form 8854”
No. It’s not illegal for a former US citizen not to sign a contract agreeing to send the US a bunch of money.
Question for consideration: is it illegal for a person born in the US but not living in the US, not to report the sale of his/her non-US home to the IRS on a 1040? (Hypothesising a significant gain untaxed by the country of residence.)