US expat tax and FBAR: Discussion thread (Ask your questions) Part Two
Please ask your questions here about US Expat tax and FBAR.
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NB: This discussion is a continuation of an older discussion that became to large for our software to handle well. See US expat tax and FBAR: Discussion thread (Ask your questions) Part One.
@maz57
You’d be advised to make it official quickly before State decides that relinquishment and taking of another citizenship must be concurrent in order to be valid!
@MediaFleeceStar, ” Until you personally go to the embassy/consulate and say so in front of the consul staff you are still an American citizen.”
That is absolutely false. 8 U.S. Code § 1481 is extremely clear that performing any of the expatriating acts with the intent that Citizenship is lost.
The sole question is how do you wish to document said loss of citizenship?
Do not get me wrong, a CLN is nice to have, will make life easier with a bank and might be a necessity to enter the US with a passport showing a US POB, but it is not a current requirement under US Code.
8 US Code goes on further to explain who has the burden in showing the loss “the burden shall be upon the person or party claiming that such loss occurred, to establish such claim by a preponderance of the evidence. ”
Nowhere does US Code state that citizenship is not lost until a CLN has been obtained.
Pre FATCA it was clear that a CLN was really not needed in any manner. Nor did anyone care.
I would say that Post FATCA that if you do NOT have a relinquishing CLN, it would be wise at a minimum to swear out an affadavit with a lawyer or notary.
IF a CLN was absolutely required then all these IGAs would not have the reasonable explanation clause.
But I would agree that until you a have a CLN, then you are still a US Person but in no event are you a US Citizen. That is a big difference in IGAland because the IGA language is US Citizen and not US Person.
@Bubblebustin, while the US Congress can amend 8 US Code going forward, they can not amend US Code for acts taking place before any amendments.
No ONE should be going to a Consulate in order to relinquish.
You are going to a Consulate to document a prior relinquishment.
The US Congress in its documents clearly has stated that a CLN is not required to relinquish.
@Medea Fleecestealer, from the Streamlined Compliance Procedures IRS info, please see info between asterisks, which is current today on their website:
“All tax returns submitted under the streamlined procedures must have a valid Taxpayer Identification Number (TIN). For U.S. citizens, resident aliens, and certain other individuals, the proper TIN is a valid Social Security Number (SSN). For individuals who are not eligible for an SSN, an Individual Taxpayer Identification Number (ITIN) is a valid TIN. Tax returns submitted without a valid SSN or ITIN will not be processed under the streamlined procedures. ***However, for taxpayers who are ineligible for an SSN but do not have an ITIN, a submission may be made under the streamlined procedures if accompanied by a complete ITIN application. *** For information on obtaining an SSN, see http://www.ssa.gov. For information on obtaining an ITIN, see the ITIN page on http://www.irs.gov.”
http://www.irs.gov/Individuals/International-Taxpayers/Streamlined-Filing-Compliance-Procedures
@TokyoRose and Stressed
That is not correct. There are 3 tests to determine if you’re subject to the exit tax; the $2M net worth test is just one. The important one for most people is the certification/compliance test. If you cannot certify that you’re compliant for the previous 5 years you’re a covered expat and thus subject to the exit tax. At that point your net worth becomes mostly moot and a bunch of different rules come into play to determine how much, if any, exit tax you actually have to pay. Also, the 10 years of required filings is, I believe, not something that is in effect now. The exit tax replaced it as the preferred method of extracting $$ from former citizens.
IMO one of the most important exit tax issues is that of RRSPs and/or pensions. If you’re a covered expat then you will owe tax on the total, *NOT* gain, of any RRSPs and/or pensions. This is because the money in the RRSPs and/or pensions was not initially taxed. That tax is paid at the highest marginal tax rate, I believe. In addition, if you have a defined benefit pension plan (as most government workers in Canada do), you’re subject to tax on the present value of that plan. So, you could have no assets to speak of, and certainly no unrealized gains to be taxed, but if you have a defined benefit pension plan you could be taxed a significant amount.
@Stressed
The fact that you may have no assets to speak of does not necessarily mean that you would owe no exit tax. As I mention above, RRSPs and pensions are taxed on the total amount, not gain; and they’re taxed at the highest marginal rate. And defined benefit pensions are taxed on the present value of the pension. So, if a covered expat has a RRSP or pension, she WILL pay some amount of exit tax, and it could be a significant amount.
@The Mom, thanks for the extra bit. As usual the IRS being completely confusing. We won’t process applications without a number, but apply for one anyway.
@George, while I agree with what you’re saying regarding the Code we all know that in practice things are different. I know that no bank here in Switzerland is likely to accept anything other than a CLN and I seriously doubt whether any US border guards would either. And of course the IRS will only accept a CLN for relinquishments too.
“Date of relinquishment of U.S. citizenship.
You are considered to have relinquished your U.S. citizenship on the earliest of the following dates.
1. The date you renounced your U.S. citizenship before a diplomatic or consular officer of the United States (provided that the voluntary renouncement was later confirmed by the issuance of a certificate of loss of nationality).
2. The date you furnished to the State Department a signed statement of your voluntary relinquishment of U.S. nationality confirming the performance of an expatriating act (provided that the voluntary relinquishment was later confirmed by the issuance of a certificate of loss of nationality).”
http://www.irs.gov/pub/irs-pdf/i8854.pdf
This is the “Code” that everyone will be working to because the State Dept/IRS has them all by the short and curlies.
Sorry, but I have to disagree with you about the US Person. It’s quite clear in both the Swiss and Canadian IGA’s that a US Person is a US citizen. From the Canadian IGA:
“The term “U.S. Person” means
(1) a U.S. citizen or resident individual,”
http://www.treasury.gov/resource-center/tax-policy/treaties/Documents/FATCA-Agreement-Canada-2-5-2014.pdf
There is no differentiation between the two.
I somewhat implied, but did not explicitly state, there are no exclusions on the amount taxed on RRSPs and pensions for a covered expat. Thus if all one has is a $10,000 RRSP, the entire $10,000 will be subject to tax at the highest marginal tax rate.
@ tdott
I bow to your greater understanding of covered expats. I haven’t seen that the 10-year filing requirement is no longer in effect. But Stressed said she had no property or complicated investments, which I assume would mean no RRSPs, etc., just checking & and savings accounts, and it certainly sounds like a lot less than US$2 M. So where is the chance of an exit tax? Unless you’re assuming that she has a pension plan or other assets that she might consider as uncomplicated but of course are actually quite complicated under US tax law?
Anyway, Stressed said that she wants to feel safe travelling, so I still suggest she get a TIN and file at least the 8854, the 1040s for the previous 5 years and a 1040 + 1040NR for the final year. The point I most wanted to make is that there is a big difference between a US citizen and what the IRS calls ‘a US person for tax purposes”. Stressed has already renounced and is no longer a US citizen. Nor is she a resident alien. So it should be impossible for her to acquire a SSN. Unless they have changed things, an ITN can be applied for via the mail and does not take that long to acquire.
@tdott
You make a very good point about how exit tax applies to pensions. This is why the exit tax is not just for fatcats, but for ordinary middle class people near or in retirement, who may have a pension, and a home in an expensive city, whose value has appreciated. If just those two assets are “exit taxed” it can be life-changing for such a person.
This is what makes the certification test on 8854 so important. The $2m test is also quite a low bar, given that this is the price of a one bed apartment in central London or Singapore.
The IRS cannot and does not determine who is or is not a US citizen, or even who is or is not a legal resident alien. It can only define who is a “US person for tax purposes”.
While for some it might be as important, or even more important to be no longer a “US person for tax purposes”, for others it is more important to no longer be a US citizen.
And of course a CLN is not absolute proof that one is not a “US person for tax purposes”. After acquiring a CLN it is certainly possible to become a resident alien working in the US, and even easier to fall under the duration of stay for a “US person for tax purposes”. Whether or not one is a US citizen is completely irrelevant.
@Tokyo…the 10 year rule was part of section 877 HIPPA in 1996 and AJCA in 2004. When HEART came into effect in 2008, it replaced the 10 year rule with the exit tax rule. People who renounced in 2005, for example, don’t even become an NRA for tax period for 10 year until they file an 8854, and then they have to file one every year after that for 10 years.
The 877A exit tax which replaced 877 (Capital gains, taxes on trusts, deferred compensation, etc.) only apply to loss of citizenship after June 16 2008 if you are a covered expatriate (i.e. failure to certify for all, or net worth $2Mil or average tax liablilty >~$155k for some).
@ricard, at least one can gift one’s way to below the $2M threshold. E.g., gift a chunk of money/home to non-USC spouse or kids. As we both know, there’s no way around the pension issue for covered expats.
@TokyRose
I totally agree that for the risk averse type of person (such as myself, and apparently Stressed), filing the 5 years of 1040s, plus the 1040/1040NR for the final year, plus the 8854 is the preferable way to go. And that’s even if using an ITIN rather than a SSN.
The one question still in my mind is whether a renunciant is eligible for a SSN. Medea Fleecestealer posted a bunch of info to support her claim that a renunciant is eligible for a SSN (thanks, MF!), which I have yet to get to.
@ Medea Fleecestealer
An IGA has no bearing whosoever on citizenship law. In fact, an IGA is not any type of “law”. There is of course an extremely distinct difference between being a US citizen and being a “US person for tax purposes”. Maybe Switzerland is willing to allow the IRS, via the IGA, to arbitrarily designate certain Swiss citizens as “US persons”, but that does not alter the legal fact of citizenship.
@ RMA
Thanks for that explanation. Sometimes it is hard to decipher what is old news when I’m just reading it for the first time.
@ tdott
I imagine that Stressed could apply for an SSN if she had a US birth certificate or consular birth registration. I doubt very much that the SS Administration keeps close track of who has recently renounced. But she said that she has no docs, and seems easier to apply for an ITIN, which she can do now that she has renounced and is no longer a US citizen or legal residents. While it may be true that the IRS would have preferred an SSN on the 1040s filed for the period as a US citizen, the ITIN on the 1040NR, her final return, should be just fine, and they are mostly interested in connecting all the documents together.
@TokyoRose, in the EU generally, FIs are asking “Are you a US Citizen? Yes/No”
Anyone who has relinquished irrespective of having a CLN can rightfully answer No.
Some are asking “What is your Citizenship? (list all if applicable) ____________”
Anyone who has relinquished irrespective of having a CLN can rightfully exclude USA.
As you rightly pointed out, a person could have a CLN, be a covered expat and spends more than 30 days per year visiting the USA and therefor be a US Person.
@MediaFleeceStar, I can not debate what the situation is like on the ground in CHF but I do sense it is draconian.
However, outside CHF in the EU the questioning to open an account and what the IGA actually stay focused on US Citizenship, based on Nationality law not what the IRS might state.
I fully agree that one might be unable to enter the USA on a non-US passport without a CLN. The piper can demand any tribute albeit ultravires. That is a decision one has to make.
But US Code which remains the law of the land in the United States which does not require a CLN to show loss of US Citizenship. Nor does the IGA in general require deeper probing if someone states they are not a US Citizen and there is no documentation to dispute same.
Based on your logic, a FI should require Form 8854 in addition to a CLN and proof of receipt!! That is not a requirement in IGAs.
If more countries started adopting CBT, I think more countries would start outlawing dual citizenship. Can you imagine if every country applied nationality law the way the IRS applies the definition of a “US person”, so that everyone would be taxed by their country of residence + their country of birth + the country of each of their parents’ birth + any country in which they were a long-term resident + any country in which they happened to stay (i.e., vacation home) for longer than 90 days per year over a 3-year period?
My US birth certificate states that my father was born in Canada. Maybe I should start filing taxes in Canada?
As for which country determines my citizenship, as far as I’m concerned, since I naturalised to Japan, Japanese law is the only law that matters to me while I am in Japan. As far as the IRS is concerned, I ceased to be a US person on the day I reported my relinquishment at the Consulate, but according to US nationality law, I lost my US citizenship on the day I naturalised to Japan. My only need for a CLN is to submit it (together with translation) to the Japanese gov so that they can list “Loss of foreign nationality” righter under “Acquisition of Japanese nationality” on my permeant record. I cannot imagine having to ever show my CLN to any bank or other FI or to any border agent if I ever want to travel to the US again.
@George, I don’t know what the other EU countries are asking, but these are the questions that UBS list on their Declaration of Status of the Account Holder as a Non-US or a US Person form (Yes/No answers):
Are you a US citizen?
Were you born in the US (or a US territory)?
Are you a UN Green Card Holder (irrespective of expiry date)?
Are you a resident of the US for US tax purposes?
Irrespective of the Substantial Physical Presence Test above, are you still domiciled in the US?
A “yes” to any of these will trigger further investigation. A “no” to the first two will require either the production of a CLN, or if “yes” they’ll need your signature on a W-9 form for your account/s.
And it states quite clearly in the IGA’s of both Canada and Switzerland that if an account holder unambiguously indicates a US place of birth the FI obtains, has previously reviewed or maintains on their files:
A self certifcation (W-8EN)
Copy of non-US passport AND
Copy of CLN or a reasonable explanation of why the account holder doesn’t have one despite relinquishing their citizenship.
http://www.treasury.gov/resource-center/tax-policy/treaties/Documents/FATCA-Agreement-Canada-2-5-2014.pdf
pages 21/22
In Switzerland I doubt any bank would accept a reasonable explanation.
@MediaFleeceStar, there are many FIs throughout the EU that solely ask, “Are you a US Citizen?”
Some are asking solely “Nationality:___________________”
Some (many not) are asking place of place of birth and it is believed by some to be ultra vires to ask such a question. In fact with a FI for a new account post July, I clearly stated that asking place of birth was racist and the manager quickly apologized and stated that question is voluntary.
I have no doubt that if you go to a FI and state an unambiguous place of birth or provide an ID that has an unambiguos place of birth that you will likely be in a pile of hurt.
I believe that in CHF you have been dragged over the coals.
I also believe that in the EU, life will be a bit more difficult IF you do not have a CLN. But the fact remains that a CLN is not a requirement to lose ones citizenship. A person who has rightfully relinquished will be able to open accounts albeit selectively.
The person who has not relinquished however, is in a complete pile of hurt.
The only “question” is IF a person has committed the actions under 8 US Code can they rightfully answer NO to “Are you a US Citizen?” And I ask that question based on EU/Host Country law where it is signed.
@TokyoRose; I am working in urging my MP to propose reciprocity with respect to all countries that have CBT as a means of protecting my own countries tax base.
Do I need to visit the US consulate office for an SSN or can I mail it in? On the consulate website it says it can take 4-5 months, do people find that is accurate?
Can you get an extension on the 8854? I could definitely get my taxes done by June, but not if it’s going to take 7 months to get an SSN.
I just read through some of the SSN information, and I honestly don’t understand most of it.
I may send in my taxes with an ITIN application and if they don’t accept then too bad because that is all they will get from me.
@Medea Fleecestealer re: your comment Oct 1 at 12:28 pm.
I wasn’t asking them about my loss of US citizenship; I was informing them. Congress itself says there is no obligation to inform the US government one is no longer a US citizen. In the email back and forth (which I fortunately have saved) not once did the Vancouver consulate dispute that I am no longer a US citizen.
I made a reasonable effort to appear at said consulate for a bit of business that should take five minutes and was met only with stonewalling. I guess I’m a lifelong do-it-yourselfer because I’m not going to allow a bunch of useless bureaucrats to run my life. I don’t give a damn what the US government thinks about me. I do know that when I turn up at the border with Canadian passport (with US birthplace) in hand they ask the usual routine questions and allow me to enter as a Canadian. If the day ever comes that travel to the US becomes a problem, then so be it. I’ll gladly never set foot in the place again. I’ve been in that situation before.
I’m not recommending this course of action for Stressed or anybody else, but Stressed asked for examples and I offered up my own situation. Everyone needs to find their own way though this morass.
@Bubblebustin Oct 1 12:36 pm.
My relinquishment is official because I say its official. And its concurrent because by definition it is always concurrent. That’s why I got that Canadian passport ASAP. And that’s why I refuse to file anything going forward with the US government. That’s for US citizens and I am not a US citizen.
@maz57, “My relinquishment is official because I say its official.”
I think you mean “My relinquishment is official because it meets the requirements of 8 US Code which I have documented with my my certificate of citizenship and new passport.”
Having said that, I do think there may come a day when 8 US Code is amended by Congress and that a relinquishing act will not be effective until a CLN is issued. But to do that the Expatriation Act 1868 will need to be repealed.
But you are correct by presenting your Canadian passport because you are NOT a US Citizen and to present something that you are a US Citizen would not be wise. By chance did they stamp your passport? That would be handy to have.