Relinquishment and Renunciation Data (as reported on Isaac Brock), Part 2

1,470 thoughts on “Relinquishment and Renunciation Data (as reported on Isaac Brock), Part 2”

1. Another question about the relinquishment process. Is it necessary to actually send any documents to prove ” extensive ties” in the country I have lived in for the past 24 years (e.g., employment records, my German university degree, my German visas etc.). Or is it just enough to mention it in the personal statement. Thanks again everyone for your help and advice.

2. @Fledermaus, no. The only extensive ties they’re interested in are ones to America. That’s why on the DS-4079 form most, if not all, of your answers regarding ties to the States should be answered no.

3. Thank you, Calgary411 and EmBee. I appreciate the info. As for thinking about it until 2016 . . . blech! I hate thinking about it at all. I’m considering filing my f8854 right away (don’t know if that’s allowed) so that all I’ll have left to do in 2016 is the partial “regular” return.

   Again, I send my sincere gratitude.

4. Graham Vapors. In the instructions for form 8854, it clearly states ‘ you can use good faith estimates of FMV and cost base. Formal appraisals are not required’. Remember if you own something jointly, only put down your share. If you are well under 2 million, you will be fine.

5. @ Graham Vapors
   Your original 8854 is sent in with your final (2015) 1040 to Austin, plus a copy goes to Philadelphia. You can certainly be working on it right now though because you will need to know your asset inventory at the time of your renunciation date and that might be harder to do next year. Make a careful record of income and FBAR (FinCEN114) information up to your renunciation date. Then put it all aside and wait for the 2015 forms to be issued. I know the urge is to be done with it but the IRS always likes to prolong a person’s agony whenever possible.

6. Graham Vapors,

   EmBee gives you good advice. There will be a new form for 2015 available at the end of this year and that is the one you should use. This is from the 2014 instructions for the 8854 on the two copies required: http://www.irs.gov/pub/irs-pdf/i8854.pdf

   In most cases, you must file your annual Form 8854 by the due date for filing Form 1040NR, U.S. Nonresident Alien Income Tax Return, regardless of whether you are required to file Form 1040NR. If you are required to file Form 1040NR, attach Form 8854 to your Form 1040NR and file your Form 1040NR at the address in the Instructions for Form 1040NR. Also send a copy of Form 8854 to the address under Where To File below. If you are not required to file Form 1040NR, send your Form 8854 to the address under Where To File below.

   Where To File

   Send your Form 8854 (or a copy of your Form 8854 if you are required to attach the original to a Form 1040NR or a Form 1040) to this address.
   Department of the Treasury
   Internal Revenue Service
   Philadelphia, PA
   19255-0049

7. Oh, I see. I’ll be tense about this for a year, I’m afraid, anticipating that they will implement new rules. But again, I sincerely appreciate all the info.

8. Why would he file FBARs? http://hodgen.com/expatriate-without-filing-fbars-sure-thing/

9. I have a timing question regarding tax compliance and relinquishing. I am in the same situation as Fledermaus, received notice in Germany today, that my German naturalization papers are available for me. 5 weeks ago, before handing in my German application, I assumed I would be (1) waiting for the German assurance of citizenship, (2) would wait for a renouncement appointment…. Now I can relinquish. However…. I first found out about my US obligations last April and Streamlined 4 returns and 7 fbars. I seem to remember reading somewhere that it would be best to have 5 years of tax compliance before expatriating. Right now, I am a little confused because my goal was to remain ‘uncovered’. Would it be best to first file my 5th tax return in the next weeks before accepting my German citizenship?

10. @ pukekonz
    Good question. My husband filed all FBARs, including the FinCEN114 for the year of his relinquishment but only up to the relinquishment date. After that he said none of your business. Trouble is, the new electronic FinCEN114 had no way to indicate it was for a partial year. I’m not saying he did everything correctly but he did his best. Of course if an 8938 is required that is Title 26 whereas FBAR/FinCEN114 is Title 31. He has since changed his accounts so that account numbers they have on file are no longer valid. (Kind of like changing the locks after a home invasion.)

11. 3 muskateers your question isn’t entirely clear. Do the 4 yrs. you already filed include 2014? It isn’t obligatory to file 5 years before you relinquish . You can file 2014 after you take German citizenship. If that makes up 5 yrs, then you are set.

12. @3Muskateers, Duke of Devon is right. You need to file 5 years of returns to meet the requirements for the 8854 form which closes your US tax obligations once you’ve relinquished. But it doesn’t all have to be done before you relinquish. You can go ahead and make the appointment with the US embassy to relinquish, file the 5th year as normal and then do the 8854 form next year. It has to be filed by June 15th of the year following your relinquishment. Don’t forget that until Washington approves your relinquishment you’re still technically an American citizen anyway and it could take some months before you hear that the approval has been given.

13. Graham Vapors –

    You’ve had some fast-and-loose “advice” on valuing your house. Some Brockers manifest a persistent tendency to go fast and loose with how they would like the situation to be. It’s a human tendency. Even when facing a heartless voracious monster like IRS. Anybody would naturally like to construct a scenario that minimizes cost and hassle and maximizes benefit to self.

    The key issues are “good faith” and “fair market value.” Using an earlier property tax assessment without making adjustments is good faith and FMV if and only if you would have been willing and happy to sell your house for that particular amount on the specific date mandated by 8854. But property tax assessments tend (1) to lowball on realizable value (2) to be months out of date, which only works in a flat market. Only a tax cheat would fail to make those adjustments.

    It was hassle, I would rather not have gone to the trouble, but I wanted to feel able to stand squeaky clean if the IRS decides to strip search my final return. (PS: My conservative tax lawyer cautioned conservative me against a crude latching onto last property tax assessment, and I paid attention to that not-cheap advice. By the way, notice that advice in the preceding sentence is not fenced in with quotation marks.)

    So. Here was my methodology. Take the property tax assessment on whatever its particular date is. Take the local real estate index for that type of property on that same date, making good faith allowance for anomalies. (Most likely anomalies: land area less than or greater than standard lot size, house at tear-down or brand-new ends of spectrum, zoning different from standard. Do the ratios and get a multiplier that almost for certain should exceed 1.0. Then take that multiplier and apply it to the real estate index value at the date specified by 8854. Interpolate if necessary. End of recipe.

    Or just sail loosey-goosey into that goodnight and hope and pray you don’t get skewered. Knowing you lowballed it. Sleeping fitfully every night till your SOL expires. Which maybe it never can if you’ve frauded out on your failed exit …

    Sauve qui peut.
     

14. @Duke of Devon
    @Medea Fleecestealer says
    You are right, I was unclear. 2014 is my 5th return. I filed 2010-2013 last year. I wasn´t thinking clearly at 3 a.m. in my time zone… One is considered compliant if 5 years of returns were filed and paid up prior to the year in which the expatriating act took place… Got it. I´m good. Thank you for your patience.

15. usxcanada, wow, I appreciate you passing along that information. I would like to be certain that all the “i”s are dotted and “t”s crossed correctly, too. I tend to worry and I will be concerned about this until 2016 and beyond if I don’t make sure to do everything right.

    I was thinking I may call a real estate agent to give me a valuation.

    What do you think? Has anybody else here done such a thing?

    Again, much appreciation!

16. @Graham Vapors

    The only way the IRS can easily verify the value of your home is through your property assessment, so that should be all you need. There is no way on earth that two or three years from now an IRS agent will spend several hundred dollars to get a retroactive assessment of your home, especially if it is obvious that your net worth would still be under the $2,000,000 gouge threshold.

    I suspect an official appraisal might even raise a red flag, as appraisers have been known to inflate or deflate appraisal values based on the needs of whomever it is that pays their fee.

    When I filed my 8854 I actually the value of household goods etc. somewhat on the high side, as I suspected the IRS would never believe the real value. Not everyone owns the latest and greatest.

17. eh freeman, I understand. My net worth is far from two million.

    But in general, I tend to be the one-in-a-million that gets picked out of a crowd, so I like to cover all my bases. Worse, I’m actually planning to sell my home in a month or two, so the valuation should be pretty close to whatever the final sale price ends up being.

18. Do you have to itemize your assets and explain to the IRS how you came up with their values? The assessed value might be the easiest way to do it, but I agree with usxcanada that it’s not always reflective of its current value. It’s obvious that if property values have increased greatly since your last assessment you might just want to go off the assessed. Again, is an explanation necessary? Let’s not overlook the fact that we’re talking US dollars too.

19. I guess if the US wants to place a complaint to my Calgary property assessment used in my 8854, they can do that. I presume that the tax law and accounting firm I used knew what they were doing when they allowed for my 8854 the City of Calgary assessment of my Calgary property value. http://www.municipalaffairs.alberta.ca/1538.cfm

    (Really, I’m small fry and I don’t think the IRS / Treasury will care about my assessed value. But, the value of my property in Calgary increased substantially from the time I bought it in 1991 and is my most substantial financial asset — which I can’t buy groceries with as it is not money in my pocket.)

    I once had a real estate person ask if I wanted a low or a high assessment value of my property — so I wouldn’t place my trust there. A professional assessment likely costs some big bucks. Is it necessary? http://www.irs.gov/instructions/i8854/ar01.html

    Line 8
    …
    Column (b). Use the fair market value (FMV) on the day before your expatriation date. FMV is the price at which the property would change hands between a buyer and a seller when both have reasonable knowledge of all the necessary facts and neither has to buy or sell. If parties with adverse interests place a value on property in an arm’s-length transaction, that is strong evidence of FMV.

    Column (c). Generally, the cost or other basis in this column cannot be less than the fair market value of the property on the date you first became a U.S. resident. However, if you are a naturalized citizen or long term resident at the time you expatriated, you can make an irrevocable election to determine basis without regard to this restriction. Print “(h)(2)” after any entry for which you make this election.

    Column (e). Before you complete column (e), you must allocate the exclusion amount to the gain properties on a separate schedule. Attach a copy of the separate schedule to this form. To allocate the exclusion amount, determine the gain of each gain property listed in column (a) and enter that gain in column (d). If the total gain of all the gain properties exceeds the exclusion amount ($680,000 for 2014), then allocate the entire exclusion amount to the gain properties by multiplying the exclusion amount by the ratio of the gain determined for each gain property in column (d) over the total gain of all gain properties listed in column (d). After you have allocated the exclusion amount to the gain properties, subtract the exclusion amount allocated to each gain property from the gain reported for that property in column (d), and enter the resulting amount of gain in column (e). If the total gain of the gain properties in column (d) is less than the exclusion amount (but greater than -0-), then you must use the total gain amount as the exclusion amount, and you must allocate the exclusion amount, as adjusted, to the gain properties under the method described above. The exclusion amount allocated to each gain property may not exceed the amount of that gain property’s built-in gain.

    See Notice 2009-85, section 3B, for more information.

20. Thanks Calgary411

    That explains it very well. Almost too well.

21. Graham Vapors. I don’t know how long you have lived in Germany. All of this crap was aimed at wealthy Americans , having recently lived in the US , who either hid assets in foreign accounts or renounced to avoid US taxes. You don’t fit the bill. You will be fine. You don’t need to spend an excess of time or money on this. The IRS hasn’t the resources to bother you.

22. @Calgary411

    FYI, not only realtors can use a little diecrepency when evaluating a property’s value. When I was in real estate we used to let bank appraisers know the sale price of the property just to minimize any potential financing problems for the buyer, especially if the loan to value ratio was high. Nothing illegal here, just to say that appraisers can evaluate low or high depending on the circumstances and within boundaries.

23. No, wasn’t saying that realtors were doing anything illegal — just pointing out that their assessment, to me, means no more or less than the valuation the City of Calgary puts on our property here (on a yearly basis).

    My old (for this part of the country) 1908 house, in need of constant loving minimal care to keep it going and not leaking, is (in my mind) not worth what the City of Calgary says it is worth. If it were placed in the middle of the Prairies somewhere, lop off many hundreds of thousands of dollars worth of assessment. It’s all apples and oranges these assessments that we give to the USA and influences people who think we are wealthy because of our inflated assessment on the roof we have over our heads. If I were smarter, I might cash in and go live in a small Canadian prairie town, but this is my home and my community and what works for me better in the toss of the coin on what to do. For now!

24. @Calgary411

    I hoped you wouldn’t take my comment to mean that I thought you thought it was illegal

    And yes, there’s certainly more to a home tha a house, isn’t there. Maybe the US will think of some way to tax us on that too!

25. Just better clarifying what I meant for any readers. Perhaps the only accurate assessment is what that next buyer thinks and wants to pay for our property.