Renunciation and Relinquishment Questions – Part 1 of 2
Ask your questions about Renunciation here.
This thread will be focused closely on renunciation questions and answers. If the conversation starts to ramble, those comments will be moved to another thread.
Sub-topics (more will be added as they occur):
Farrell v. Tillerson. Plaintiff is contesting Bern Embassy’s rejection of his CLN application due to his not having appeared in person at the embassy and his having been issued a passport after the relinquishing act.
Previous Renunciation Threads:
Renunciation and Relinquishment of United States Citizenship: Discussion thread (Ask your questions)
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This thread is now closed. Please comment on Renunciation and Relinquishment Questions – Part 2 of 2
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“My main concern is whether the IRS can claim taxes on the sale of my Paris apartment, where I currently live.”
@Anna
It’s not clear whether you mean practically or according to US tax law. If the latter, then the answer is yes if the gain from the sale of your apartment, which I assume is your principal residence, exceeds (I believe) $250,000 USD; in that case you’ll be taxed on the amount that exceeds $250,000. If the gain is less, no tax.
This is one of the major sticking points for Canadians who are also USCs since Canada does not tax any gains on principal residence, and some locations in Canada have seen extremely large increases in the value of real estate.
Anna. They cant claim anything if they don’t know about your apartment. They won’t know anything unless you tell them.
So, today I emailed my forms per the instructions on the Paris embassy website. Waiting for their call to talk to me and set up the in-person interview.
I’m just a bit confused about the 8854 form. I know it is done after the interview, but I’m not clear if I actually need to fill it out or not. I’ve looked at it and I’m definitely under the 2 million threshold. So do I need to fill it out to make sure I get my CLN? If I do fill it out, I would not mention my apartment.
Anna, are you already in the US tax system?
You don’t need to file any tax returns in order to renounce and to gain your CLN.
Whether you file anything afterwards depends on your personal situation.
You are supposed to fill it in assuming you have been filing all along. If you renounce this year and if you choose to file your final forms, you would file a 1040, 1040 NR, and 8854 by the deadline next April.
The CLN is not dependent on filing any tax forms. You could renounce and not bother filing if you have no US ties that bind.
@Anna
If you have been filing US tax returns annually then it may be better to finish off filing the 8854 to officially check out of the irs system especially if you are below the covered status. You would need 5 years of 1040 + part of the year you renounce plus 6 yrs of fbars, the 8854 asks if you have complied with this requirement. If you haven’t been filing and you are not in the system, there would be little to gain by filing now. Getting your CLN does not depend on your past tax filing situation
PS @Anna
If you haven’t yet sold your apartment (and made a gain above $250,000 ) it will not matter if you mention it or not.
The only time ‘unrealized gains’ are taxed is if you have a net worth of above 2,000,000. Even if you are above this mark, you are allowed to have approx 699,000 in unrealized gains before a 15% tax is assessed.
Thanks Heidi for your advice. I have been filing taxes but why do I need to clean exit?
Could they decide not to send me the CLN? My apartment is not sold yet. By the time I sell, the gain could be more than 250K, but I am definitely under the 2,000,000 mark.
Also, I have zero assets in the States. So again, is there any legal reason I Have to file the final forms to exit from IRS? I never owed them a penny, except the year I had to close out my IRA and pay the penalty for early withdrawal, @ 6K
Thanks also to BirdPerson and Portland, and Jim R!
Your comments are very helpful and I must say it was big news to me to learn that renouncing at the Consulate (DOS) is separate from IRS tax liability issue. I felt suddenly liberated! And I haven’t even renounced yet.
Do I really have to file the final exit forms with IRS after I renounce? I never owed anything! What’s the worst that could conceivable happen? PS My husband is American but is staying under the radar.
Anna–I’ve never filed a US tax return in my life. I renounced in September last year, and I’ve decided not to file anything now. I have no US income or assets, and I’m a financial minnow. I’m not worth the time, money, or effort of the IRS, nor does my country (UK) have a collection agreement with the USA. I confidently expect precisely nothing to happen.
You could decide not to file anything further and, if your situation is like mine, I believe nothing will happen to you either.
On the other hand, if you’ve been filing, you could take the attitude that you’ll see the whole process through for peace of mind. Others have made this decision as well.
@ Anna,
No, they don’t even check into that. It’s not a requirement for renouncing citizenship.
As far as your citizenship status and CLN, no. If you do not file, your citizenship remains renounced and your CLN remains valid. More information on this page: Interactions between Department of State and Internal Revenue Service.
Ok, I think I get it. I’m a minnow they shouldn’t care about. I’m just so fed up with their supposed claims over me. Tired of FBARS and increasingly complex tax forms to fill just to say I owe nothing. I’m so ready to get out!
Thank you!
This article had a big influence upon my decision.
https://renounceuscitizenship.wordpress.com/2014/12/31/are-americansabroad-members-of-club-usa-or-owned-by-club-usa/
@Anna
“What is the worse that could conceivably happen.”
If you don’t file the last forms and the 8854, you will not ‘officially’ be checked out of the IRS tax system. As you have been filing before , you could receive a letter from them, but highly unlikely as you are a minnow , don’t owe anything and they are unable to collect anyhow . It seems to me that as you have been filing and are not over the 2,000,000 mark it would be relatively simple to send them the last 1040 and a simple 8854 so you could check out and not be classed as a ‘covered expatriate’
If you do decide to file those last forms, then you calculate your net worth as it was on the day before you renounce,( not when the 8854 is submitted. )
I would imagine that you would not have sold your flat before renunciation, so-no capital gains tax would be owed even if you did make more than 250,000 after renunciation.
Anna. 200 million tax returns every year . Outdated systems and no staff. Bird Person has the right idea. Now you know your CLN will be issued regardless… as Dan said, ‘don’t tell them anything they don’t already know. Or time for an old IBS favourite. https://m.youtube.com/watch?v=kjHDwiBdxok
Love it! Yes, IBS is my kind of place. For years I have been so outraged by how the US treats us citizens abroad.
Thank you for helping me realize I’ve been too brainwashed to comply.
@Anna
Terry Gilliam the ‘once’ American of Monty Python Fame , understood the situation long ago and renounced his citizenship back in 2006 (before the exit tax ) as he perceived his non US wife would be liable for a huge estate tax bill.
PS Anna
There is one more consideration to renouncing without filing the 8854 and being labeled a covered expatriate in IRS eyes and it would be amiss of me not to mention it.
If a covered expat has any American children heirs then it is stated that there would be a 40% tax levied on that estate above aprox $60,000. Having said this there is of yet no provision to assess or collect this as the question of “ is the estate from a covered expat?” Is not asked on the report of estate and gift tax form that the US heir beneficiary must file with the IRS when receiving such an inheritance.
Thank you again Heidi. Incredible how complex this all is. I have two Franco-American daughters so any estate tax on me is obviously a concern. It would be nice to think the French authorities would not let the IRS get a piece of my small potatoes. Anyway, I am starting to advise my young adult daughters (both living in Paris) on the subject of US taxes.
I have possible heirs in the USA, but as I’m only 52 and hope to live many more years yet, I don’t worry about it. I should think those heirs would tick ‘no’ on a box about ‘covered’ even if the form is ever updated. My net worth is very small, as would be any inheritance, so they’ll assume I wasn’t. No one will check up on whether I’d filed tax paperwork, not if (as I hope) I live another 30 years or so.
@Anna and BP
It’s amazing how short sighted the lawmakers are in their nastiness. I would think that this sting in the tail would either encourage US heirs to renounce or for the benefactor to find another heir or charity for their estate!
Apparently it states it is up to the beneficiary to find out if the estate is covered or face a further penalty, but how on earth would beneficiaries have access to that knowledge if they were never informed?
It seems to me to be unenforceable, perhaps that is why the question has not yet appeared on the US gift tax form!
Hope someone can help – hope this is in the right section. I’m freaking out over this and feel quite ill. On the renunciation form that I’ve been looking at it asks what passport is used at U.S. Passports? When entering the U.S. I used my U.S. passport and returned on passport of my other country. I also changed the advanced partner info with airline so that it would match passport presented at check in desk but always showed my U.S. Passport at security lines. Would i be able to renounce? I’m visiting U.S. this year and will be using my U.S passport without changing any details with airline. I feel very ill over this.
@ Purpleflower,
Re” “Would i be able to renounce?”
It is no problem if you use your US passport before you renounce.
A problem about using a US passport would arise if a person were claiming to have relinquished their citizenship by another relinquishing act (such as by naturalising in a foreign country), seeking a CLN based on that act, but had used a US passport in the interim.
In your case, if you will be renouncing, it doesn’t matter that you use it before renouncing.
That’s the issue – I think when I renounce / relinquish I’ll be claiming it on the basis of having lost it years previously when obtaining another citizenship. Is there a difference between relinquishing or renouncing? Also, on the form it asks about dates as a resident of US – do visits count as being a resident?
@ Purpleflower,
The terminology’s a bit confusing. People tend to refer to renunciation as renunciation, but refer to all the other methods as relinquishment.
There’s 7 ways to relinquish one’s citizenship. Section 349(a) Immigration and Nationality Act.
Renunciation is of the 7 ways. It’s the only one where the relinquishing act and notifying the US govt of it occur simultaneously.
https://www.law.cornell.edu/uscode/text/8/1481
Visits generally don’t count as residency. A “visit” could be considered residency if it extended for some length and the person acquired residential ties during it – not your typical vacation or family visit.