Renunciation and Relinquishment Questions – Part 1 of 2

594 thoughts on “Renunciation and Relinquishment Questions – Part 1 of 2”

1. @ByeBye
   That is very kind of you. We are retired and live in the French speaking area but sometimes drive to see my nephew in Zurich or my sister in Freiburg Germany, maybe we could manage a beer sometime!
   I just remembered that one drawback was Luxembourg did require two appointments but they could be just a couple of days apart. This may have changed as many embassies now have moved to a one appointment renunciation.
   Do keep us informed how you get on and best wishes for your new arrival.

2. @ByeByeUSA

   Thanks for your offer. I will let you know if we get anywhere close to that part of the world this year.

3. @Heidi: We live on the opposite side of the Röstigraben :). Coincidentally, we are driving to Spain on Saturday 10 July to enjoy the beach, so we can meet briefly if you are relatively close to the A1. If you are available, I can try to ask the moderators to forward my e-mail address to you and we can communicate that way.

4. @ByeByeUSA,
   I’m a moderator, so I’ve forwarded your request.

5. @Pacifica777 Thanks for forwarding my private e-mail address to Heidi and many thanks to you and the moderators for putting together this amazing website. I have been reading the content for years and I find Isaac Brock the most authoritative and useful resource on this topic. The amount of actionable and detailed information is far better than all the Big Fours and various tax experts combined.

6. @pacifica777
   I think the email address that Brock has for me is an old one that is now defunct. How can I give you a new one without publishing it here?
   @byebye
   We had the same idea as you except we have traveled to the South of France so we are away at present. Another time perhaps

7. @ Heidi,

   Thanks for posting your “okay” to share your e-mail address with ByeByeUSA.   If you e-mail me at pacifica at isaacbrocksociety dot ca , I’ll send your address to them (and I’ll send you their address as they’ve given me the okay in their 3 am comment).

8. @ Heidi,

   Would you confirm you sent me an e-mail today? I got one, but something puzzled me slightly about it. So, I’d like to sure it was from you, before acting on it. You could just indicate yes in a comment below. Thanks very much.

9. @pacifica777
   Yes, new email was sent to you. Thanks for checking.
   Do I comment with new email or old one?

10. Thanks, Heidi. You can continue with your old e-mail or change it, whichever you’d prefer.

11. A question and a thought experiment concerning renounciation without following the tax expatriation procedure, inspired by a question I saw elsewhere.

    Question:

    Is it the case that upon renouncing US citizenship, all future US tax obligations cease, regardless of whether one “closes the file” by filing Form 8854 and all that? Ye olde Google search isn’t super helpful here. Most of the tax prep firms say that one “must” be compliant to renounce anyway, so the point is moot; in a few cases I’ve seen firms say that all future obligations cease upon renunciation, but I wouldn’t necessarily believe that either.

    The consensus around here is that future obligations cease upon renunciation, not upon tax expatriation. Has anyone seen an actual legal source to back that up? I suspect that US law itself is not clear on the subject.

    Thought experiment:

    Related to the above, but a specific case involving the possibility of collection. Imagine the following scenario:

    – A dual Belgian-American citizen moves to Canada, becomes resident, does not acquire Canadian citizenship.
    – Under the current tax-treaty provisions, the IRS could request that CRA assist with collections against this person because they are not a Canadian citizen.
    – This person renounces US citizenship; they are now exclusively a Belgian citizen with residence in Canada.
    – From this point forward, can the IRS expect assistance from CRA to collect any outstanding past US tax debts, from a former US citizen? The tax treaty doesn’t include this scenario.

    Yes this is a compete outlier and never likely to occur, but it might be an example of a situation where renouncing does actually protect one from collection; it differs from the case of a Canada-US dual citizen in Canada, who is already protected from collection without any need to renounce.

12. @Ron Henderson
    When you are no longer a US Citizen “abroad” then you are a nonresident alien, and are only subject to tax on US sourced income. See https://www.irs.gov/publications/p519. Form 8854 is used to avoid being a covered expatriate (with potential tax consequences for some). The first point is however valid regardless of whether or not form 8854 is filed.

    Interesting question regarding collection assistance. They way I read this is that if the IRS has a claim for unpaid taxes from a resident of Canada then whether or not that resident is also a US Citizen has no relevance in terms of collection assistance. From the treaty: “a revenue claim is finally determined when the applicant State has the right under its internal law to collect the revenue claim”. A nonresident alien could for instance have a tax liability to the US for US sourced income, which the IRS would then have a legitimate claim to.

13. @Ron Henderson

    IANAL / this is not legal advice etc. etc. but my own interpretation of the law is that renouncing, indepenendent of whether or not one files 8854, stops any future tax liabilities which would arise solely because one is a US citizen (so obviously it wouldn’t stop obligations any other NRA would have, or which would arise if you became US tax resident again in the future) or which arise purely as the result of being a covered expatriate *. Past tax debts are not really “future” obligations in this sense, so I would not expect protection against the collection in your example.

    I also believe that the only thing filling 8854 does is that it stops you from being a covered expatriate** if you meet the requirements for this along with preventing the $10,000 fine liability. But it does not to my understanding really “log you out” in any meaningful way, i.e. it doesn’t really impact future obligations (as I said above) other than those incurred by other covered expatriates etc..

    My reasoning for this would be that the IRS defines “US person for tax purposes” in a certain way (e.g. includes any USC or PR), and that unless some provision explicilty says that someone who has not filed 8854 is still a USP for tax purposes we should conclude that you are not a USP once you renounce. The 8854 instructions say explicitly that you are considered to have lost your USC on the date that you renounced before a consular officer (different rule applies for reliquishers). But I would love to hear from someone who thinks otherwise.

    * The pre-2008 expatration regime had a different set of rules which imposed a 10 year filing requirement of some sort so these would also apply to people who renounced within the period that these were in force
    ** I’m aware of the Phil Hodgen article which argues that failing to file 8854 might just put you in some grey area rather than automatically making you covered but it’s safe to say that article is at least legally controversial.

14. @ Ron Henderson,

    Re:

    “- A dual Belgian-American citizen moves to Canada, becomes resident, does not acquire Canadian citizenship.
    – Under the current tax-treaty provisions, the IRS could request that CRA assist with collections against this person because they are not a Canadian citizen.
    – This person renounces US citizenship; they are now exclusively a Belgian citizen with residence in Canada.
    – From this point forward, can the IRS expect assistance from CRA to collect any outstanding past US tax debts, from a former US citizen? The tax treaty doesn’t include this scenario.”

    Canada-US Tax Treaty, s. XXVI A (8):
    “No assistance shall be provided under this Article for a revenue claim in respect of a taxpayer to the extent that the taxpayer can demonstrate that: (a) where the taxpayer is an individual, the revenue claim relates to a taxable period in which the taxpayer was a citizen of the requested State;”

    My understanding is that CRA will not assist in collection of tax debts which arise after the Belgian-America becomes a Canadian citizen, but the mutual assistance clause remains a tool that can be used by the US in collecting tax debts which arose prior to them becoming a Canadian citizen.

15. @RonHenderson: I have not seen any authoritative legal texts, but I am inclined to agree with the other answers. Ultimately, legal texts do not constrain the rapacious US and IRS from trying to collect, so I focus on the practical constraints. The US just invents the rules as it goes along.

    In Switzerland’s case, tax evasion is a misdemeanour, which means none of the local extradition/judicial support treaties would take effect. Tax fraud, which under Swiss law includes things like forging documents, is potentially a felony and may trigger requests for assistance.

    On a practical level, Switzerland would not try to collect from a Swiss citizen who happened to be a former US citizen who has already renounced, even if this ex-citizen had incurred unpaid tax debts. The tax debts would also be time barred over time when the statute of limitations kicks in. Ultimately, I think renunciation, will afford some protections on the non-US side of the equation even if one did not file the requisite forms or potentially had unpaid taxes.

16. Thanks everyone for the feedback.

    1. I think it’s pretty clear that one becomes NRA at the moment of renunciation. There can be no future US tax obligations beyond those of any other NRA, typically from US income sources only. Seems fairly straightforward. Also important to remember (thanks Phil Hodgen) that Form 8854 is intended only to determine covered or non-covered expatriate status, and failure to file it does not preserve US person status from a tax perspective.

    2. I should have been clearer, I was referring to the Article 26 type of collection assistance available in Canada and four other countries (Denmark, France, Netherlands, Sweden) rather than more general tax treaty provisions in other countries. Under this regime no collection assistance is provided to the IRS if the US person in question has citizenship in their country of residence. In my example, this person would not be a Canadian citizen, but they would also not be a US person after renunciation, so would the Art. 26 provision for collection assistance apply at all in this case? (The provision that excludes from protection debts incurred prior to becoming Canadian would not be relevant here.)

17. “Also important to remember (thanks Phil Hodgen) that Form 8854 is intended only to determine covered or non-covered expatriate status, and failure to file it does not preserve US person status from a tax perspective.”

    The other purpose of Form 8854 is to calculate the amount of the exit tax if the person is a covered expatriate. Any well-heeled, sensible person would arrange their financial affairs before renouncing so as to avoid covered status and in such a situation it might make sense to file Form 8854 to officially log out of the US system.

    I find it hard to believe that there is actually a wealthy person silly enough to file Form 8854, prove themselves “covered”, and purposely create a large exit tax liability for themselves.

    For the rest of us, of course, the amounts involved are so small that its not worthwhile for the IRS to pursue it at all.

18. Since we’re talking hypotheticals here, I’d like to pose one about 8854 and covered expatriate status. Particularly this comment:

    Also important to remember (thanks Phil Hodgen) that Form 8854 is intended only to determine covered or non-covered expatriate status, and failure to file it does not preserve US person status from a tax perspective.

    So 8854 only determines covered status. What if you would be “covered” but don’t file 8854?

    What if, because of insane and obscene rises in property value, my home is worth over US$4 million at the time of my renunciation? No intention to sell, thus no capital gains involved. But as an asset, divided between hubby and me, that’s $2 million each, to add to our other resources (stocks, bank accounts), putting us both into “covered” territory (And if the threshold is higher than $2 million now, then simply add 50% to the numbers above).

    Filing 8854 in that case would be self-incriminating and costly. But if I renounce without 8854, no one would be the wiser about my assets. We do file 1040s and will likely continue to do so after renunciation, due to royalty income my husband receives from a US source, but that’s based on income, not assets, and especially after renunciation, it will be a simple filing, reporting only one income source, no deductions. Will we be treading dangerous ground by not filing the 8854?

    I ask not because this is or will be definitely the case, but if property keeps going up here at the same pace, by the time we’re ready to cast off the chains, we could feasibly face that situation.

19. @ Barbara

    Here’s an excerpt and link to a Phil Hodgen post, which I think is the one Maz was referring to.

    https://hodgen.com/filing-form-8854-late/

    “IRC § 877(a)(2)(C) says an expatriate will be a covered expatriate unless he or she certifies full compliance with tax obligations for the previous five years. There is no equivalent hard-wired provision in the Code for time deadlines.
    IRC §877(a)(2)(C) makes the certification a prerequisite to avoiding covered expatriate status. Notice 2009-85 appears to require the certification to be a timely certification.
    The government will, of course, demand action by the stated deadline. But Notice 2009-85 is silent on the consequences of missing the deadline. In order for the IRS to impose a penalty of some kind, there would need to be statutory authority granted. There is no authority in the Code (that I know of) that punishes a late certification with a permanent flip in status from expatriate to covered expatriate.
    I believe this is simply a hole in the law. No one has thought this question through yet. Until we see action by Congress (in the form of revisions to the Internal Revenue Code) or by the Treasury Department (in the form of Treasury Regulations), we have no answer to the question.
    . . .
    “Form 8854 is required for two different reasons:
    • Covered expatriates are required to file Form 8854 to provide a raft of information specified in IRC §6039G, because they are people “to whom Section 877A applies”.
    • Noncovered expatriates and covered expatriates alike are required to file Form 8854 because they must tell the IRS whether they satisfied the net worth test, the net income tax liability test, or the certification test.
    • Covered expatriates who file a late Form 8854 face a $10,000 penalty at worst.
    • Noncovered expatriates who file a late Form 8854 face ambiguity. But arguably there is no legal basis (yet) for the IRS to impose a financial penalty, or to convert a noncovered expatriate into a covered expatriate.”

20. @Barbara

    One might also file Form 8854 and undervalue one’s non-US property such that remained under the limit for a covered expatriate. It would require some fairly intense suspicion on the part of the IRS to actually investigate and assess property values, and if you have no US assets after renouncing, the only thing you’d need to potentially worry about are those royalties.

21. Hello again,

    As I stated previously, I plan to renounce without filing anything as till last year I was not even aware of obligation to do so…

    Fortunately I found my US birth certificate (with middle name “Marcus”) and also an erroneously issued copy written in my home country language (middle name “Markus”) .

    I guess I’ll take both to the embassy and explain that CLN needs to be issued on the name that is visible on all my ID’s.. That is the only way I can think of and I hope they comply.

    I have another question, although I have no ties to the US, I might be obliged to visit the land in the future, either for work purposes or strictly for a few weeks road trip to see some interesting landscapes US has to offer.

    The problem is, will I be allowed to do so after I renounce and become a covered expatriate? (My net worth is very, very much below the threshold of the exit tax though)

    Is there a possibility they refuse my application to travel and stay there for a couple weeks? (my country is in a visa waiver programme, if it matters)

    Even if permission is given, could I be sent back home from US border, or even worse, forced to pay some penalties mentioned above (ex. 10 000 $)?

22. I think this is a sensible approach. Ask the consulate if they’ll do it in the name that you want. Better yet, fill out all the paperwork with the correct name and say nothing unless asked. If they want to use the incorrect spelling and it’s only a matter of one letter difference I imagine it’s not going to cause problems. Remember that the primary purpose of a CLN is to convince banks that you are not a US person, nothing more. Worst case, you need to bring all those birth certificates and other documents to a bank to explain the situation.

    As far as travel to the US is concerned, once you renounce you will be treated the same as any other citizen of your current country. This means that there is no guarantee of entry, but there doesn’t seem to be any special singling out of former citizens either.

    You don’t need to worry about your tax status. If you’ve read some of the recent posts on this thread, the argument is that covered expatriate status is not determined until you file Form 8854, so if you don’t file Form 8854, they can’t determine if you’re a covered expatriate or not, so they can’t figure out how to assess the fine for filing late. Catch-22! On a more practical level, the US government doesn’t appear to care about this because 40 percent of those who renounce never file the thing and the IRS makes no effort to follow up.

    Finally, US visa and border officials do not have access to tax records. The only way you’d be in trouble on arrival is if you owed so much money that you’d been flagged for a special collections program, or if there was an actual warrant out for your arrest. A customs and immigration official won’t even know what “covered expatriate” status means – for that matter, neither will most IRS employees.

23. Thank you very much for your responses Ron. I am much less worried now.

24. Adam, just to let you know that I renounced in 2018 without filing any US tax returns. I entered the USA on an ESTA a month later, without any problems, and in 2019 I obtained a 10 year visitor’s visa (I’m no longer eligible for an ESTA because I visited North Korea in 2016) and again without any problems.

25. @BirdPerson: Thanks a lot for sharing this, great to know.

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