Renunciation and Relinquishment of United States Citizenship: Discussion thread (Ask your questions) Part Two
Ask your questions about Renunciation and Relinquishment of United States Citizenship and Certificates of Loss of Nationality.
Participants will need to provide their e-mail address (real or fake) and an alias. The only written rule is that participants must use a same alias each time they post (and not “anonymous” or derivatives thereof).
Bear in mind that any responses that you get from participants is peer-to-peer help, and it is not intended as a replacement for professional advice. Also, the Isaac Brock Society provides this disclaimer: neither the Society nor any of its members are professionals. We offer our advice here only in friendship and we recommend that our readers seek professional advice if they need it.
If you wish to receive an e-mail notification of comments, check the box to that effect when making your first comment.
NB: This discussion is a continuation of an older discussion that became too large for our software to handle well. See Renunciation and Relinquishment of United States Citizenship: Discussion thread (Ask your questions) Part One
@monalisa1776, no ‘future’ about it. US policy is to use pensions as way to prevent current expatriations.
@usxcanada, for avoidance of doubt, the $0 figure being bandied about is what to write for the basis in retirement savings, not the current value for determining asset for exit tax purposes. The latter remains the actuarial present value, whether real or extrapolated from some future income stream. Since the basis won’t enter into the tax calculation for exit tax on pure pre-tax retirement savings — that is, that type most folk have — anything entered as basis for retirement savings is going to be irrelevant.
It is, frankly, outrageous that the US includes retirement accounts in the exit tax. It leads to punitive tax at paid at higher rates, earlier than would otherwise be paid, and quite possibly double-tax when withdrawals actually occur (the exit tax tramples tax treaties with countries such as the UK, where the country of residence has primary taxing rights). But as we’ve observed over and over, signing tax treaties and then ignoring them is simply business as usual for the US congress.
@Watcher, I still worry because I have open statutes of limitations on my earlier tax returns involving complex PFIC issues. I am scared that my renunciation will have raised red flags; the IRS could audit me and disagree with my accountant’s calculations and thus try to argue that I was not five years tax compliant and deem me still a covered Expat…I will not feel safe for at least another three years.
It seems obvious to me that the IRS will be able to use FATCA as a weapon to punish even minnows, especially minnows renouncing. Many, if audited, will be accused of not being fully compliant, especially as they could use obscure omissions such as not filing the foreign trust form 3520 or 8621 for PFICS to hammer them with the penalties on their pension schemes.
The PFIC issue was why I was originally not going to consider renouncing until after all the relevant statute of limitations had closed. It’s also why I’m still too scared to go public and openly protest like some of the other Brockers. :'(
Re pensions and the 8854: I thought the info from Phil Hodgen was that you figure pension value as if it were a gift or an amount that would be part of your estate after death. Since Social Security can’t be gifted or inherited, it isn’t included. I’d guess a final salary benefit that dies with you is the same, but one that has a cash equivalent transfer value is reported. So a defined benefit scheme is reported, and any pension that is a fund with cash value is reported. I’m not sure this is the case, but that’s how I read PH.
@Watcher: Prior to renunciation, there is not much one can do about an RRSP or pension plan in one’s list of personal assets. However, as a US citizen, one can:
* give a gift (in 2014) of up to $143,000 (annual gift-tax exclusion) to a non-US spouse PLUS
* draw down into one’s lifetime gift-exemption of $5,340,000 (again, transferring assets to a spouse or other family member – – or, actually for that matter, anyone – – it’s just that transferring for example a home or a certain amount of one’s stock investments to a spouse is something worth thinking about.)
You may need accounting and/or legal help to make sure this is properly documented, but better to pay a couple experts than to fall into the IRS grasp of becoming a “Covered Expat”.
After renouncing and then preparing the 8854 and 5 years back of forms, it it necessary to file 5 years worth of 8891 forms for Canadian RRSPs or just the one last year (or current year) per suggestion by Phil Hodgen in Toronto a couple weeks ago when suggested to just begin filing the 8891 forms this year going forth? Is this filing for just one year 8891 form ok from the “5 years filing” check on the 8854?
Will all the world need to get an “Anti-Passport” to protect themselves from being deemed a ‘taxable person’ by the US?
http://opiniojuris.org/2014/05/12/fatca-need-anti-passport/
“…… Problem is, how do you show you’re not an American?
If you are clearly an American (if, for instance, you were born in US territory), there is a definitive route to losing your citizenship and having it documented. You formally renounce your citizenship before a consular officer (or otherwise demonstrate that your citizenship has been relinquished). A Certificate of Loss of Nationality is your reward. That should do the trick with local bank officers on the lookout for US depositors.
But what if you’re not sure whether you are American in the first place? Foreign banks are erring on the side of caution. Suspected Americans are to be avoided. Local bankers are assuming citizenship by association. Where they know one family member is a US citizen, they will assume the worst of others, especially parent/child. Banking in Europe remains a more personal, service-oriented business than in the States, so it will not be uncommon that the connections are made. …..”
I’ve been alarmed by the suggestion that an expat who has renounced/relinquished may have to prove to their FI repeatedly that they are no longer a USP for the purposes of FATCA, or that those merely associated with one may be challenged to prove that there is no US taint by association. I don’t see why a former USP – who by definition no longer has any relationship with the US however tenuous or vestigial, should have to carry and produce a CLN with them forever when doing their normal banking where they live, or with their non-US passport when travelling.
That creates yet other categories of discrimination – against those who were FORMERLY deemed a USP (will we need a pardon process in order to expunge our crime?). And for those merely related to or associated with one?
Again, the concept of having to prove a negative is being explored. Knowing that US citizenship can be passed through descent but not enough to be experts in another country’s citizenship rules, it only makes sense that the banks will error on the side of caution, doesn’t it? In the absence of punishment for using ambiguous indicia as evidence of citizenship, it will be difficult for the banks to resist.
badger,
And, for those of us who (have the audacity to) speak out (thinking of my family’s situation), our names out there, we will be duly punished for not shutting up, staying quietly in the corner, not to be noticed and perhaps magically overlooked, our “free speech” the noose around our children’s neck — or at least the US being able to dip into whatever eventual inheritance from the parent or someone else on their behalf who dares speak out.
Again I ask, what will the Canadian government do to protect our most vulnerable. This is the second and abbreviated submission that I sent for today’s and tomorrow’s Finance Committee reading and thinking about. I surely hope it does not get “lost”! Carol Tapanila Addendum – Summary to Original Submission to Finance Committee, re Bill C-31
@AnonAnon – The instructions on 8854s prior to June 4 2004 AJCA changes (i.e under the Feb 5 1995 – June 3, 2004 HIPPA rules (state that someone who relinquishes citizenship doesn’t have to file an 8854 until they sign a DS-4079 (assuming a CLN is issued.) Nonetheless, their tax expatriation date and liability terminates on the day of their CLN.
See an older 8854 form (as an example). http://www.irs.gov/pub/irs-prior/i8854–2003.pdf
“The date of your expatriation is either the date that your
certificate of naturalization was canceled by a Federal court
or the date that you, with the intention of relinquishing your
citizenship, voluntarily took one of several actions. —
Hi All, and many thanks for all of your hard work in contributing to this site. I would like to see if anyone here has an opinion on my status, which is as follows:
1. Born in the US
2. Left the US before ever filing a tax return, so I have never filed, and have lived abroad for decades
3) Took on citizenship of another country 25 years ago
4) Am married to a foreign national, and of course live abroad.
So, my question relates to renunciation. I can’t see how I can relinquish, as I have renewed my US passport AFTER I gained my second nationality?
As I have never filed a US tax return, my VERY strong preference would be not to do so. But if I walk into my local consulate and say I want to renounce, my ONE ambition in doing this is to acquire the Certificate of Loss of Nationality, without which the torture of trying to even open a foreign bank account will continue.
I have read on one website that even if you are NOT “tax compliant” that you will nonetheless get the CLN, but could have problems if you try to enter the US (which I have no interest in ever again doing).
But from reading this site, I am now a bit confused. Can you renounce in an embassy, and still be denied the CLN if you decide to simply NOT file a series of returns?
Many thanks
DEdem,
You will not be discussing your plans for filing tax returns at your expatriation appointment, whether it is a renunciation or claiming a relinquishment. (Yes, you are likely correct that you would not be eligible to claim your relinquishment since you got a US passport after the fact of obtaining another nationality.)
No one, of course, can know what will happen down the line. Those on this site nor any other don’t, for sure; neither does any US tax lawyer or anyone you direct questions to within the Department of State — or the IRS. We know what can and is threatened. We do not know exactly what threats will be carried out.
What is more apparent is if you do not file Form 8854 after your renunciation, certifying that you have met all of your tax return and reporting responsibilities, the US will consider you a “Covered Expatriate” and all that defines. As well, considering that you do not want to file any US returns, your decision to stay on your side of whatever border is wise.
@D Edem
I don’t think you can be denied a CLN on that basis. Are you in Canada, by chance? I ask because in The Canadian government will not collect US tax and penalties on behalf of the US government if you were a Canadian citizen when the liability occurred. One thing that hadn’t occurred to me until now is that there is no statute of limitations on how far the IRS will go back in auditing those who’ve never filed a US return so they could feasibly go back it prior to becoming a citizen of another country is they wanted to be real mean. Question is, how mean they’ll get if you renounced without certifying 5 years of tax compliance. I don’t think you’ll be alone, though!
@ D Edem,
No, you can’t be denied, as the CLN and its validity is not dependent on whether one files taxes or not.
A person can renounce although they are not up to date with taxes or have never filed taxes. Dept of State deals only with the citizenship itself; and citizenship, or loss of it, is not dependent on one’s tax status. Basically, they don’t care if a person has been filing taxes or not.
Dept of State:
Dept of States’s only involvement/connection with tax is the following:
(1) At the consulate the person signs DS-4081, Statement of Understanding of Consequences, One of the 12 items is Item 10, that renouncing “… may not exempt me from US tax income taxation [etc] …”
(2) Dept of State is to provide IRS with a copy of each CLN they issue as per DoS Interagency Coordination and Reporting Requirements.
(3) The questionnaire. DS-4079, at q. 13 (e) asks “Do you file US income or other tax returns?” DS-4079 is used to determine if a relinquishment actually occurred when the person claims it did. [DoS does not require the 4079 for renunciation, but allows consulates to use it for renunciation files as well, if they wish. So, some consulates use the 4079 for renunciations and some don’t.]
The tax question on the DS-4079 is there as an indicator of your ties and connections to the US, which is important if you’re claiming to have relinquished some time ago. But it has no relevance either way to a renunciation.
IRS:
For IRS purposes, one has until June 15th of the year following the expatriation to certify that they have been tax compliant for the five years previous to renunciation. This certification is a yes/no question on the exit tax form (8854), which reads: “ Do you certify under penalties of perjury that you have complied with all of your tax obligations for the 5 preceding tax years?”
If a person does not do this, it does not affect their citizenship status. It can result in IRS problems, such as being considered a “covered expatriate,” that is subject to exit tax, and possible other IRS problems. However the citizenship remains terminated and the CLN remains valid.
@D Edem, no they can’t refuse you a CLN because you haven’t filed tax returns. It’s not the job of the embassy or State Department to check on your US tax status. They may remind you at the embassy that you may have tax obligations to fulfill, but that’s all they are legally entitled to do.
Have you used your American passport much since you gained your other nationality? If you haven’t, then you might be able to make a case for relinquishing in that you intended to relinquish your American citizenship when you gained the second one, but got a new US passport under duress because you knew you had to have one to cross the US border. Did you serve in the armed forces at all? Work for the government in any capacity?
“(3) entering, or serving in, the armed forces of a foreign state if
(A) such armed forces are engaged in hostilities against the United States, or
(B) such persons serve as a commissioned or non-commissioned officer; or
(4)
(A) accepting, serving in, or performing the duties of any office, post, or employment under the government of a foreign state or a political subdivision thereof, after attaining the age of eighteen years if he has or acquires the nationality of such foreign state; or
(B) accepting, serving in, or performing the duties of any office, post, or employment under the government of a foreign state or a political subdivision thereof, after attaining the age of eighteen years for which office, post, or employment an oath, affirmation, or declaration of allegiance is required;”
Whether you end up filing or not may depend on which country you live in. Here in Switzerland the banks, having already been hit by the US with heavy fines, are requiring clients to prove that they are US tax compliant which means providing proof of entering one of the Overseas Voluntary Disclosure programs, providing copies of FBAR and 1040 tax forms as well as having a CLN. I doubt other countries will go to such extremes, but each country’s banks seem to be dealing with FATCA in different ways.
@D Edem
What you have to know is that once you have filed for a CLN, they will know your identity. That will be the end of travel for you if you don’t pay your back taxes – because most other countries will arrest you and deliver you to the United States. Could you live with that? Also- the future is unknown and the consequences could keep changing.
@Polly, I doubt that very much. Yes, there could be problems if he travels to the States and happens to owe a lot of back tax. But if he hasn’t filed how would they know what he could possibly owe? I know of no country that has extradited anyone for owing tax to the US (though the IRS have tried). Certainly no one who the US can’t even prove owes them anything! Unless he’s a billionaire like Eduardo Saverin, they wouldn’t bother to go through a lengthy and expensive process for potentially no gain.
I agree with Medea, “… they wouldn’t bother to go through a lengthy and expensive process for potentially no gain.”
Extradition is a costly and complicated international criminal law process.
I think that even in a US court, they’d have a hard time to get a tax evasion conviction against a non-resident such as “Joe Minnow” with no ties to the US (prove criminal intent beyond a reasonable doubt). I’m not aware of any such cases having occurred (whether resulting in conviction or acquittal). And with the all the researching so many participants on this site are doing on the internet every day, I think that had such actions been taken, we would have become aware of them.
They also don’t seem to be going into international civil collection actions against non-resident “Joe Minnows” with no ties to the US, once again due to the cost and complexity of such actions. So, I don’t see them going the more difficult criminal route.
If they’re not pursuing non-resident “Joe Minnows” civilly, I don’t see them doing so criminally, with the higher burden of proof, where instead of having to prove a civil offence “on the balance of probabilities,” they’d have to prove criminal intent “beyond a reasonable doubt,” and in either case having most likely nothing to gain from it.
I’m not saying I think that people should just blow off the IRS — I think that everyone should do their research, think for themselves, and then do what they feel is best for them when it comes to filing or not filing. But my 2c is I really wouldn’t factor extradition into it.
Ah yes, us poor Former Us Citizens (FUCs). Will we be pursued forever? If one receives a CLN is one still FUC’d?
The mind boggles…
Polly
Please stop spouting nonsense.
Thank you all so much for your helpful replies.
I guess my main concerns, having not lived in the US for decades and having never filed are these:
1) Although I now understand that I will get the CLN no matter what if I renounce, if I do not send in the IRS form after renunciation and simply go on with life, would I then be able to ever visit the US again as a tourist on my other passport? Or would the IRS, having been notified of my renunciation, and seeing that they’d literally never heard of me, as I’ve never filed, not just make me a “covered expatriate”, but file some sort of criminal charges, meaning I’d be arrested at the border if I ever tried to enter the US?
2) Apart from that issue, would they be likely to just make up a figure that they think I owe, and get a levy on my overseas bank account (I live in the UK)?
I can live without ever visiting the US again quite happiley, though I’d like to know if I would have the option as a never-filed, covered expatriate who didn’t fill in or acknowledge any IRS paperwork after renunciation. But if the likely result is that in due course a levy on my UK account would be the result, it’s obviously a more serious matter.
Again, many thanks for your well-informed input!
@ D Edem
It seems you understand the issues. Yes, the Dept of State will provide the CLN. However, if you don’t do the IRS 8854 (and any other filing) after getting the CLN, your info can (and – – given the way things are going with intercommunication between the IRS and Justice/BorderPatrol services – – likely will) be sent to other agencies raising high the risk of being caught at the border. Everything is computerized and interconnected now including info from the airlines (if you are flying you have to provide all sorts of info including the passport that you will be flying with, where you will be staying when you enter the US, etc) and computerized records if you (like us in Canada) enter by car. People have been stopped and turned away and there is no reason they wouldn’t hold/charge someone where the info was available (I certainly wouldn’t risk it).
If they have no financial info on you, I doubt they would “make up a figure” but who knows what they might ask of your UK tax authority once they had your name and all the other data from your renunciation forms (I just went through this so I know what has to be submitted). And, of course, we don’t know what other agreements the UK (and others) will make with the IRS in the future – – would any of us have predicted FATCA 5 years ago?????
Good luck and continue to get all the facts before you act.
D Edem. There is nothing they can do. You will have the same right to visit the U.S. As anyone else. Now imagine the response- IRS computer spits out a letter to inland revenue computer. “We think D Edem may or may not possibly, owe us a few bob. “. Inland revenue computer dies laughing. Get serious people. The IRS has real problems to deal with.
D Edem
The original British Fatca requires you to be tax compliant with USA exit taxes to be considered a non USA person. The USA considers you to be US person for tax purposes until you fill out all the 8854 forms.
“a self-certification that the account holder is not a U.S. citizen
or resident for tax purposes (which may be on an IRS Form W-8
or other similar agreed form)”
http://www.treasury.gov/resource-center/tax-policy/treaties/Documents/FATCA-Agreement-UK-9-12-2012.pdf;
and
fom my reading
The Canadian FATCA just considers if you are still a US citizens.
“The Good News – It is simple to renounce your U.S. citizenship
That’s what S. 349 of the Immigration and Nationality Act says.
The Bad News – It’s not simple to get free of the IRS
But, what’s renunciation got to do with taxes anyway? Well nothing really, except that under
U.S. tax law one is treated as a “U.S. taxpayer” until one gets a “certificate of good tax
paying” from the IRS. Receiving this “certificate” may require paying an Exit Tax! Receiving
this certificate will almost certainly require the expense of 5 years of U.S. tax compliance.
Rather than taking you through the torture of referencing and cross referencing the various
statutory provisions, I will quote directly from the IRS. All of which may be found at:
http://www.irs.gov/Individuals/International-Taxpayers/Expatriation-Tax
(I encourage you to read the whole thing.)
The question is whether the U.S. will punish Mr. Middle Class for ridding himself of his U.S.
citizenship. Under U.S. law there are two kinds of renunciants”
http://citizenshipsolutions.ca/wp-content/uploads/2014/02/NewZealandandtheExitTax.pdf