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
@Blaze,
Yes, indeed, but fortunately @heartsick was born a dual-citizen and is therefore exempt from the net worth and tax bill thresholds. Phew!
I didn’t realize the significance of the fair market value of a pension fund being calculated and added to one’s net worth. For a person in their 60’s, this could help push them over $2 million. I’m not sure if CPP is handled this way, or just pensions from actual employers.
@WhatAmI: Thanks for picking up on that. I forgot about that.
I just confirmed with an accountant that CPP and OAS do not get added in to the 8854 net worth calculation.
@ WhatAmI
When figuring out the fair market value of your pensions going forward (to be added as part of one’s net worth), CPP is NOT part of the calculation. Personal pension (e.g. RRSP) and employer pension plan ARE part of the calculation. And, as has been said, this can without much difficulty pull one over the edge from being a “SIMPLE EXPAT” (goodbye, sorry you have rejected us but have a good life) into being a “COVERED” EXPAT (now wait a minute, look at this – – you’ve fallen into our vat of glue – – we still will have to talk and review all your information on an annual basis – – forever – – and you will never escape even at death, whoops, too bad for you rich person)………
@LM, there may be some people who in order not to be a covered expat may wish to engage in charitable planning and make a donation to a charity to bring them below the limit.
This may include giving to charity certain assets that appreciated in value.
By donating to a charity, you may end up saving far more than the actual donation.
If anyone wants to spend that wealth to bring you below the Exit Tax level, we hope to soon be open for donations to the legal challenge fund. No charitable receipt, but a fabulous way to spend your money to bring you below the Exit Tax level!
Moody’s has been giving free seminars on “Renouncing your US citizenship” (3 in Calgary and 1 in Edmonton). I went to the first one last August. After presenting all the horrors of being a covered expat, they said they can get your net worth down below $2 million for one day so you can truthfully sign the 8854.
Brilliant ideas, George and Blaze!
@ WhatAmI
It is devious and maybe even criminal what Moodys’ advisors are proposing to their clients to avoid the covered expat designation. I think maybe the term “structuring” might apply but there will be legal beagles here who could say for sure. Obviously if you have enough money there are those willing to show you the way to protect your a$$ets.
@Em
Call it what you like, but thats the way its done. I am not advocating Moodys by any means and I am not a fan of Roy Berg after his pompous presentation at the Finance Committee hearings, but what Moodys is suggesting is what many of the various major law firms are advising.
Heartsick,
Please take more time to reflect upon your options. Like you, I was born in the US to a Canadian parent (we are “duals at birth”). My family returned to Canada when I was an infant and I have only lived in Canada. I too have no SSN and have never acted as a US citizen in any way. I too certainly feel the desire to have a CLN but there is a strong argument to be made that for people like us (who are unknown to the USG & IRS) the risk of coming forward to the USG and being put on the IRS radar may outweigh the chances of getting a back-dated CLN. It has taken me a few months to go from planning to try for a CLN to my present view of staying away from the US Consulate. Yes, there are many uncertainties and no one knows how this will play out but I will not voluntarily come forward and hand my money over the to IRS. In my heart and mind that is simply wrong.
There is a very knowledgeable contributor here (who goes by the name of Anne Frank) who has made a persuasive case that trying for a CLN in our situation is likely more dangerous than taking the risk of our banks finding out about our place of birth. Anne Frank has also stated that for people who have spent their lives in Canada with Canadian investment accounts and vehicles (ETF’s, mutual funds, RRSP’s, TFSA’s, RESP’s etc.) that entering the IRS madhouse is simply not an option.
The US Internal Revenue Code (as lawyer John Richardson has stated) is hostile to anything foreign and anything that favours tax deferral – our Canadian accounts are both of these in the eyes of the IRS. As KalC says, you will be risking a world of hurt if you enter the IRS madhouse. Innocent people have given the IRS tens of thousands of dollars by coming forward – they don’t seem to turn anyone away!
I have read some real anecdotal horror stories.
Feelings of fear and anxiety have been experienced by likely almost all of us. Mr. Richardson talks about how that anxiety & fear turns to severe anger when the money to the IRS is handed over. Also, by filing US tax returns you will be taking a high risk of being charged thousands of dollars by a cross border accountant. They are profiting from this injustice and many are charging unreasonable fees because
“demand is up”.
Consider your former Alberta govt. job to be a relinquishing act for self-certification at the bank (if needed) that you are not a US citizen. We all must live with our consciences but please reconsider KalC’s good advice and the following points:
– it is much easier and safer for you to take your name off the joint accounts with your husband that are over $50k and it sounds perfectly legitimate since he earned most of the money in the accounts
– it is a violation of section 15 of our Charter for your advisor to ask about your place of birth
– the USG is making innocent people feel like criminals, when it is actually the USG that is engaging in criminal activity by trying to enforce citizenship based taxation (through FATCA) on people who live, work, earn income and pay taxes in other countries and receive no services or benefits from the USG; we have all been brought up to respect and obey the law but this is an UNJUST law. The USG is trying to collect money on which it has no legitimate claim.
Remember the wise words of Dr. Martin Luther King Jr.: ” One has a moral responsibility to disobey unjust laws”
Perhaps one of the most disturbing aspects of all of this is how this is impacting women who have been stay at home spouses with an egalitarian economic relationship with their non-Us spouses.
Many of these women are now taking their names off the accounts they own with their husbands or even those in their own names. This is setting women back decades. Even my great grandmother had her own bank accounts and joint accounts with her husband.
A century later, we are telling women to take their names off joint and personal accounts and put everything in the sole control of their husbands Victoria said this was an issue that was raised with the Women’s Caucus in Washington, but I doubt if much will change.
I am also aware of some men transferring assets to their wives.
Plus, there are many marriages that have been greatly strained by all of this.
All of the investments (equities, etc.) inside our joint investment account are registered jointly I believe, does anyone know if this makes it possible to put them into an account with just my husband’s name on it?
Ah, where is Gloria Steinem when you need her? On the other hand, here in Canada, we have US-born Judy Rebick and others…..
@ heartsick (RE putting all assets in hubby’s name)
Yes, one can do that in Canada under Canadian law; however, if (for example) these investments were purchased from funds that were put into the account 50% by you and 50% by him, then he will in effect have been “gifted” 50% of the entire account. Now, CRA doesn’t mind spouses transferring money to each other BUT you (as original “owner-contributor” of 50% of these assets) will be responsible for any interest or income from the proceeds of this 50% portion of the original account for as long as it is being “held” by him (e.g. he could give it back to you later, say after renunciation – – make certain to document this too for Canadian tax purposes). It is highly advisable to document this transfer (a dated signed letter fully detailing this “gift” with indication in the letter that you will be responsible for the taxes but that he is free to invest it as he likes).
Gifting to a spouse is also legal for US “persons”; if spouse is a non-US Person, I think it’s something near $145,000/year without any problem. Further, gifts can be given to others – – up to $13 or $14,000/year no penalty but, again document everything and keep the documentation.
I have a question about previous travel to the US. How much information is collected from the passports? For those of us who have crossed the border a few times, might the US have a record of us in their databases, complete with our addresses? I am trying to remember what information you have to give them online when traveling by air.
Heartsick. Tell your advisor to open a new account in your husband’s name and tell her to transfer the assets to the new account. This is a tax free rollover. ( the cost base of the assets remains the same as it was)
.
@ KalC – unfortunately, your advice to Heartsick is incomplete. Yes, one can set up a new account and transfer everything into this new on-name account. However, as noted in my earlier comment, since 50% (or 40% or 10%) of that original account was from her earnings or contributions (or, if I am wrong, his earnings/contributions), then the “holding all assets account” will have been “gifted” this 50% (or other %) of the assets from the original contributor to the spouse. And there are in=Canada tax issues to this.
Basically, the income that accrues in this new account (held by only one of the spouses), must be attributed to the original owner – – and that original owner has the tax obligation on their tax form – – until these assets are returned to the original owner.
All this should be documented (keep detailed letters in one’s own files, no need for a lawyer or accountant to be involved).
LM. I know the attribution rule. It is designed to prevent income splitting. This is fairly complex stuff for the average investor. Heartsick stated most if not all the money came from her husband. Putting the assets back in his name should not pose a problem- especially if the income is already being reported on his return.
@WhatAmI, Blaze & Heartsick, remember that being born dual WON’T exempt you from being a Covered Expat unless you do the necessary tax filing as well.
“Exception for dual-citizens and certain minors.
Dual-citizens and certain minors (defined next) will not be treated as covered expatriates (and therefore will not be subject to the expatriation tax) solely because one or both of the statements in paragraph (1) or (2) above (under Who Must File) applies. However, these individuals will still be treated as covered expatriates unless they file Form 8854 and certify that they have complied with all federal tax obligations for the 5 tax years preceding the date of expatriation as required in paragraph (3) above (under Who Must File).”
http://www.irs.gov/instructions/i8854/ar01.html#d0e731
@KalC
RE Heartsick’s joint account – – I had not fully read the trail of comments and was not aware what proportion of the account was contributed by whom. That being said, the information being provided here in these comments is not only being read/received by the original questioner.
Others may have (or, because of what they read here, begin to consider) similar ideas about moving money to another spouse’s name. IMHO, it is reasonable to explain here what may need to be understood about the tax implications (both US and Canada) of such financial approaches. Others may not have joint accounts which have preponderantly been accumulated from one spouse only; thus, the quick note about the attribution rule.
@Blaze
The synopsis says not to enter the OVDP (good advice, indeed!!!). It says nothing about Streamlined that I can see. As well, there have been no reports that I’ve seen of anyone getting unexpected, bad results from Streamlined. AFAICT, Streamlined is a reasonable way to get compliant (if that’s the goal). If others know of people getting bad results from Streamlined, it would be useful to pipe up.
FWIW, I attended one of John Richardson’s sessions, and I am 99% sure he did not advise against Streamlined then.
@Em
IANAL, but I too think this is a concern. If Moody’s is suggesting that one should gift their oodles of money “for one day so you can truthfully sign the 8854” then I would imagine there would be a reasonable chance that the IRS could disallow the gift in the event of an audit. I suppose a question is whether the IRS could demand your financial information pertaining to the time after you have renounced. If so, then it could be obvious that the money was “ungifted” shortly after renouncing.
The fancy tax lawyers are using some kind of lifetime estate exemption for legally gifting assets away. Its something like up to 5 million. I remember reading about it on Nestmann’s blog.
@Joe Blow
The issue is not that the lifetime gift exemption can’t be used to lower one’s net worth below the magic threshold – it can. The issue is that it *appears* that Moody’s is advocating a short-term gift (i.e. something that’s likely not really a gift). Would be useful to know *exactly* what Moody’s said.