Renunciation and Relinquishment of United States Citizenship: Discussion thread (Ask your questions) Part Two

10,433 thoughts on “Renunciation and Relinquishment of United States Citizenship: Discussion thread (Ask your questions) Part Two”

1. A gift is a gift. But a gift followed by a gift-back would seem more like a loan than a gift to me.

   People appear to be willing to try almost anything to survive Obama’s War on Expats.

2. @tdott

   I attended John Richardson’s presentation in April and he most certainly advised against the Streamlined Procedure. Stephen Kish told me today that he agrees. When it was first announced, Roy Berg posted a detailed analysis with concerns about many of the questions in the Questionnaire, but I don’t know how he feels about it now.

   I think these guys just plain distrust the IRS (don’t we all?). Having said that, nobody has been burned yet by filing into the S.P., but the plan hasn’t been around that long.

   My guess/gut feel/whatever is that it would appear safe for people who qualify and owe no tax, have no PFICs, 3520 filings, etc. I had my mother file into the program. When it comes to people with high value net worth, that’s when the Spidey Senses start to tingle.

3. Perhaps the answer is in FAQ’s. IRS: Frequently Asked Questions on Gift Taxes

4. @WhatAmI

   That’s because high net worth folks probably use ‘sophisticated tax planning’, which is a no-no under Streamlined. As I mentioned in another post, the IRS May be slowly moving the gold posts closer so that it might encompass more people, by increasing the maximum threshold of $1500K in US tax and the complexity of filings (which may or may not include Canadian corporations). Stay tuned.

5. @WhatAmI

   Can you say exactly why both John Richardson and Stephen Kish advise against Streamlined? In general, I’ve seen nothing concrete. Roy Berg’s concerns (dated 2012-09-07, 6 days after Streamlined went into effect) seemed to be eligibility was too narrow, lack of clarity in criteria and terms, and acceptance/results not guaranteed possibly resulting in a “lobster trap” (2). My take on Berg’s article is that there’s some healthy skepticism of a new program, possibly combined with some fear mongering to drum up business. Note that Streamlined has now been up and running for over 20 months.

   This is how I see it. If the goal is to get compliant, the only possibly sane alternative to Streamlined is QD. QD has worked well in the past; however, the GAO report (1) that took aim at QDs *may* mean that QD will not be useful at some point.

   Additionally, Streamlined is the official, IRS sanctioned means for expats to get compliant. When you do Streamlined, you come in through the front door. OTOH, QD is like coming in through the back door – it’s not the official way to do it. Consequently, it’s not hard to imagine a situation whereby an IRS agent when presented with 5 or 6 years of returns (and 6 years of FBARs) from an expat may wonder “why is this person not doing Streamlined? This makes me suspicious. I’ll think I’ll give these returns extra scrutiny and maybe an audit for good measure”. At which point the hapless filer could be hit with all the kinds of penalties that Streamlined is supposed to eliminate.

   Listen, I have as little trust in the IRS as the next Brocker, however, in the absence of actual supporting evidence, I can’t see how the backdoor can be preferable to the front door. And we are talking about a front door that’s been open for almost 21 months now.

   (1) http://americansabroad.org/issues/taxation/quiet-disclosures-jig/
   (2) http://www.moodysgartner.com/wp-content/cache/all/do-you-qualify-for-irss-new-streamlined-procedure-to-bring-us-tax-returns-current/index.html

6. tdott,

   May I ask if you are a US tax filer? Thanks

7. @tdott,

   I don’t want to try to repeat their advice from memory. I think Calgary411 has John’s remarks in her notes from the Calgary presentation in April.

   Stephen said he agrees with John. I think they both favour “noisy” disclosures over the Streamlined. IE, forms sent to the regular address with a cover letter explaining reasonable cause. I’m not sure if this means just one year or 5 though.

   One or both said “There is no law saying you have to enter the Streamlined Procedure. The law says you have to file”.

   Personally, I think the S.P. seems OK for people who qualify for it. It’s all guesswork at this point. As far as I know, nobody has been burned by the S.P. I have heard 2nd hand about people of high net worth being in ruinous situations by trying to become compliant, but I don’t know what route they followed.

   Maybe as good a guess as any is that it doesn’t matter what route you take. If you are low net worth and owe no taxes, there is little reason for them to take an interest in you. If you are high net worth, they can (try to) confiscate your money no matter what route you take?

8. I have a question about form 8854. I know I’ve seen the answer on this site, so hopefully someone can point me in the right direction.

   I’m filling out 8854 to submit with my final (yay!) U.S. return. I note that they want the figures in U.S. dollars. As I recall, there is a website somewhere that will give the conversion rates at the time of my expatriation.

   Does anyone know where I can find it?

9. http://www.bankofcanada.ca/rates/exchange/10-year-lookup/

10. Titus –

    Do not rely on the link from “easy-out no-prob” Kalc. The US does not want you to use a Canadian exchange source. Use the annual US/Canada rate published by IRS or Treasury. A current crippled interface prevents cut-and-paste of link. Not hard to find.

11. The Bank of Canada website has a page where you can convert Cdn$ to US

12. The Bank of Canada website has a page where you can convert Cdn$ to US$ (or any other currency) and specify the date (or you can look at a range of dates) – – info goes back many years. I’ve found it easy to use

13. Thank you LM . The Bank of Canada website is perfectly acceptable. The rates are the same as a US site. USX is a shit disturber.

14. @Titus: here’s the page with the IRS’ official rates.
    http://www.irs.gov/Individuals/International-Taxpayers/Yearly-Average-Currency-Exchange-Rates

    For what it’s worth, that page states: “The Internal Revenue Service has no official exchange rate. Generally, it accepts any posted exchange rate that is used consistently.” (Note: in Tax Court, IRS publications are worth precisely squat)

    Anyway I don’t know about the CAD, but the rates on that page for the HKD are complete garbage. For the past five years the IRS states 8.067. 8.068, 8.096, 8.080, 8.062, 8.091. There has not been a single time in the past three decades when the HKD has traded at those prices.

    OTOH if your income is in HKD and you are converting it to USD for your 1040 or your 8854, that results in your income/assets being artificially lowered for US tax purposes, i.e. lower taxes.

15. @Mr. A.
    To answer your question: yes – I went in through the front door last year.

16. Exchange Rates
    You must express the amounts you report on your U.S. tax return in U.S. dollars. If you receive all or part of your income or pay some or all of your expenses in foreign currency, you must translate the foreign currency into U.S. dollars. Taxpayers generally use the yearly average exchange rate to report foreign-earned income that was received regularly throughout the year. However, if you had foreign transactions on specific days, you may also use the exchange rates for those days. Exchange rates can be found at Foreign Currency and Currency Exchange Rates. Yearly average currency exchange rates for most countries can be found at Yearly Average Currency Exchange Rates.

    http://www.irs.gov/Individuals/International-Taxpayers/U.S.-Citizens-and-Resident-Aliens-Abroad

17. Hi everyone, and many thanks for the wealth of info here.

    I have a question regarding my status. I was born in the US, and left at age 20 without ever having to file a US tax return, and have lived in Europe ever since. I am not much older (MUCH older:-), and of course am now concerned about FATCA, renunciation, etc.

    My question is pretty simple……I fully understand from reading this site that I will get the CLN no matter what my tax status is. But I gather that I then have a matter of months to file the 8854 form. But as I have never filed US returns, I can not certify that I am compliant for the last five years. So my two options appear to be…

    1) Renounce and NOT follow up by filing the 8854, in which case I understand that I will be a “covered” expatriate.

    2) File the form, but tick “no” when asked if I can certify that I am compliant.

    So my question is……is one of these two options likely to cause fewer ripples, and make it more likely that these parasites will leave me alone? Sending in the 8854, but simply saying that I am not compliant seems like even MORE of a red flag to the proverbial bull…..but then I don’t know the exact ramifications of the laws.

    I have a reasonable amount of assets, being an older person, but have no intention of handing them over to the US, who have provided me with nothing my entire adult life.

    I realize it’s a fine point, but does anyone reading this board have any knowledge on this specific point…..not filing the 8854 as opposed to filing, but simply ticking “no” on the question about 5 years of compliance?

    And one outside, third option…..what about filing 5 years returns, putting down my true income, but simply not paying the tax? I would have lawfully (to the extent that these ludicrous requirements at legal), but would simply have a civil debt to the US.

    ‘Any thoughts?

    Many thanks.

    p.s. a fellow who claims to be a specialist in this field has said that if you don’t file the 8854, even though you are not a citizen of the US, or a resident, that the IRS then consider that you are still a US taxpayer, who must file returns forever. Surely this can’t be correct?? How can a non-citizen, non-resident be declared a perpetual taxpayer of the US by the IRS?

18. @Don Easton

    Your specialist is correct. Becoming a non-USC does not automatically make you a non-taxpayer – in order to log out of the US tax system you must file the infamous 8854. Also, I believe that being compliant w.r.t. 8854 means that any outstanding tax liabilities have been dealt with – so the 3rd option does not work the way you hoped it would if you owe taxes (at least AFAICT).

    Following is my standard downer response on this topic (it’s geared to Canadians, so you’ll have to replace RRSP with your country’s equivalent, if any):

    For the sake of anyone new reading this and thinking renounce, but do not file returns is perfectly safe, I’ll be the downer.

    There is no statute of limitations on those unfiled returns, because they’re unfiled. So that will hang over your head for the rest of your life.

    By not filing returns, you have probably moved into the wilfully non-compliant category. I don’t know what the ramifications of that are, but I don’t see how it could be a good thing. FWIW, if you don’t file 8854, then you’re subject to a $10K penalty, and 8854 specifically asks about those 5 years of returns.

    By not filing returns, you have definitely become a covered expat. That means, among other things, that you are subject to the exit tax. You will be taxed on mark to market capital gains subject to a $600K exclusion. As well, you will be taxed on the total (not gain, total) amounts in any RRSPs and, I believe, pensions that you may have, and there is no exclusion. RRSPs/pensions are, I believe, taxed at the highest marginal rate. The RRSP/pension tax is a major issue for covered expats IMO.

    Unless you like to live dangerously, travel to the US is out – that would include plane connections though any of the major hubs. For some people, not a big deal; for others, a very big deal. And, you’d always be concerned when flying over the US to, say, Mexico if you’re a risk averse type of person, due to the (admittedly unlikely) possibility of the plane making an unscheduled landing in the US. Note that increased inter-agency and inter-country data sharing means there’s a reasonable chance that in the future US border people will be aware of all former USCs’ tax status.

    The US-Canada tax treaty will protect you (at least in Canada) from the IRS if you were Canadian at the time the liabilities were incurred. I don’t see how there is any guarantee that the treaty could not be changed for the worse in the future. And although it would clearly be unfair if the changes were retroactive, nobody has ever accused the IRS of being overly fair (and the FATCA fiasco has indicated how much we can expect the Canadian government to stand up for fairness).

    So, IMO, you would have to have a really, really good reason to not file those returns. One concern people often have about filing those returns is the cost of getting someone to do it for them. A possible route is to DIY and just do the best you can. I’ll leave it to you to determine what “best you can” involves given that you’re almost certainly not a cross-border tax professional. At any rate, at worse you could be audited later and assessed some $$. If it’s a large amount of $$ that you are unable or unwilling to pay, you could then invoke your treaty right and not pay up; leaving you in more or less the same situation as having not filed. OTOH, at best you did a bang-up job on the returns that can withstand any amount of scrutiny, or, more likely, you can expect the IRS to not have the resources or inclination to worry about your piddly returns, leaving you home free (at least after the SOL runs out).

19. @Don Easton

    Do you have any idea what your tax liability would be if you prepared those 5 years of returns? It would seem to me that that would be an important piece of information for deciding on how best to move forward. FWIW, most people end up owing nothing due the the Foreign Earned Income Exclusion (FEIE) or foreign tax credits. Things that can derail that are sale of a principal residence (not taxed in Canada), sale of (shares in) a small business (significant exclusion in Canada), non-US mutual funds (PFICs), tax-free accounts that are not recognized as such by the IRS.

20. @Don Easton
    Sensible words from tdott. I think your first task is to assess your income in regards to the FEIE/FTC and then look at any other types of income afterwards. I went the DIY route based on a lot of research here at IBS and other sources. Last year I filed 6 years of 1040s, 2555, schedule B and Fbars, then renounced and filed the last set of US tax returns including 8854 this year. As you are born in the US you will probably -sooner or later- have to explain/prove whether or not you are a US person to a financial institution where you now live – regardless of whether you now also have another citizenship. You may be able to get an idea of the current banking guidelines in your present country by reading the fine print concerning “conditions of use”. Many banks have changed this information recently and specifically state that US persons are either not welcome or must inform the bank of their nationality status.

21. @Don Easton, I agree with what others have already said before. You need to consider carefully the pros and cons of becoming compliant and get at least a rough idea of how much tax, if any, you might owe. If you renounce, which you can do either before or after dealing with the tax side, you have until June 15th of the year following your renunciation to file the 8854 form, i.e renounce this year and file by 15th June 2015, so you could have a year or more to sort things out depending on your timing.

    I don’t know where in Europe you’re based so don’t know the fine print of any IGA, but I’ll give you something else to consider: your future relationship with your bank. Here’s a couple of Canadian IGA FATCA FAQ’s from the cba.ca website which may help:

    How will banks determine which accounts have to be reported to the CRA?
    Under the IGA, banks will be required to review new and existing client accounts to look for any indication that an individual may be considered a U.S. person. Indicators that someone may be a U.S. person include U.S. identification used to open an account or a U.S. address associated with the account. Your financial institution may ask you to self-certify that you are not a U.S. person by providing additional documentation. If you choose not to provide this additional documentation upon request, your financial institution will be required to send your account information to the CRA which may share it with the IRS.

    Will U.S. account holders face discrimination or have their accounts closed?
    No. The FATCA requirement that Canadian financial institutions close accounts or refuse to offer services to U.S. persons in certain circumstances has been eliminated under the IGA.

    http://www.cba.ca/en/consumer-information/40-banking-basics/597-fatca-and-the-canada-us-intergovernmental-agreement-iga-information-for-clients-#anchor3

    Your European bank will start checking for US indica soon if they haven’t already. That means you’ll need to sign a W-9 form to allow your bank to sign your account info to the IRS. If you can’t provide a CLN the info is likely to be sent on anyway. Okay that sounds easy enough, but consider what’s been happening here in Switzerland. Banks have also been asking clients for proof of US tax compliancy, either in the form of confirmation of entering an OVDP or providing copies of recent US tax filings. Yes, the Swiss banks are running scared and are trying to reduce the penalties they’ll incurr under the US-Swiss IGA. The other banks are not likely to do the same thing immediately, but there’s nothing to say they won’t start asking for this in the future. Note the second FAQ about account closures. The reply says “in certain circumstances”. If you wilfully refuse to provide proof of US tax compliancy I believe there is a possibility that your accounts would either be closed or frozen.

    It’s not an easy decision to make and you should take time to research thoroughly and not rush into anything. Find a copy of the IGA the US has signed with your country and check what the banks there have to do regarding reporting and what consequences there would be regarding your accounts if you don’t decide to file.

22. Don you asked a simple question and you are getting convoluted answers. I think not filing 8854 would be preferable to filing it and checking ‘no’
    You might then get a few nasty computer generated letters-so what?
    However, I have been accused by usxcanada of being irresponsible

23. http://blogs.angloinfo.com/us-tax/2014/05/26/2253/
    ‘Expatriation – What Happens to the “Principal Residence?” ‘
    May 26, 2014

24. @Duke of Devon

    What is your reasoning as to why it is preferable to not file 8854 rather than file and check ‘no’?

    Reasons I think it is better to file and check ‘no’:
    1) You are not logged out of the US tax system until 8854 is filed – thus you are still a US taxpayer and continue to be on the hook for US taxes on an ongoing basis until you die. If you file 8854, you stop the clock on accumulating tax liabilities – which is presumably at least part of the reason for renouncing.
    2) If your FI ever asks you if you are a US tax payer or subject to US taxes, the truthful answer would have to be ‘yes’ (see 1). Thus, FATCA reporting would still apply to you.
    3) Not filing 8854 results in a $10K penalty. It can be debated how collectible this penalty (and previous tax liabilities) is, but it’s there.

    I can’t see any advantages to not filing 8854.

    Personally, I think the best approach, if possible, is to get compliant and be able to file 8854 with a ‘yes’, but that’s me.

25. Worthwhile information explaining key technical points regarding expatriation:

    Why the FBAR (late filed or never filed) is not a requirement for the Certification Requirement of Section 877(a)(2)(C) – (5 Years of Tax Compliance)

    Posted on June 4, 2014 – http://tax-expatriation.com/

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