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
It may be worse than you think!
…”1. IRS Form 8854 – US Expatriation Statement has no provisions for people expatriating in 2014. This is validated via IRS Form 8854 Instructions. THAT IS MESSED UP!!!!!
2. A Certificate of Loss of Nationality is a necessary component of filing IRS Form 8857. There is a LOT of chatter in the blog-sphere that the State Department via the White House has been instructed to not issue this certificate until 2015 to ANY 2014 applicants. The State Department denied this when I called and asked. Point of fact though I am quite active on line and not a single tax practitioner engaged has successfully processed any IRS Form 8854 in 2014.”…
http://taxconnections.com/taxblog/tax-implications-of-us-expatriation-internal-revenue-code-877a/#.VAnn_mK9KSM
James.. It seems unfortunate that you entered streamlined if you didn’t have to. If you’re intent was to relinquish when you became Canadian at age 32 then you were (are)no longer American.
We need more info. Of interest, were you coerced into streamlined?
If and when you renounce, you will be told to contact the IRS. What this actually means is that you are supposed to file form 8854.
If your net worth is less than 2 million at that time there should not be an exit tax. Do whatever is required to reduce your net worth to less than 2 million.
Some have simply not bothered to file 8854. Your choice . Donate to ADCS if you can.
@Bubblebustin
I’ll go out on a limb, and say this guy sounds a bit confused
Re #1: We know from past experience that 8854 for 2014 renunciants likely won’t be available until 2015. Since 8854 is due with your 2014 tax returns (filed in 2015), this makes at least some sense.
Re #3 (see article): You don’t attest to anything when you renounce, it’s when you file 8854. And, more importantly, filed FBARs are not part of the compliance/certification test as he is suggesting. Phil Hodgen has written about this.
So, I’m not sure how much credence to give him.
@tdott
“confused” is putting it politely; I would say he is a useless idiot. As for credence, I wouldn’t trust him for the time of day.
@ james
You have to do the calculation of your net worth first.
If your individual net worth is below $2 million, then you do not have to worry about your capital gain. If it is over &2 million, then you will be a covered expatriate and you will pay an exit tax on anything over a $627,000 unrealized gain.
If your wife is a non US person you can gift her money, or put property, bank accounts etc in her name beforehand. If she is a US person, you can divide your assets such that it brings you below the $2,000,000 each. You can also gift to your children or anyone for that matter.
The calculation of your net worth is done on the day before you renounce, not at any other time.
See Phil Hodgen’s blog on this site.
Not sure that you can relinquish now.
@James
Correction, I believe it’s now $663,000 capital gains exclusion.
Penny dropping for EmBee –
I’m wondering if you think they will eventually close the “free” relinquishment with back-dated CLN portal by some means.
I may have been too obscure with this formulation: Submitted on 2014/08/27 at 11:07 pm
Prediction: Loosey-goosey adjudication of relinquishment is a thing of the past. Back-dated “intentions” will come in for uniformly harsh scrutiny.
* * * * * *
Much of what occurs with relinquishment/renunciation looks like interpretation of “policy.” Taking bets that future interpretation will look for a firm time-stamp on demonstration of intention. (For instance, expecting notification concurrent with acquisition of other citizenship.)
Meaning this hallowed approach could become a hen’s tooth:
Well, I meant to give up U.S. citizenship however many years ago, really I did, but I’m only getting around to telling you about that now.
It all boils down to how kind Uncle Sam wants to feel about fuzzy past intentions, and what channel of appeal exists if Uncle starts being less kind. This answer already seems to be dribbling down from officialdom:
Oh. You don’t want to renounce for $450 when we tell you a big hike is coming? You insist we send this file as is to Washington? Well, OK, we’ll do that. For sure. Oh. You’re going on to ask what if the result is a denial of the case? Sorry, there’s no appeal procedure, but you can always write a letter of complaint.
Uncle’s final unspoken thought. “You’ll never do a lawsuit for yourself on preponderance of evidence. If you do, OUR courts will agree that this is for US to decide. You didn’t even want to spend $450. And we know you want this to be over with, not to wait uncertain long years as outrageously expensive test case #1.”
Two Four Six Eight / Who wants to supplicate?
TonyafromTerrace: How long has it been since you submitted the forms to Vancouver? You are probably right that they want all the forms filled out first so they can do some checking and try to find a way to make us renounce instead of relinquish.
@James: just to add to others’ replies to you: gift tax rules are different when one spouse is an non-resident alien. Phil Hodgen has a good overview:
http://hodgen.com/property-transfers-between-spouses-gift-tax/
@usxcanada
“Taking bets that future interpretation will look for a firm time-stamp on demonstration of intention. (For instance, expecting notification concurrent with acquisition of other citizenship.)”
Luckily that’s precisely what my husband did. Well not perfectly concurrent, he notified the day after his Canadian citizenship ceremony with his signed and witnessed statement of intent enclosed.
Thanks for the feedback. I’ll explain my circumstance.
First off, I wish that I had consulted this group before I started. Instead, I tried to figure it out from the IRS website. My bad.
My intention is to get rid of my US citizenship. I became a Canadian citizen in 1991 and have no intention of returning to the US.
When I first read the IRS website, the impression I had was that I should become tax compliant (5 years of filings) before I can relinquish. I didn’t realize you could relinquish without first meeting this criteria. So…I phoned H&R Block and they suggested entering the streamline program.
Admittedly, I didn’t understand the “Exit Tax”. It is only now that I have started to look deeper into it. With the $600K+ capital gain allowance and with my wife being Canadian, it kind of looks like it may not impact me. That is when I begin to think that I didn’t have to become tax compliant before I relinquish. Should have researched more upfront but this whole FATCA and the media hype spooked me.
The US government websites are not at all helpful on this plus the consulate doesn’t return my emails.
So…I have filed 2010, 2011, 2012, and 2013. To meet 5 years, I just need to file 2014.
From what I’m now hearing from this group, you are saying that I have screwed up my opportunity to relinquish and get out of this mess with little expense. Filing 4 years wasn’t cheap (had a TFSA).
I guess my only avenue now is to “renounce” after I file 2014?
James,
You have just given testimony to the value of what we provide here at Isaac Brock. I, too, made so many mistakes and am here because I don’t want any other person to make the same mistakes that I did. How much I have learned and how different my own path could have been.
Please note that your expatriation which most likely for you will now have to be renunciation rather than claiming a relinquishment (the way things are going, I feel may get more difficult for anyone to “prove” through a U.S. Consulate) does not depend on first filing for 2014. If that is your decision, get in line before there is further change thrown in your path. You will not / should not be asked anything about your tax compliance at your expatriation appointment and will have until June 15, 2015 (if lucky enough to get an appointment in 2014) to file your final IRS Form 8854, confirming your US tax compliance.
@James, you can make an appointment to renounce whenever you want to, your tax situation is completely separate from the loss of citizenship. I renounced first and then did the necessary back filing under Streamlined.
Thanks Calgary 411. Just to confirm, are you saying I should apply right now to renounce and file 2014 before June 15th?
Yes, if that is your decision, James.
Read http://hodgen.com/when-to-file-form-8854-2/ and see highlighted extension you can apply for.
Mr. Hodgen says that this means you or anyone else who expatriates in 2014 will not have to file final (2014) income tax return and Form 8854 until sometime in 2015. By then the IRS will have published the 2014 version of Form 8854 and there will be a box to check to tell the IRS that he expatriated in 2014.
James,
Many of us have gotten bad advise from professionals. The economics of the system make this quite likely. Unless you have a large amount of money then the costs of having the professional work out all the angles dwarfs the savings. They just want to push the small fish through the OVDP etc.
I myself went though OVDP and paid a big penalty for it. My tax pro suggested this. They also took the modified mark to market for a PFICs. The IRS promptly denies are fake losses generated by M2M making it way more expensive than sec 1291. I think the pro should have known they would do this but it caught out many pros. It was evil of the IRS.
I was trapped in a world where asking questions costs a lot of money, didn’t understand all the tax laws and the IRS just kept changing the rules on me.
I took control by learning sec 1291 and doing my own taxes. I managed to take the bad situation and make a few dents in it to so I escaped the really bad penalties they wanted.
Now the streamlined process is much better for somebody living outside the country. The taxes can still be bad but at least you don’t have to pay the 27.5% balance penalty.
Don’t kick yourself. You seem to be close to getting out. Join the growing band of people like me and others on IBS shouting at the top of our lungs to anyone who will listen how evil the IRS is on this issue.
We all have different situations and constraints. For example I am a US immigrant with accounts from a previous life.
James’s story (with his permission) would make a good leader for IBS and Maple Sandbox. It perfectly illustrates the perils of trying to understand the IRS website and of using H&R Block. He could have saved a lot of time trouble and expense.
I’m sorry to hear that H&R Block has joined the dark side. In the earlier days (2011), when I first heard about US taxation on the OVDI, I sent them a quick query e-mail. They eventually let me speak on the phone with some international tax specialist, who heard a summary of my situation, and recommended quiet disclosure, and estimated $500-1000 per year for backfiling if I hired them.
I was very grateful for that free advice, but it sounds like they would be more aggressive about more formal methods of compliance now.
@james
Yes, Eric is correct, with advice about gifts to non resident alien spouse.
Just be sure that you have divided your assets correctly before you renounce.
Good luck.
@James
On the off chance you don’t realize this, if the goal is to not be a covered expat (and pay no exit tax), then you can’t renounce until 2015. That’s because you need to certify 5 full years of compliance and if you renounce in 2014, you’ll be missing a year (2009). If you renounce in 2014, then tax year 2014 would not count as a full year (it would be a split year – part USC, part NRA).
It sounds like you intend to renounce in 2015, but I wanted to make sure it was clear concerning what years count.
The exit tax’s $600K+ capital gain exclusion does not apply to RRSPs and pensions. If you have either of these, and you are a covered expat (i.e. must pay exit tax), then you will be severely taxed on them (the whole thing, not the gains!). Given your age, it seems likely that you do have RRSPs and/or pensions, so you may want to take this into consideration.
If your company is worth over $2 million and has no liabilities (just investments), does the IRS take into consideration that one would have to pay the CRA taxes first…thereby reducing the $2 million?
Tdott, that is my understanding as well
@lioness
Is this in the context of the 8854 net worth test? If so, I believe any taxes that would be owed in the future would NOT be a consideration. You would have to sell the company, pay the taxes, and then renounce in order to reduce the worth. And if it’s a small business, you would likely owe the IRS taxes due to the Canadian $800K CAD capital gains exemption for small businesses (the US would tax you on the full gain).
At least, that’s my understanding.
thank you for commenting on this. yes, it is re the 8854. the company only has investments. so I’d probably have to cash in some investments, pay the CRA. At that point say I cashed in $300,000 and then would have a net worth of $1,700,000 in company investments. Would the IRS then deduct the $668,000 from that? thank you ..this is vey helpful
Would James be able to go back and file for 2009? If not, renunciation in 2015 and then 2010, 2011, 2012, 2013, 2014 = five years PLUS 2015, the year of renunciation. Other than stretching out the injustice of being a *US Citizen Abroad*, six of one or half a dozen of the other?
Thanks, tdott, for pointing out that compliance is for five years, plus the portion of the year in which one renounces. For the year I renounced, 2012, there was a 1040 and a 1040NR filed, along with all the complex forms, including 3520 and 3520A for Canadian registered accounts — for myself and the Registered Disability Savings Plan (RDSP) that I held for my son as beneficiary — for which I paid U.S. tax.