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.
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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
I’m a little shaky on the curent rules. I do know that you can give around 125000 per yr to your spouse and around 13000 per year to any one else without filing anything. There is also a 5 million life time exemption for gifts and estate taxes. Say you gift 4 million to your wife. Then in theory your estate would only have 1 million left in its exempt pool before estate taxes would kick in.
Very few people who live outside the homeland would ever think of filing a gift tax return.
A very smart guy called Dan once said on this site ” only tell them what they already know”
@James
If you’re going to move assets into your wife’s name, make sure that you don’t break the Canadian attribution rules. You may need to read up on these and determine how they apply to your personal circumstances.
@KalC
Excellent comments – even the mere thought of playing by their rules makes me sick.
Thanks KalC and I agree with what Dan says. I think their ability to audit outside of the US is very limited not to mention their ability enforce collection. That is the problem when you try to reach where you don’t belong…..
Mr. A, good point but…..it is the “ownership” or “net Assets” that is the trick at renouncement I guess.
Income Attribution Rules
General Rules Attribution between spouses
The Income Tax Act stipulates that where an individual has transferred or loaned property either directly or indirectly (by means of a trust or by any other means), for the benefit of the individual’s spouse, or a person who has since become an individual’s spouse or, as of 1993, a common-law spouse, any income or loss from the property and any capital gain or loss on the disposition of the property will be attributed back to the individual.
This means that even though the spouse is now receiving the income, the individual still pays the tax on it at his or her marginal tax rate.
So the family is no better off than if the transfer or loan had not been made.
@James
If you’re moving assets into your wife’s name to avoid being a covered expat for the sake of US tax rules (which I assume would benefit your family), it would be a shame if that got you into trouble with the CRA. If you are in a higher tax bracket than your wife, make sure to declare any interest, dividends or capital gains (on assets that you transferred to her ownership) on your tax return. Check this with an accountant.
It is criminal that the US is making innocent Canadians go through this.
My understanding of 2014 gifting:
Annual gift tax exclusion of $14,000. As I understand it, gifts can be made to as many people ($14k each) as you want. No filing required of form 709.
Annual gift tax exclusion of $145,000 to NRA spouse. No filing required of form 709.
Lifetime unified gift and estate tax exclusion of $5,340,000. Gifting using this (i.e., gift doesn’t fall into either of the other 2 categories above) requires filing of form 709. This is what can go a long way to get one under the $2M net worth threshold.
Or as Phil Hodgen colourfully puts it: with no need to keep the credits for use at estate reckoning time, folks can “burn their unified credits like gangsta pyromaniacs.”
For some discussion of this by Hodgen, see http://hodgen.com/community-property-and-form-8854s-balance-sheet.
If you’re over the $14K or $145K limit and don’t intend to file 709, I’d be curious as to why. Is there a specific benefit to not filing? Note that by not filing 709 your certification of compliance on 8854 would be invalid, so I would think you’d have to have a good reason to not file. [the form is something of a PITA, but doesn’t seem overly miserable as IRS forms go – not to mention it’s one of the last IRS forms you’ll ever fill out]
@tdott: re US lifetime gift of $5,340,000, Do you know if a US citizen living in Canada with a Canadian company can gift the company to a Canadian common law spouse without CRA implications? or gift it to a dual citizen child? if so , is it just a matter of filing the 709 form, or would one also need to transfer the assets legally? thank you ..this site is a lifesaver and I appreciate all the comments.
Thanks tdott. This is valuable information on how the gift tax works. If I transfer over $145k, it would be wise to fill in form 709 even though no tax would be owing as long as I stay below the lifetime amount. Would this also apply to transferring my half of the house to my spouse?
@James
Not sure if you have read this previous posting by Eric which points to this link by Hodgen, it refers to gifts to NRA spouses.
http://hodgen.com/property-transfers-between-spouses-gift-tax/
I posted a question on this in the US Expat Tax thread, but with all the tax discussion currently going on here, I thought I might ask here as well.
My question regards Form 1040NR.
I have an appointment to complete relinquishment on 11 September, so 10 September will be my last day as a “US person for tax purposes”, and next year I will file a 1040 and 2555 for up until 10 Sep and a 1040NR for 11 Sep to 31 Dec.
My question is if I maintain a financial account in the US, am I correct in understanding I should file a W-8BEN with the financial institution, and then any income not related to work or business would be covered by the tax treaty and would not need to be reported on 1040NR? Specifically, nonresident aliens are not subject to tax on bank interest and capital gains.
Or should I just be safe and avoid any type of US source income whatsoever for the rest of the year? Then from 2015 I would not have to file for income such as bank interest, capital gains, and dividends as long as W-8BEN is filed?
Also, am I correct that no income, either earned income or unearned income such as capital gains, I have in Japan from after 11 Sep will need to be reported on 1040NR? So if I avoid any US source income, everything on 1040NR will be zero?
Thanks for any comments.
Heidi, thanks for pointing this out. It helps
Hi All, I just wanted to check with the group if the following actions are correct:
1) 2014 tax filing will be my 5th year.
2) With the consulate line up being close to 5 or 6 months, can I send in my request now for renouncement date (which will likely result in an appointment in 2015) and therefore be “renounced” in early 2015? Is the date of renouncement the same day as the meeting with the consulate?
3) Even if I renounce in early 2015, I still have until June 15th of 2015 to complete my 2014 tax filing and satisfy the 5 years, right??
4) I then have to wait until 2016 to file 8854 and the tax filing for the partial year between Jan 1 2015 and the consulate renouncement date?
@TokyoRose
This sounds right to me. You can avoid US interest or dividends for the 1040nr part of the year if you like, but that may be over-cautious. If you look at 1040nr schedule NEC you’ll see that it doesn’t really ask for US source interest at all. Or you could add it on line 2c under a 0% column d, with the same effect as if you’d omitted it; likewise any US capital gains, except real estate, on line 6 and same 0% column d. I’ve done the latter in the past, though going this route seemed to also require 8833 forms, and these are a bit fiddly.
@James
This too sounds right to me. Though if you can find an appointment this year, you can get everything done and dusted sooner and save yourself some paperwork and dragging into 2016. Note that you can file for an extension on your tax return like everyone else, so you really have until Oct (or Dec?) if life gets in the way. Also consider part-year FBARs. Nobody, including (especially) the IRS is clear on whether you have to file an FBAR for the part of your renunciation year before you renounced, but getting clear in this year rather than next means (probably) one less round of FBARs also.
Thanks for the replies. Just to be clear, if I get an appointment this year (2014) which is my 5th year for tax filing, as long as I send in form 8854 next year (2015), I’ve satisfied the 5 year tax filing requirement, even if I were to renounce prior to 2015?
@James, Watcher
The 8854 form asks for 5 _full_ tax years of filing compliancy. If you renounce in 2014, you would need to file 2009. If you already did, then sure, try to get an appointment to renounce this year.
Thanks WhatAmI, I’ve filed 2010, 2011, 2012, and 2013 (4 years). 2014 would be my 5th. So I guess what your saying is that the consulate appointment has to be in 2015?
@James
Yes, that’s what I’m saying. Nobody has ever disputed that fact in the years that I’ve been on this website. The form and instructions are quite clear. I do not know the ramifications of doing a quiet filing for 2009. To me, it seems safer, more straightforward, etcetera, to wait till 2015 to renounce. It could be that in most Canadian cities you have no choice anyway due to the waittime for apppintments. Having said that, don’t be surprised if they give you one two or three weeks from now. My guess is that happens when there are cancellations, if that happens, just write back and say that that date does not work for you and ask again for one in January
@WhatAmI, thanks for the noting the nuance. @James, it sounds like 31 Dec would your perfect appointment date, to give the full five years and nothing for 2015; unfortunately there’s probably no way to organise that level of optimization.
@ Watcher
Thanks for the reply. I think I understand a bit more now, but I’m sure I’ll get confused again when it come time to file next June.
In any case, for now I’ll leave the account open for now, and won’t worry about any bank interest, but I think I’ll avoid any dividends or capital gains until the end of the year, just to make sure the 1040NR can be filled out as easily as possible.
@lioness
There are CRA implications when gifting to a spouse. Basically, anything earned on the gift is attributed to the gift giver, not the giftee (spouse). I do not think there are any reporting requirements (but I can’t say for certain). Not sure what the CRA attribution rules are for gifting to a child. Best to check with the CRA, unless you get definitive answers here. IIRC the CRA has a web page devoted to gifting attribution rules, so you can try looking for that.
Unfortunately, you may have something of a wrinkle. My understanding is that the US does not recognize Canadian common law couples as being married. So, gifting over $14K to a common law spouse would still require form 709. If you find something that says otherwise, I’d be interested in hearing about it. In any case, I imagine that for the IRS to consider the gift real, you would have to transfer the assets legally.
Note that IANAL and IANAA. This is all just what I’ve picked up in dealing with my own situation.
@James
As I understand it, your half of the house is just another asset that can be gifted, so I’d imagine same rules and cautions apply.
As I said to lioness,
a) I’d imagine the transfer would have to be properly registered for the IRS to recognize it in the (hopefully very unlikely) event of a 8854 audit.
b) Canadian common law couples are probably not recognized as being married for IRS purposes.
Note that IANAL and IANAA. This is all just what I’ve picked up in dealing with my own situation.
@tdott thank you for your info. it has been most helpful. I will be attending two seminars this month for covered expats – Hodgen and Moody’s. I will report back on my findings. Thank you to everyone for your help. I came to this site over 2 years ago and started my Cad citizenship application at that time. It has been 2 years and 3 months and I think I am hopeful of getting it soon. My next step was to relinquish or renounce; unfortunately, they raised the price of renouncing from $450 to over $2,000. How many of us in business would be allowed to do that??
I am preparing my 4079 in order to relinquish. I became a citizen in 1974 and have a letter from the US Consul General at the time stating I’d automatically lose my US citizenship when I became a Canadian.
I’m trying to devise a response to question 7 – “when did you first become aware that you might be a US citizen?”
In 1987, after being told twice by border guards that I might still be a US citizen, I wrote the embassy. In response, I received a letter stating that might be correct and that a determination of whether I meant to voluntarily relinquish had to be done on a case-by-case basis. The letter included a form much like the 4079 and suggested I go to the embassy for a determination.
After consulting my lawyer and as I firmly believed that I had lost my US citizenship in 1974, I chose not to do anything.
My question is do you think the fact that the embassy wrote me in 1987 will be held against me in trying to relinquish? I’m not sure how much detail to supply about why I did nothing following the letter from the embassy.
Any and all advice is appreciated.
Proud. I Imagine you were born American and became Canadian in 1974.
Answer question 7 by saying ‘I was born American” you can supply the circumstances as you wish.
No need to talk about your conversation with the embassy.
Your case is ironclad, waterproof and air tight.
The problems answering the questions arise because this same form was originally used for people trying to RECLAIM their US citizenship. Now it is used for the opposite purpose- hence the confusion.
P.S. Consider a donation to ADCS. You are not liable for a fee to document relinquishment. You are also not liable for any tax filings.