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
@Barbara;
This was an interesting post by a lawyer (this is not meant as an endorsement or advertisment) on the subject of expatriation, the 5 years certification issue re FBARs unfiled:
http://hodgen.com/expatriate-without-filing-fbars-sure-thing/
I no longer need any expatriation advice, but I subscribed to and still read his expatriation emails as they are very detailed, he cites sources and describes his logic:
http://hodgen.com/lists/
He also will answer questions emailed to him on expatriation topics – by incorporating them into his email posts.
I found his site and posts very useful when I was wrestling with the incomprehensible form 8854.
These posts by LM about how to calculate ‘current’ value of pension on 8854 (as if received in full the day before renouncing even if one is not actually even receiving benefits yet) was very helpful. THANKS LM and hubby!
http://isaacbrocksociety.ca/renunciation/comment-page-107/#comment-1708251
http://isaacbrocksociety.ca/renunciation/comment-page-107/#comment-1708327
http://isaacbrocksociety.ca/renunciation/comment-page-97/#comment-1338642
@George
I have to give BC Doc full credit for that brilliant idea for a “DYI CLN” that evolved from this comment I made on another thread:
http://isaacbrocksociety.ca/2013/09/19/question/comment-page-8/#comment-5857744
Relinquishment in Ottawa Follow-up
I had an appointment at the Ottawa embassy in April 2014 to inform the US that I had relinquished years before and to get a CLN.
On the off chance that my CLN would eventually arrive, any time I left town for more than a week I informed the contact person in the embassy.
I received panic calls and emails in September (when I was out of the country) from the embassy contact person. Washington needed clarification on some information (information I had already provided) and the fee was soon to go up if my relinquishment was not accepted and I would then need to renounce. Once back, I provided the information. Everyone went back to sleep.
In late March 2015 I once again informed the contact person that I was going to be in Ottawa for the week and asked what was happening since it had been almost a year and it was getting close to Form 8854 time if the relinquishment CLN was to be granted. I sent an email on the weekend and received an email on Monday saying that the CLN was in the mail. I made a special trip home (200 kilometres round trip) to intercept it.
It turns out that the CLN was approved and initialed by the Vice Consul on January 16, 2105. It had been sitting in Ottawa since then. Who knows when it would have been sent if I hadn’t have asked??? If I calculate to January 16, it took a week more than nine months for the CLN to be approved and initialed in Ottawa. If I calculate to when I actually had the CLN in my hot little hands, it was a week shy of one year.
Since I have few assets and have become tax compliant anticipating a CLN, I chose to fill out 8854. I am aware of the discussions about the rules being retroactive or not for those who relinquished before 2004, but I want total freedom from US generated worry. I filled the thing out as best I could and sent it off. It took a lot of pondering since I don’t speak IRS.
Moral of the story, try to have the email of a contact person and ask what is happening after a while – specially when red-tape deadlines are getting close.
@ Voyons
Congratulations! What a tale! And that’s really good advice about having an e-mail contact person. My husband ended up with a sort of contact person at the Calgary consulate. It was nice when he could stop using Dear ACS in his e-mails. She was actually quite helpful.
@ Voyons.
First congrats; you give the relinquishers world hope.
You are also very lucky to have had a contact person. I am involved in a relinquishing case in which the “US Person” in question appeared at a relinquishing hearing and asked at the end, “if need be, how can I contact you?” The official gave a two-word answer: “YOU CAN’T”.
The contact person in Ottawa was the person who received the request for an appointment, sent off the papers to fill out and upon reception set up the appointment. At the appointment, she did the initial paper work, the vice consul looked over everything and then she made all of the photocopies and produced a letter as a temporary CLN when I asked for one. I already had her coordinates (telephone number and personal email from setting up the appointment). She is also the one who contacted me in September for further info. When I was back in town and contacted her, she was unavailable so I tried the person who was on duty to deal with emergencies. He got back to me and said “my” contact person was the only one who dealt with relinquishment-type files and that nothing would happen until she got back.
I guess I was lucky, but it is still worth trying to have a contact person.
Congratulations, Voyons! Thanks for sharing your news and advice. That was some wait. BTW, yours is not the only CLN that’s been sitting in Ottawa for several months after approval lately – really sick as these are very important documents for people. Great to hear that you have it, it does bring a great sense of closure. Thanks again for your consulate report last year –one of the most thorough I’ve ever seen!
Congratulations Voyons! You’re nearly done with the US forever now.
I am really puzzled by something that I have seen stated but not explained.
paraphrase “When filing in expatriation year return, the Tax Liability on Form 1040 (statement) ‘flows’ to 1040NR return.” (I get the need for 1040 and 1040NR)
BUT What is this ‘flows’ ? Does it mean I include the total liability on the 1040 statement and put it somewhere on the 1040NR return, and if so, where?
Thanks for any insight on this, I can find nothing that says where to flow 1040 statement liability onto 1040NR.
here below is the full text of where this reference ‘flows’ is used.
Form 1040
On Form 1040 you report your worldwide income from January 1 of the expatriation year until the day before your expatriation date. You were a U.S. taxpayer for this time period.
You also include your exit tax liability here, if you are a Covered Expatriate, and the total tax liability on Form 1040 flows to your 1040NR.
Form 1040
On Form 1040 you report your worldwide income from January 1 of the expatriation year until the day before your expatriation date. You were a U.S. taxpayer for this time period.
You also include your exit tax liability here, if you are a Covered Expatriate, and the total tax liability on Form 1040 flows to your 1040NR.
Form 1040NR
On Form 1040NR, you report your income from the expatriation date until December 31. From the date you terminate your citizenship or permanent resident status, you are a nonresident alien for income tax purposes, so you only report your U.S.-source income. Any income you earned outside the United States will not be reported or taxed.
The tax liability reported on your Form 1040 also flows to the 1040NR and the total tax liability for both returns is reported here.
@JohnDP Unfortunately, I do not have an answer to your question, but I do have a question about something you stated… You say “I get the need for 1040 and 1040NR”. Can you explain this to me? I don’t get it. If I expatriate and am no longer a US citizen, why do I even have to file for the rest of the year as a non-resident? I don’t have to fill in my last return until next year, but I am hearing two different opinions on this. Phil Hodgen’s blog seems to say it IS necessary, my accountant (Enrolled Agent) told me we just file the portion of the year up to expatriation and are done with it. Any help clarifying this would be appreciated. Thanks and good luck with your flow-through question.
@readytogo
My words to answer your question why you have to file 1040NR.
You must file for the year or part year during which you are obliged to file – and you must use the Form that applies to your status on the last day of that year which was non-resident alien. As an NRA at the end of your final year you report tax as an NRA on a 1040NR. The 1040 is not filed as your end of calendar year return, but as an attached statement to the 1040NR.
This is the puzzle for me; the 1040 figures a Tax Due for the period I was USC. Do I transpose that onto the 1040NR (and if so, where?)
Back to your question of why file 1040NR, officially, Pub 519 Chapt 6, page 33 says;
Nonresident at end of year. You must fileForm 1040NR or Form 1040NR-EZ if you are a dual-status taxpayer who gives up residence in the United States during the year and who is not a U.S. resident on the last day of the tax year. Write “Dual-Status Return” across the top of the return. Attach a statement to your return to show the income for the part of the year you are a resident. You can use Form 1040 as the statement, but be sure to mark “Dual-Status Statement” across the top.
If you expatriated or terminated your residency in 2014, you may be required to file an expatriation statement (Form 8854) with your tax return. For more information, see Expatriation Tax in chapter 4.
Hope this helps – and you will end up with the same puzzle as me, do you take the Tax Due amount from 1040 and include it in 1040NR and if so where?
Regards, John
Thanks @JohnDP. It would be so nice if this was EASY to understand!
It looks to me that tax owing on the 1040 is copied/flowed/entered on line 42 and/or 54 on the 1040NR.
http://www.irs.gov/instructions/i1040nr/ch01.html#d0e1299
Form 1040NR Line 54 says “Self-employment tax”. My mother’s accountant entered the comment “1040 Statement” into the comment space on line 54 and copied/flowed the $0 owing from the 1040 Line 76. Line 27 on the 1040NR was treated the same way (but also $0 in her case).
JohnDP and readytogo. Another wonderful example of the gobbledegook in the IRS code and instructions. No mere mortal can make sense of them.
Re reading of the sections on dual status seems to indicate that dual status refers to residence and NOT citizenship.
One is dual status if he moves to or from the US during the year. One is not dual status because (s)he renounces.
Naturally confusion abounds.
I go with readtogo’s accountant. Just file as a US person up to the date of expatriation and be done with it. The exception to the rule- there’s always one-if you have US source income or business or real estate or whatever which would have required a non resident alien return in any case.
Having sufficiently muddied the water, if you owe no US tax it probably doesn’t much matter what you do. You can’t get it right or wrong. You can only do your best.
@PortlandPLC Thanks for your input! Definitely not a resident and have no US source income, so the term dual status seems to not apply. I agree. We can only do our best.
Here’s an interesting twist on the usual types of consular renunciation reports we hear about – now the US consular officials can ask you why you haven’t visited your mother in the ‘homeland’!
“…I was renouncing my US citizenship — something I should have done decades ago — and as one might envision there’s quite a production over this. I mean, who would renounce citizenship of the Greatest Country on Earth Evah?
Many forms, many questions.
Viz., what remaining ties do you have to US? Moi: Just mother in Florida.
More questions.
What passport do you use to travel to US? (US demands you maintain and use USian passport if you travel there. Simple money grab? Dunno.)
Moi: I haven’t been to US since last US passport expired.
Consular official, looking at passport and noting expiry date of nine years ago, says incredulously: “You haven’t visited your mother in NINE YEARS?”
Moi: Nope.
Now she’s giving me the full-bore “What Manner of Ungrateful Seed of Satan Are You?” look.
I’m withstanding it, wondering if my application is going to be denied because I am an awful, unAmerican daughter……….”…..
http://scathinglywrongrightwingnutz.blogspot.ca/2015/04/the-sanctity-of-american-motherhood.html
@JohnDP, @readytogo
As Portland PLC correctly quotes, dual status applies only to residency, not to citizenship. When I renounced in 2012, I was neither a US resident alien nor a US non-resident alien, so dual status didn’t apply. I filed 1040 up to the date of renunciation and since I had no US source income, no 1040NR was required thereafter. I know others here (and also Phil Hodgen) argue otherwise, but you will find no IRS publication supporting the dual status approach.
@ notamused, @readytogo, @Portland PLC,
thanks for your input – It was not the question I was seeking an answer to because I know I am a NRA, I have US assets and will file 1040NR, but your words do go a long way to lifting the clouds anyway.
@ what ami, thanks for answering my question. I agree. That’s as good as it gets and in the absence of anything more specific that is what I shall do. As the 1040NR is the return of the end of the year I felt a need to put the 1040 results somewhere on the 1040NR.
I echo we all can only do our best for our individual circumstances in the absence of specific instructions.
@notamused (yeah, me neither)… Thanks for the benefit of your personal experience. It goes a long way toward easing my mind.
With regards to the question about filing both a 1040 and 1040NR during the year of expatriation, I have to disagree with the posters who agree with Mr Hodgen.
Most of the questions and answers to this issue begin by bemoaning the poor documentation, such as @PortlandPLC who wrote yesterday: “Another wonderful example of the gobbledegook in the IRS code and instructions. No mere mortal can make sense of them”.
Long-time IBSers have seen and made countless posts about how US documents and laws, including citizenship law and the Foreign Affairs Manual, almost never handle the case of people who intentionally give up US citizenship. The US lawmakers just can’t conceive that any American would ever do this. After all, people lie and cheat and commit fraud to get these things.
Yet, everybody seems to go by the exact wording of the Dual-Status tax return instructions to come up with the answer that it only applies to resident aliens who become non-resident aliens. I think we can do better.
People hate and fear the IRS for several reasons, such as the fact that the IRS itself does not follow the letter of the law or its own instructions (which are woefully incomplete), they will not give you any help or guidance in advance for your particular situation but tell you that it’s complicated and you need professional tax and legal advice, and they never tell you after filing whether your submission is correct and accepted such that the issue is closed.
So, lets first define a non-resident alien: every person on the planet Earth who is neither a US citizen, a green-card holder, nor a US resident (over-simplified, and there may be more).
Let’s look at the Dual-Status tax return instructions for a definition of “dual-status”. Oh, there isn’t one. WTF? “Dual” means “two”, but what exactly are there two of? It mentions “dual-status taxpayer” and “dual-status tax year”. Well, a “dual-status taxpayer” is one who has 2 different tax statuses within one year. A “dual-status tax year” is the year in which a tax payer has the 2 different tax statuses. The Circle Game. What exactly are there two of? There are 2 tax-reporting regimes with corresponding tax forms: (1) reporting of worldwide income (the 1040 for US residents, green-card holders, and of course CBT for US citizens regardless of residence); and (2) reporting of US source income only (the 1040NR for NRAs).
Dual-status does NOT refer to changing residency. Dual-status does NOT refer to changing citizenship. Dual-status means falling under both taxation regimes and their reporting requirements within one taxation year, and requires both forms to be filed, one as an attachment to the other.
When a US citizen (or green-card holder) changes residency (leaves the US), there is NO change in tax status.
When a NRA leaves the US, tax status changes from reporting world-wide income to reporting US sourced income only.
When a person relinquishes US citizenship, tax status changes from reporting world-wide income to reporting us-sourced income only.
When a person not resident in the US officially gives up a green card, tax status changes from reporting world-wide income to reporting US-sourced income only.
Unfortunately, the dual-status instructions are piss-poor and describe it all only in terms of one example: a resident alien becoming a non-resident alien by leaving the US. In typical fashion, they completely omit the unthinkable cases of someone giving up a green card or relinquishing US citizenship. It’s clear, I’m saying, that these other cases also trigger dual-status tax reporting because they also cause the same change in tax reporting requirements.
The question remains, is there anything special about the year of expatriation that requires the 1040NR to be filed when there is no US-sourced income, since it is clear that in full tax years, a 1040NR is not required if US-sourced income is less than US$3950? It’s not clear in the instructions, but my interpretation is that there is this implication. There is no question that the year of expatriation is a dual-status tax year, because you change from USC world-wide income reporting to NRA US-sourced income only reporting. As JohnDP also posted, the instructions mention filing the main form as the one that applies to your status on the last day of the year, and use the other form as an attachment that is NOT SIGNED. It instructs to write “Dual-Status Return” across the top of BOTH forms. One way to view this is that if you just quietly file only the 1040 up to the day prior to expatriation, they don’t know that you have made the switch to NRA tax status for future years.
The extra form might cost between $0 and $1000 depending on your accountant. My mother’s accountant charged $15 extra for the 1040NR in her final year (very simple finances though).
So, that’s my take. Since the goal of most (if not all) relinquishers/renunciants who file US taxes for 8854 certification is to have a complete and clean break with the IRS, one might consider thinking beyond the letter of the instructions.
@WhatAmI Just to clarify, you stated “With regards to the question about filing both a 1040 and 1040NR during the year of expatriation, I have to disagree with the posters who agree with Mr Hodgen.” I think you mean you “disagree with the posters who disagree with Mr. Hodgen,” as he recommends the dual status return.
As usual, my head is spinning. But I am thankful for your input. I am printing out all these comments — both opinions — to have a good discussion with my accountant (even though it will be a 2014 final return for me). I have jumped through many hoops so far…one more is okay. Not to give in to fear, but to make as cleanly a break as possible! If one more form makes that more, rather than less likely, I’ll do it.
WTF
When I was in high school, I was taught to ignore any statement with more than 2 degrees of uncertainty.
Be that as it may
@readytogo,
Good catch!
I wrote what I intended at the time, but I see now that I had mis-read @notamused’s post above, and had read only a somewhat conflicting post by Mr Hodgen where he was answering a question about the 1040NR:
http://hodgen.com/dual-status-tax-returns-and-treaty-tax-rates/
Finally, I have found the proper blog where Mr Hodgen explains that a renunciant files a dual-status return which includes both the 1040 and 1040NR. So, I fully agree with Mr Hodgen on this matter! While searching for this I found other sites that agree as well.
http://hodgen.com/your-expatriation-tax-return-when-u-s-income-is-zero/
The IRS page at http://www.irs.gov/Individuals/International-Taxpayers/Determining-Alien-Tax-Status states:
If you were a citizen then you were not an alien, regardless of where you lived, one you renounced you became a non-resident alien. A dual status return is ONLY required for those transitioning between resident alien and non-resident alien states but since you were never an resident alien then there rules do not apply.
File a 1040 and associated forms for the period from Jan 1 to your renunciation date. File a 1040NR ONLY if you have US source income for the period after you renounced.
OK, so nothing has changed today. There are still 2 opinions on the 1040NR in the year of renunciation. Take your pick, people.
Billions of people around the world are non-resident aliens without ever first being a resident alien. There is no pre-requisite.
A dual-status return means filing both a 1040 and 1040NR. It’s ONLY required for those transitioning between being required to file a 1040 and being required to file a 1040NR. Changing from a resident alien to a non-resident alien is just one of several ways to trigger a change in filing requirements. Giving up a green-card is another which (potentially) involves neither a change in residency nor a change in citizenship, but it’s also not mentioned in the 1040NR instructions. Renouncing is another, and _both_ of these actions result in you being a non-resident alien without ever being a resident alien. The instructions suck, just like most US gov’t documents. Take the Form 8854 instructions, for example.
Mr Hodgen makes sense of it by saying the IRS always expects a full year tax return except in the case of the death of a tax payer. The 1040NR takes the tax filing to the end of the year and signals to the IRS the change of status for future years. In future years, the 1040NR is not required if there is no (or less than $3950) US-sourced income.