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
@pukekonz, if you can relinquish, then it should be backdated, liberating you from the tax mess. So, just annoy yourself with the tax filing if you are forced to be troubled with a renunciation.
Then it might be possible that they’ll accept your relinquishment which would be good news for you. I guess it’ll depend on how the embassy there is handling (or not) people who want to give up their citizenship. This could all be new territory for them if they haven’t had anyone doing so before.
No, it’s only in the last couple of years that the border control have began asking about passports I believe, again it’s another crack down on a law that’s been around for ages, but never enforced.
Well, at least you did know you should be filing tax returns. I didn’t and only found out by accident that I should have been filing for the last 40 odd years!
I really hope they do. 40yrs you say? Ouch, I feel for you man. I wonder if this lunacy will ever end. It should be simply you make under 150k a year and have less than 2million in assets then you are not required to file. It’s the little guys who get punished in this scheme.
@pukekonz, CHF 150k is equivalent to maybe $75k in the US. With the current exchange rate, though, its value is $157k. With the Swiss tax rate of maybe 10% and a US tax rate of 30%, a 5 member family in Switzerland would be unable to save without the FEIE, and would have to live from paycheck to paycheck.
So, even $150k is not a lot in some situations.
I informed the us in 2012 that I relinquished my citizenship in 2008 when I became a Canadian citizen. They asked, “What took you so long”? I said, “I didn’t know I was supposed to tell you.”
It worked for me. I have a friend who come to find out is also a dual citizen. She became a Canadian in 1990. Since that time she has never renewed her passport. She has always traveled as a Canadian.
My question is:
What was the requirement in 1990 to inform the US as to relinquishing citizenship? Were you required to obtain a CLN in 1990? There is no section on the 8854 required to be filled for someone who relinquished in 1990. Does that mean if she can argue for a relinquishing in 1990 that the 8854 is not required? Form 8854 is used by individuals who have expatriated on or after June 4, 2004.
My guess would be 3 years back tax returns, 6 years back FBARs. Fill out a DS-4079. Obtain a CLN back dated to 1990 and she is done.
If she fails to argue relinquishing, then a DS-4080, a DS-4083 and then the 8854 with the last tax filing.
Any comments or corrections?
@ Worldwide,
The requirement to log out of IRS first became law in 1996 (effective retroactively to 6 Feb 1995) and since amended in 2004 and 2008. So, the general consensus we’ve been getting is that the law doesn’t apply to persons who expatriated before that date. (Several tax lawyers have also told us that if you’ve been out of the system that long, basically IRS doesn’t even know who you are or care about you, so don’t wake the sleeping bear). It’s a bit ambiguous though because of poorly written law. So there’s not a cut-and-dried answer, but that seems to be the general consensus.
Take a look at these threads for more information.
Pre-1995 Relinquishers and the IRS: Three Recent Legal Opinions
http://isaacbrocksociety.ca/2013/02/16/pre-1995-relinquishers-and-the-irs-three-recent-legal-opinions/
Michael Miller paper on the Exit Tax – Applies prospectively
http://isaacbrocksociety.ca/2013/03/05/michael-miller-paper-on-the-exit-tax-applies-propsectively/
Please read this post if your actual expatriation date is before 2004 (Updated)
http://isaacbrocksociety.ca/2012/06/19/if-your-expatriation-date-is-before-2004-the-rules-are-different/
Be careful here. It’s not dependent on it being a relinquishment (s.(1)-(4)) as opposed to a renunciation (s.(5)). It’s when the relinquishing act occurred.
Prior to 1995, there was no requirement at all to file an IRS “exit tax” form (the first forerunner of the 8854 came into being effective 6 Feb 1995).
Prior to 4 Jun 2004, US citizenship ended for IRS purposes at the same time it ended for DoS purposes — in 2004 the law was changed to IRS considers the citizenship to have ended the day the person notified the consulate, not the day the person actually performed the relinquishing act.
So, a CLN (issued 2013) based on a 2008 relinquishment would not have any different impact on one’s IRS situation than a CLN (issued 2013) based on a 2013 renunciation.
Regarding s.(1)-(4) relinquishments:
2004
26 USC 7701 (n) Special rules for determining when an individual is no longer a United States citizen or
long-term resident. For purposes of this chapter—
(1) United States citizens. An individual who would (but for this paragraph) cease
to be treated as a citizen of the United States shall continue to be treated as a citizen of the United States until such individual—
(A) gives notice of an expatriating act (with the requisite intent to relinquish
citizenship) to the Secretary of State, and
(B) provides a statement in accordance with section 6039G (if such a statement is
otherwise required).
(2) Long-term residents. A long-term resident (as defined in section 877(e)(2))
who would (but for this paragraph) be described in section 877(e)(1) shall be treated as a
lawful permanent resident of the United States and as not described in section 877(e)(1)
until such individual—
(A) gives notice of termination of residency (with t 5
(B) provides a statement in accordance with section 6039G (if such a statement is
otherwise required.)
2008
26 USC 877A(g)(4) http://www.law.cornell.edu/uscode/text/26/877A
(4) Relinquishment of citizenship. A citizen shall be treated as relinquishing United States citizenship at the earlier of:
(A) the date the individual renounces his United States nationality before a
diplomatic or consular officer of the United States pursuant to paragraph (5) of
section 349(a) of the Immigration and Nationality Act (8 U.S.C. 1481(a)(5)),
(B) the date the individual furnishes to the United States Department of
State a signed statement of voluntary relinquishment of United States nationality
confirming the performance of an act of expatriation specified in paragraph (1), (2),
(3), or (4) of section 349(a) of the Immigration and Nationality Act (8 U.S.C.
1481(a)(1)-(4)),
Pre-1995 Relinquishers and the IRS: Three Recent Legal Opinions
http://isaacbrocksociety.ca/2013/02/16/pre-1995-relinquishers-and-the-irs-three-recent-legal-opinions/
Michael Miller paper on the Exit Tax – Applies prospectively
http://isaacbrocksociety.ca/2013/03/05/michael-miller-paper-on-the-exit-tax-applies-propsectively/
Please read this post if your actual expatriation date is before 2004 (Updated)
http://isaacbrocksociety.ca/2012/06/19/if-your-expatriation-date-is-before-2004-the-rules-are-different/
Question – Under what circumstances is a dual national from birth treated as an “uncovered” expatriate? According to the below info a dual antional from birth would have to never have had a U.S.passport in order to be considered under this law?
“There are two very narrow exceptions to covered
expatriate status for an otherwise qualifying US national.
The more likely exception to apply aims to
exempt persons who were born into dual citizenship.
In order to be exempt, however, the person must
never have been a resident of the United States for
income tax purposes, must never have held a passport
and, over the previous 10 years, must not have been
present in the United States for more than 30 days.”
This is very detailed information (and does not appear unless you check the actual law text) and I think it important to know whether the fact that a dual national at birth did have a U.S. passport issued at one time would disqualify the person for this exemption? Essentially any dual national who knew they were duals and ever travelled to the U.S. would have a U.S. passport – based on the requirement to enter the U.S. on a U.S. passport.
@ allou
Wow, that seems to contradict info I have read elsewhere.
ie the renunciation guide on this site states
“There is only one exception for adults. If you received citizenship of both the U.S. and some other country at birth, if you continue to hold the citizenship of that country, if you are taxed as a resident of that country, AND if you have been a resident of the U.S. for no more than 10 of the 15 years prior to renouncing U.S. citizenship, you’re exempted from the exit tax provision. (A minor who relinquishes U.S. citizenship before age 18.5 and did not reside in the U.S. for more than 10 years is also exempted).”
The law as you have read it seems to only apply to exempt those dual nationals at birth who were NOT born in the US but only received their citizenship from American parents, so called ‘accidental’ Americans, who had the good fortune to have not set foot in the US for more than 30 days in the last 10 years!
Can you post the source link to this law?
NB
OR.. if you were born in the US to foreign parents but taken to country number 2 as a child on their passport….and subsequently never applied for a US one!
http://www.law.cornell.edu/uscode/text/26/877
I found it in the above link. I have found it mentioned in one online attorney site, but all the others seem to bypass this detail. It does not apply to me, but may be very relevant for others to know – is it part of the law, or not???
here is the relevant text:
(c) Exceptions
(1) In general
Subparagraphs (A) and (B) of subsection (a)(2) shall not apply to an individual described in paragraph (2) or (3).
(2) Dual citizens
(A) In general
An individual is described in this paragraph if—
(i)the individual became at birth a citizen of the United States and a citizen of another country and continues to be a citizen of such other country, and
(ii)the individual has had no substantial contacts with the United States.
(B) Substantial contacts
An individual shall be treated as having no substantial contacts with the United States only if the individual—
(i)was never a resident of the United States (as defined in section 7701(b)),
(ii)has never held a United States passport, and
(iii)was not present in the United States for more than 30 days during any calendar year which is 1 of the 10 calendar years preceding the individual’s loss of United States citizenship.
Maybe we have a lawyer Brocker out there who could clarify?!
I would appreciate that, I am not a lawyer
How very weird. If you go the IRS website, it bounces you to the Cornell site if you want the full text of a particular code ie 877. The IRS website also contains this disclaimer:
“Treasury regulations (26 C.F.R.)–commonly referred to as Federal tax regulations– pick up where the Internal Revenue Code (IRC) leaves off by providing the official interpretation of the IRC by the U.S. Department of the Treasury.”
If you follow the link to the “official interpretation” it sends you to this (http://www.gpo.gov/fdsys/pkg/USCODE-2011-title26/pdf/USCODE-2011-title26-subtitleA-chap1-subchapN-partII-subpartA-sec877A.pdf) from the Government Printing Office. The language in the “official interpretation” is different from the tax code. Form 8854 (2012 version) is consistent with the “official interpretation” but, apparently, not with the underlying tax code.
From Form 8854 Part IV (For persons who expatriated during 2012)
3. Did you become at birth a U.S. citizen and a citizen of another country, and do you continue to be a citizen of, and taxed as a resident of, that other country?
4. If you answered “Yes” to question 3, have you been a resident of the United States for not more than 10 of the last 15 tax years?
6. Do you certify under penalties of perjury that you have complied with all of your tax obligations for the 5 preceding tax years (see instructions)?
The dual citizen exemption is if you can answer “Yes” to 3, 4, and 6. So, a dual citizen from birth, resident and taxed in the non-US country who has not lived in the US more than 10 of the last 15 tax years is eligible for the dual citizen exemption (ie the “exit” tax thresholds do not apply). In order to avoid status as a “covered” expatriate, a person who is eligible for the dual citizen exemption must also be tax compliant for the preceding 5 tax years.
I am also not a lawyer but it would appear that this is one of the rare instances where Treasury “interpretation” works in favour of expats.
Yes, and that seems to be the rational that everyone’s using. Strange that it doesn’t mention the no US passport and not ever living in the States conditions though. Certainly the Treasury explanation is much more favourable. I would think the other would rule out nearly everyone except for accidental Americans who’ve never lived or has a US passport. I wouldn’t be exempt under allou’s link interpretation; not that I have enough wealth to qualify to start with.
@allou, heidi
It depends when you expatriated. Allou is talking about 877 and Heidi is talking about 877A.
Take at the bottom of this link at (h) Termination.
http://www.law.cornell.edu/uscode/text/26/877
@uncle tell
Which interpretation is used for persons who may expatriate in 2013 onwards? (Not me for the record)
@ Uncle Tell
Thanks for the clarification.
@ allou.
I guess that if the 2012 8854 refers to 887A, then that is the latest interpretation…and after all 887A should come after 887?!
@allou
Sorry for not responding sooner, but I needed some intensive medical attention while watching the Ice Hockey World Championship. Switerland just beat the US 3:0 !!!!!!!!!!!!! 🙂
Just kiddin, I’m o.k. but the Swiss just whipped some a## today on the ice 🙂
So back to the topic, I would say that 887A would definately be the set of rules for 2013.
Has anyone had problems crossing the U.S. border after they renounced?
@ Small,
So far no one’s reported any problems at Brock or at Maple Sandbox. Maple Sandbox has a pretty lengthy thread, in which people share their experiences crossing both with and without CLNs. http://maplesandbox.ca/2012/crossing-the-us-border-on-a-canadian-passport-showing-a-us-birthplace
Best plan is to have your CLN on you, of course, but just cross as a Canadian and only bring out the CLN if the issue comes up (which so far as I can recall no one’s posted that they were asked to). If you don’t have your CLN yet, bring your $450 receipt from the consulate with you. Once you apply for a CLN, the fact that you did is also in a database that DHS accesses.
@KalC andf others
Kal wrote “Having been born a dual citizen, you are NOT subject to an exit tax and cannot be a ‘covered expatriate’`. As I read it, a dual from birth still has to file 5 years back in order to not be a covered expat. The small advantage for a dual from birth is, if they do the 5 years filing and have assests that would otherwise make them covered (over 2 million worth and large amount of US tax burden) then as a dual from birth they will not be treated as covered even though their “worth” is high. I think this means that if they don’t file 5 years back then they have to exit as covered. Anyone know any more about this?
That’s the way I read it, allou. You have to file the 8854 with your 1040 by June 15th of the year after your renunciation. If you renounce in 2013, you will file partial year 2013 up to the day before renounce, full years 2012, 2011, 2010, 2009, 2008. You do not have to file the full five years before you renounce, but you do have to file everything and the Form 8854 with your last partial year return — or, bingo, you are a covered expatriate.
Read, read, read the Consulate Report Directory (link at http://isaacbrocksociety.ca/consulate2/) for procedures, forms, experiences at different consulates and embassies as reported here at Isaac Brock. After that, ask any other questions you have. Sooner rather than later for that renunciation — as soon as you’re comfortable with the procedures. Appointments for some consulates and embassies take longer than those for others.
Re knowing / proof that you are compliant, this comment may help: http://isaacbrocksociety.ca/expat_tax/comment-page-4/#comment-201852.
Best of luck, allou!
http://hodgen.com/how-to-compute-net-tax-liability-for-form-8854/
http://hodgen.com/the-exit-tax-paperwork-for-people-who-have-never-filed/
@calgary411 – just wondering if there is any “best practice” re when to renounce. Obviously best to first file, then renounce. But how can one be certain one is compliant? Even if no taxes are owed do you have to get some record the returns have been filed? Obviously a receipt for sending them is required, but as far as I have heard, one often never hears back from the system. What time lapse would be reasonable – wait 6 months after filing before renouncing? More, less? Obviously not for ever,but perhaps not too soon? Have read that the SD sends lists of issued CLN to the IRS.
@allou
That is my reading as well: wrt not being a covered expat, being a dual from birth relieves you of the net worth test, however, it does not relieve you of having to be 5 years compliant. FWIW, I’ve talked to a cross-border tax accountant who was advising me to go the Streamlined route (3 years of returns). Next time we talk I’m going to be insistent on filing 5 years of returns one way or the other, and see what comes out of that. I think we’re both in the same boat of wanting to get 5 years compliant ASAP so we can shed our US citizenship.
@bubblebustin
This is a FYI which you may or may not be interested in. I applied for an updated citizenship certificate using the CIT0001E form discussed a while back. Under 4 weeks later I received my updated citizenship certificate showing my “effective date of citizenship” as being my date of birth, just as hoped. I can write a bit about how I got it expedited if you (or anyone) is interested.