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
@ JFUD,
Based on the reports I’ve read here, I wouldn’t say it definitely ruins one’s chances but I tend not to be optimistic about it.
Using a US passport after performing the potentially relinquishing act has not always been fatal to a relinquishment claim, but the odds for success are not good, particularly from reports we’ve received here in the past year. So, I wouldn’t say it’s a definite no, but that it’s definitely problematic.
You could, at the consulate, explain your reason for using it (eg, you thought you were supposed to use it because you born there, even though you were no longer a US citizen, or whatever) and see how it goes. If the consul feels that using the passport negated your relinquishment, (1) you could have your file sent to DC anyway and see what DC decides — on a matter like this, it’s definitely dicey – or (2) you could renounce on the spot.
@ JFUD,
No need to do that first. DoS doesn’t ask for proof of tax compliance. So if you apply for a relinquishment-based CLN or renounce this year (2015), you have up til 15 June 2016 to back file 2010 so you can certify on your 8854 that you’re compliant for the 5 years preceding expatriation.
The connections between the two departments are:
(1) Dept of State
Dept of State basically doesn’t care about one’s tax status as the citizenship itself (and the issuance of the CLN) is not dependent on one being tax compliant.
DOS’s involvement/connection with tax is the following:
(a) At the consulate the person signs DS-4081, Statement of Understanding of Consequences; one of the 12 items on it is Item 10, that renouncing “… may not exempt me from US tax income taxation [etc] …”
(b) The questionnaire, DS-4079, at q. 13 (e) asks “Do you file US income or other tax returns?” The tax question on the DS-4079 is there as an indicator of your ties and connections to the US, which are relevant if you’re claiming to have relinquished some time ago.
(c) Dept of State is to provide IRS with a copy of each CLN they issue as per DoS Interagency Coordination and Reporting Requirements, 7 FAM 1243(a).
(2) IRS
To log out of IRS and avoid covered expatriate status, IRS requires that the person file their exit tax form (8854), their final year form, and the five-years-previous-to-final-year forms, by June 15th of the year following the renunciation (or the year following signing of the 4079, in case of relinquishments).
FWIW, if a person chooses not to file, the citizenship itself remains terminated and the CLN remains valid.
Thanks, @pacifica777. My issue is with starting the tax filing process since I have no idea how to even start. If I didn’t file at all, would I be ineligible for renunciation?
@ Free at Last
Hearty congratulations on getting your CLN, a definite memorable moment in ones life.
Yes, make several copies of that very important document and carry it with you if you will be crossing the border into the US. You may or not be questioned about the fact that you have a US place of birth but, if so, this provides the documentation they need to satisfy their job description. No rant or snark or anger, just “here is my CLN”. I have been asked why I renounced, and have, in addition to mentioning that I’ve lived in my country of choice for over 45 years (certainly longer than I lived in the US), I’ve told these folks more about FATCA than they had any idea about. One never knows who one can simply/factually “educate”…… 🙂 Best of luck in the new freer stage of your life and keep Brocking!
JFUD, if you don’t file anything, you can still successfully renounce. However, as mentioned above, that’s only part of the story as you will remain a US tax resident (and thus subject to US taxation), until you properly log out of the US tax system.
Here’s my standard blurb on the subject. Note that it’s written by a risk-averse type of person. Others will disagree with my leanings and that’s perfectly fine. Just make sure that you know all the ramifications of the actions you’re pondering, so that you can make a decision that works for you.
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For the sake of anyone new reading this and thinking not filing 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 (or not submitting 8854), 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 $663K (2013) 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.
There have been no known reports of people who have renounced without filing being hassled about their non-compliance when attempting to enter the US. However, given increasing inter-agency and inter-country data sharing, it does seem possible that at some point in the future US border people will be aware of all former USC’s tax status. Should that come to pass, 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.
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 and 8854. 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 worst 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)
Thanks @tdott and @pacifica777! Being a student, I don’t have the financial means to hire a tax professional so your suggested DIY method sounds good to me. If anyone has tips and tricks on filing 5 years worth of taxes in one go, please let me know 🙂
Actually, if anyone could point me to a tax related thread or site for first time filers who want to renounce, that would be awesome. Thank you.
JFUD. You said you are a student. If your income was low enough, you then had no obligation to file anything. You could google the thresholds for filing for 2010-2015. You could be below.
Say you renounce in 2016. You would then file a 8854 and would be able to state you were tax compliant for the 5 previous yrs.
FBARs are another matter. You could either file them or not as you choose . If you decided to file them, it’s done online and there is a drop down menu of reasons why you are late. ‘I didn’t know’ is a good enough reason for minnows. Or you could forget about filing altogether. There are other renunciants who have gone that route. Good luck.
Thank you @Duke of Devon, previous thresholds were $10,000 and I think I went above that with part-time work.
I read somewhere that even if you renounce US citizenship, your tax obligations (your status as a US Person) remains for 7 more years – is this true? If so, is renouncing not really a ‘quick fix’ to the taxation problem?
That is not correct. If you renounce, your tax obligations end that day. You are supposed to file for the previous 5 yrs plus a partial yr. when you renounce. Note that if you have never filed, they have virtually no way to find you. Their computers match reports from US employers and banks against returns that are filed. They primarily use the SSN to do this. You would not have had any income reported to the IRS.
It is true that the State dep’t would give your name to the IRS. It is also a fact that the IRS is overworked, understaffed and has no resources to deal with students living in another country.
@ JFUD,
No, US tax obligations and status as a “US person” end the day of the renunciation.
I think there was once (renunciations between 2004 and 2008) a requirement to keep filing for ten years. I am not certain of this – someone else can confirm if that’s correct or not.
But the important thing, at this time a person is only obligated to file for the time up to renunciation day.
26 US Code 877A(g)(1)(B)(4) — Tax responsibilities of expatriation
“(4) Relinquishment of citizenship
A citizen shall be treated as relinquishing his United States citizenship on the earliest 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), …”
Thank you all for the support and information, I don’t know what I would do without such a resource. I’ll keep everyone posted on progress, and further questions (I’m sure I’ll have more down the road).
Pacifica- There was only an obligation to keep filing if one were wealthy at the time. (wealthy enough to afford a high priced accountant)
@jfud
Look on ebay and amazon and buy old copies of tax software for each year.
Also I believe fbar is not technically part of the 8854 as its a different code section.
Thanks everyone it is amazing to really feel free!
I booked my appt in April 2015 at the Calgary Consulate my appointment was July 2015 I received my CLN Sept. 2015. It was all quite quick! Thanks for all the support and information during the whole process!
Congratulations, Free at Last. By your report, it sounds like the Calgary U.S. Consulate continues to be one of the better for the expatriation experience.
@Free at Last
Wow, that was fast. Did you renounce or claim a past relinquishment?
For sure I was carrying a copy of the receipt and of a recent email from the Consulate confirming my “application” was still in process but it was nice not to have to pull them out.
I renounced. It was faster than I thought it would be!
@All,
I’d like to suggest that people with CLNs and passports with US places of birth ask the border agent when entering the US if carrying the CLN is ever necessary, or if their computer systems show they are not US citizens, etc.
This questions comes up often and it would be nice to have a sampling of various US entry points and agents. I plan to ask these questions next time I go to the US, but it won’t be any time soon.
pacifica777, Duke of Devon, Calgary 411 and all who have answered me before, I received my CLN in Feb. of this year and filed final papers June 15 this year. FREEDOM. Now I received this email from accountant TODAY:
“I have some news for the U.S. Voluntary Disclosure for 2005 – 2012. The agent I spoke with has reviewed the bank statements we sent off back in April. They are unfortunately unable to corroborate the bank statement balances to the FBARs submitted and are asking for a complete explanation on how the maximum values were determined for the FBARs for all the tax years included in the OVDI program 2005 – 2012. The agent has set a deadline to respond for September 24th, 2015. Unfortunately, he is away until that day so I am unable to speak with him directly. I may need to leave a message to request an extension for this response.”
They want a response in 7 days!!! BTW, last fall they came back to me requesting 7 years of bank statements AFTER I had sent everything in. Luckily my bank was able to get me copies. Of course my numbers were probably off when I submitted original FBARs in 2012!
I want to know if I can tell them to go screw themselves. I feel like they are harassing me. I owe nothing. What can they do to me at this point? I’ve had it. I wouldn’t know how to justify it all anyway. What are your thoughts?
@Swanee
Our IRS agent decided to pop one more question before he let us opt into Streamlined:
What was the source of the funds in all of your FBARs?
What, did he really want us to go through every line of every bank statement over the 11 years (it took them 3 years to get to our OVDI case) of bank statements he had in his possession and tell him where all the money came from? Fortunately, our response that the funds were derived from where any normal family would receive them (house sale, insurance settlements, etc) was sufficient, and if he had a question about any transaction in particular, I would be happy to answer him.
Our IRS agent’s handling our case cost us thousands in extra accounting fees. He even told our accountant that for all the hours he’s spent on our file, he wished he too could bill by the hour!
High blood pressure goes with dealing with the IRS. As much as you want to, telling them to screw themselves won’t get you where you want to go, and defeats the purpose of why you’re dealing with them in the first place.
“When you’re going through hell, keep going.” – Churchill
Swanee. I think you already know my answer. It all depends on how much more you can take and what if any connections you have with the USA.
If none, I would answer something along the lines of ‘ Dear Sir, I have spent hundreds of hours and thousands of dollars to try and comply with your requests. I have never owed you a nickel. ( we don’t have pennies in Canada). No matter how much more information I send I will still not owe a nickel. Your rules are so arcane it isn’t possible for a mere mortal to satisfy them.
Please be aware I am no longer a U.S. citizen, I am not a green card holder and I don’t live there . I am no longer subject to the IRS. I deeply regret starting down this road. There is no information that I can give you that you don’t already have. Yours truly Swanee.
There is an alternative approach.
Write a note asking. ‘ do you think it will hurt?’
‘ will what hurt’
‘ when you go f*** yourself’
Thanks for two very different opinions! I knew Duke of Devon would be a tad more strident. I think I will ask for the name of the agent and write a letter nicely saying what Duke suggested. My best friend has a house in Florida and I want to go visit her every winter, so that’s my only connection. If I write the letter and nothing else, do you think my file would be flagged in the future for border crossing?
@Swanee
Why did you bother filing taxes when you renounced? That was the time to tell the IRS to screw themselves, not now.