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
In general, reporting on new and existing accounts took effect in 2014. No need to speculate on what/when reporting is done. This information is available in each individual IGA (and elsewhere). For example, the UK timetable is available here in 9.3, “Timetable for reporting” : https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/461542/Guidance_Notes_for_the_UK-US_FATCA_Agreement.pdf
@publius & notamused
I had read that reporting had been delayed a year from the original iga.
However there seems to be a convenient lack of information by the UK banks to their US account holders of the process. Perhaps that is what explains the lack of any real resistance in the UK. Many are still unaware.
OK, hubster and I have finally made the decision. There is zero hope of any change to CBT, FATCA and so on. Even if the ADCS lawsuit prevails, it has no effect on us, living far from Canada. We will apply for local citizenship and then renounce the US. Looking for advice.
There is plenty of well-written advice on IBS and elsewhere about the renunciation process, so no confusion there. But I’m having trouble finding clear information about how to deal with that final tax form and Form 8854. We can’t afford to pay an advisor to walk us through the process, so looking for clear instructions.
For the record, we are 5-years compliant, and do not individually meet the $2 million net worth threshold to be considered “covered expatriates”. Questions remain, however, about how to accurately determine the “net worth” question on 8854. I can’t even figure out whether the past 5 years “tax liability” refers to “income subject to tax”, or “amount of actual tax paid”. If the former, does it include the FEIE? How would they react if we put five zeroes in those blanks (since that is our declared income after FEIE)?What’s more, when I look closely at the IRS instructions, it seems that if we aren’t covered expatriates, then perhaps we don’t even need to file form 8854 at all. Is this correct?
Phil Hodgens’ blog is helpful, yet increases the confusion, if you know what I mean?
What I’m asking for is links to clear step-by-step advice on how to deal with the final tax filing. Or some testimonials from anyone who’s done it themselves (8854 and final 1040, that is).
Thanks, friends.
@ Barbara
What a tough decision. As for 8854 I dare not advise because I’m not certain my husband did it perfectly. He took “tax liability” to mean “taxes owed then paid”. He filled in zeroes. I’ll let you know in 2020 (after the SOL is reached) if there were any objections to what he submitted. The wise ones here should be able to help, once they catch your comment. Good luck!
@Barbara
“What’s more, when I look closely at the IRS instructions, it seems that if we aren’t covered expatriates, then perhaps we don’t even need to file form 8854 at all. Is this correct?”
No, that’s not correct. If you fail to file form 8854, then you will be classified as covered expatriates. Since you’re already tax-compliant for the past 5 years, you should avoid that status if at all possible.
Tax liability refers to the actual amount of tax paid, not not income.
If you read the instructions carefully and your situation isn’t exceedingly complicated, you should be able to get through it yourself without professional help. Any specific questions you can post here. Be careful about leaving entire sections blank which should be filled out. That may invalidate the form. If I remember correctly there was one section which I legitimately didn’t need to fill out, but the rest were required.
@Barbara, as notamused says that is not correct. The instructions read as follows:
Taxation Under Section 877
You are subject to taxation under section 877 if you are a former U.S. citizen or former LTR and any one of the following applies to you.
1. Your average annual net income tax liability for the 5 tax years ending before the date of your expatriation is more than the amount listed next.
2. Your net worth is $2 million or more on the date of your expatriation.
3. You fail to certify on Form 8854 that you have complied with all of your federal tax obligations for the 5 tax years preceding the date of your expatriation.
Covered expatriate.
You are a covered expatriate if at least one of the statements in paragraphs (1), (2), or (3), set out above (under Who Must File) applies.
https://www.irs.gov/pub/irs-pdf/i8854.pdf
You must file an 8854 form otherwise you will be considered a covered expat.
@Barbara
Any chance you have Irish grandparents?
That would qualify you for an Irish passport, maybe more preferable to the one you have mind.
@Barbara
That’s “have in mind”
Thanks, EmBee, notamused, and Medea. I appreciate the clarification.
My current questions have to do with that final tax filing:
1) Do we do that filing ASAP after renouncing? Is there an advantage/disadvantage in waiting until the deluge of the “normal” tax filing deadline? If, say, we renounce in August (likely, considering the local naturalization process), and wait until the following April to do the final filing, have we in a sense extended our tax liability into another year? As much as I believe we’ve been compliant, I want to do nothing that will in any way draw undue attention to us, especially during a period when IRS people may have time on their hands.
2) Is there anything special that must be done on the final filing–an extra form, a written statement saying “Last time you’ll ever hear from me, suckers”, etc.?
3) Do we include 8854 with the final tax filing, or is that sent in separately, afterward?
On a separate but related matter, does anyone have information about former USC’s setting up trusts with USC children as beneficiaries? I’m thinking about our family home and our one rental property, currently not in trusts, but we may want to do so. I want to understand the inheritance issues before we begin the process. For example, would there be any advantage in giving our USC kids shares in a trust or corporation before we, the parents, become former USCs? I’m not smart about these things, so I may not even know what I’m rambling about here. Thus I need to do some reading on trusts. Any leads to info will be appreciated. Cheers.
@Heidi, I wish! Strangely, though, many people think my husband’s family name is Irish. Believe me, we spent the past year dealing with immigration lawyers in three European countries where we can tenuously claim ancestry, but we just couldn’t quite satisfy some of the key requirements. And we’re too old to be considered by others, the age cutoff being 50 or 55.
8854: There is also confusion among those who are, like me, meet the definition of “certain dual citizens”. They may have some exemptions, but not from 8854. Basically EVERYBODY expatriating now must file it or they are “covered expatriates”. That said, I know of several renunciants who have never filed anything. They have a CLN. How long will they continue to sell CLNs to non-8854 filers?
@Barbara
I don’t have any knowledge about trusts, but I do know that as long as you are not covered expsts then your US kids can inherit from you without any tax implications (its 40% for covered expats US kids). Your estate will be taxed wherever you are resident, or depending on where it,s situated. Any estate in the US will come under a 5.4 million exclusion, but this could change on a whim. Mr O wanted to make it 500_000 I believe.
Phil Hodgen has a blog on estate tax rules for expats which is quite helpful. Sorry I don’t have the link on my smartphone.
@Barbara
1) If you renounce (on any day) in 2016, you’ll need to file your last return – including form 8854 – by April 2017 (assuming you’re not claiming any extentions). Your US tax liability continues up until the day you renounce.
2) Form 8854 already serves that purpose.
3) One copy of 8854 is included in your tax return, one copy is sent directly to the US treasury. (See instructions). Be sure to send both.
@Fred
@Fred
“How long will they continue to sell CLNs to non-8854 filers?”
They are independent of one another. People generally get their CLN long before the due date in which they file 8854. If they don’t file it, it has many consequences, but none which affect the status of their CLN.
@barbara & not amused
I believe that non US residents have until June to file..April is for US residents.
The calculations for your net worth for the 8854 must be done for the day BEFORE you renounce. So if you have anything to settle it should all be done before your renunciation date.
@Barbara
Here is a useful table from the renunciation guide on this site (bottom of page)
http://renunciationguide.com/expatriation-and-tax-details-of-current-law/residents-non-resident-citizens-and-non-citizens/
The figures are a little out of date but it is quite helpful.
Barbara,
Phil Hodgen discusses when to file the 8854 at http://hodgen.com/when-to-file-form-8854-2/. He has a lot of information on 8854 at his site.
One discussion re setting up trusts for USC children as beneficiaries is from: http://www.aaepa.com/guestpass/Tab12_International-EP-Issues.doc
Distributions from a Foreign Trust
A beneficiary of a Foreign Trust must obtain information for property characterization of distributions. If adequate records are unavailable, the entire distribtuion will be treated as an Accumulation Distribution. The Foreign Trust should issue the beneficiary a Foreign Grantor Trust Beneficiary Statement (“FGTBS”) similar to a K-1. The US beneficiary must complete a Form 3520, parts I and II.
Barbara Your last post is mildly amusing. (i’m sure you didn’t mean it that way.) The IRS never has time on their hands. They are overwhelmed with work and understaffed. Among many other tasks, they deal with several hundred million tax returns. All of the donkey work is done automatically by outdated computer systems. Fewer than 1/200 returns are questioned.
As to your plan. Renounce in Aug 2016. A final year 1040 for your info up to the date of renunciation is due the following spring. i.e. a partial 2016 return. You haven’t extended your liability in any way. I believe the filing extension is automatic.
Form 8854 is also due by April 1. I don’t think there is an extension. Hodgen covers it in detail.
Once they see that you are not a covered expatriate and live offshore they will have little interest in you. You will probably never hear another word.
Don’t add anything extra. Your tax liability for each of the 5 previous years was zero. Don’t elaborate.
You fill in part I, part IV section A but not section B or C.
You fill in Part V but you really only need fill in column A. The reason is that you will not be a covered expatriate so there is no need to do the exit tax calculation.
The KISS principle applies. Good luck.
@PortlandPLC, Barbara
Yes there is an extension on the 8854 form if you’re living outside of the US. You have until June 15th of the year following your renunciation/relinquishment to file the form. My tax preparer here in Switzerland didn’t even send me the form to post off until mid-May, well past the April 1st deadline.
Again from the 8854 instruction sheet:
When To File
If you expatriated after June 16, 2008, attach Form 8854 to your income tax return (Form 1040 or Form 1040NR) for the year that includes your expatriation date, and file your return by the due date of your tax return (including extensions).
@Barbara
On 8854:
Re when to file: I believe 8854 is due at the same time as your final return. As Medea says, for expats that would by June 15th. Additionally, an extension to Oct 15 will be automatically granted for your return, and thus 8854, on filing the required form (sorry, can’t say what it is).
Re what to fill in:
Part IV Section C: AFAICT, there are no instructions that allow skipping it. Likely, all you need to do is check ‘No’ on line 11 and be done.
Part V columns B and C: Let’s just say this is a subject of debate :-). Although it would appear to make no sense for non-covered expats to fill in columns B and C, AFAICT neither the form nor the instructions allow these columns to be skipped. FWIW, my cross border tax accountant, who works for a cross border tax lawyer, says to fill them in. My own preference is to feed the beast and fill them in – nothing lost except time, tiny chance that something big is gained.
To all: Very very helpful guidance indeed. Thank you. I’m a born worrier, always making things more complicated than they need to be. As for trusts, it seems it’ll save us a huge headache if we wait until after renunciation/CLN to start a trust (which we want to do anyway due to advantages in our home country).
Funny, following our OMG moment, in the past year and a half I have lost countless nights’ sleep and agonized about the horrible possibility of having to renounce. During this whole time I have asked myself whether this site and the fine folks here have kept me sane, or rather have whipped me into unnecessary heights of frenzy. After all, there is a strong consensus of righteous indignation here, and a daily dose of eloquent, fiery rabble-rousing amidst the pure information sharing, with very few dissenting voices. And when the crowd is all singing the same tune, as at a Bernie Sanders rally, my immediate instinct is to question whether I’ve been led to drinking someone’s Kool-Aid.
Hubster and I have held several debates, counting the reasons for not taking the drastic step of renouncing US citizenship (“After all, it’s only money, when we have to give the USA a huge chunk of our profit from a possible future property sale, when our home country has no capital gain tax…even though that chunk sent to the IRS could support us in retirement for two years”). But I (and then he) finally came to the conclusion that the only sane people left are those who contribute here at IBS, and the only sane solution is renunciation, before things get worse. And now that we’ve finally made our decision to go down that road, I feel no fear or remorse. In fact, I feel quite light on my feet. Thanks, everyone.
Now to get the ball rolling…
(I’m certain to have more questions later)
Dear Barbara, fellow born worrier,
Thanks for the account of your journey of your family’s decision-making on these important matters to all of us who meet here. It’s not an easy thing and no one can tell anyone what they should or must do — it is indeed very individual.
Thanks also for you and Hubster coming to the conclusion that we are sane. Not all in our lives come to that conclusion as we grapple with these issues. So glad things are making better sense for you and you are lighter on your feet. Should I have forgotten — THANKS, Barbara!
Dear Barbara
Just to say that I personally have really appreciated and enjoyed your sharp witted posts, and can affirm that you are as sane as the rest of us!
Congrats on coming to a difficult decision.
Indecision is the hardest, but you are now out of irons and are sailing free.
Go well.
Hi Barbara! I too have travelled that road. Upon learning what the US govt now requires, I went going through the classic grieving steps of “SARA”: Shock, Anger, Rationalization, Acceptance. For me, acceptance means accepting the pain and expense of severing my ties.
This site has helped enormously, despite sometimes conflicting advice about the renunciation process, the moral support has been invaluable to me and has largely restored my equanimity at having to take this step.
The Unreported Offshore Account – Still Alive After Death & Plaguing Executors and Heirs
More for Barbara and many of the rest of us — what does it also mean for a US-deemed US citizen, the recipient of inheritance from a (now) parent who has obtained renunciation or claimed relinquishment of their US citizenship?