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
@Chris, it’s not so much a question of waiting until the forms hit Streamlined as the fact that the 8854 form for 2015 won’t be out yet. Not sure exactly when it would be available, but not until spring at the earliest I think. Can you wait that long to file your returns? The form itself doesn’t really vary, but you might need to know the income/wealth threshholds for 2015 which aren’t available yet. If you’re well within the current limits you could take a chance and file it at the same time. Bear in mind for 8854 you need 5 years of returns and not the 3 years for Streamlined.
FBARs can only be filed electronically now, paper copies are no longer accepted.
@Medea,
Actually, the form is already available: https://www.irs.gov/pub/irs-pdf/f8854.pdf
So am I recommended to file? I am indeed doing five years as part of Streamlined. Does anyone know if interest on savings, dividends and Capital Gains made in the UK would need to be declared on the USA 1040’s?
I have put these in for now, but it seems both in contravention to the Double Taxation Agreement: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/411900/usa-consolidated.pdf
As well as generally wrong, that I should be taxed by the US government on accounts which are tax free through the UK Government.
But there is not much logic to any of this…
Thanks,
Chris
@Chris,
The US taxes EVERYTHING. All interest, dividends and capital gains (measured in USA dollars) goes on 1040. You can claim a foreign tax credit for taxes paid on that income in the UK.
Most (all?) US tax treaties have a clause that allows the US to tax their citizens as if the treaty didn’t exist. In the treaty you linked above it’s in article I paragraph 4. Paragraph 5 then lists the few bits of the treaty that apply to US citizens.
Yes, it’s wrong morally, but that’s how the Internal Revenue Code and the tax treaties are written. Just another example of the inequity of CBT.
IMO, if any of your dividends are from other than plain ordinary shares / common stock, then you should probably have a professional prepare your returns. Others may disagree, but if you have anything that smells like a PFIC, or foreign trust, then the penalties for simple errors are over the top.
@Chris
If you renounced in 2015, so you will have to file for tax years 2014, 2013, 2012, 2011, and 2010 in order to meet 8854’s certification test (which I assume is the point of filing 5 and not 3 years of returns), even if you submit the forms in 2016.
And, in 2016 you still have to file a *timely* dual status return for tax year 2015, and that is when 8854 will be due.
See:
http://hodgen.com/when-to-file-form-8854/
http://hodgen.com/when-to-file-form-8854-2/
You will need a ITIN to file. Not sure if you can apply for the ITIN at the same time you file.
And, yes, interest on savings, dividends and Capital Gains made in the UK would need to be declared on the 1040s. With a bit of luck, the standard exemption/deduction and/or FTAs (foreign tax credits) will prevent double taxation. However, if, for example, you sold your primary residence, you could be hit with a big tax bill – see Boris Johnson. As Karen notes, there are other issues re foreign trusts and PFICs that need to be taken into consideration for correctly filled out tax returns.
3 questions:
1) Did you renounce or did you document a previous relinquishment?
2) Are you filing the returns yourself, or are you paying a professional to do it?
3) Would being designated a covered expat result in financial hardship?
Chris. I feel you are about to throw yourself under a bus. Streamlined was meant to snare those who want to come back into the fold. OVDI was meant for crims. You are neither. You’ve already left.
Either do nothing or ,if you feel you must, file 5 yrs of basic returns. Ignore anything complex like mutual funds. Make sure your net worth is under 2 mill US and that your 1040s show nothing owing. There is a body of opinion on IBS that FBARS do not need to be filed. Petros didn’t file any and hasn’t heard a dickey bird.
ToAll: By the way I trust you all noticed that the Obama budget proposal to allow duals at birth a chance to renounce without filing 5 yrs and without the 8854 went the way of the Dodo. No sign of it in the agreed budget of 2015. They did however manage to agree to call a room in the Capital bldg. the ‘Freedom Foyer’
Happy Holidays Everyone! May 2016 bring peace in the Middle East and the end of FATCA.
Duke.
Molly I think I found the person who relinquished based on work at Atomic http://isaacbrocksociety.ca/renunciation/comment-page-167/#comment-5272023
Molly And this You can trace Dianne back from there.
http://isaacbrocksociety.ca/renunciation/comment-page-167/#comment-5268406
Duke,
You’e gone back a long way to get to that and now others can see Dianne’s successful relinquishment and CLN from the January 2015 comment regarding having been employed at Atomic Energy, another Canadian crown corporation.
Hopefully Molly and Dianne have now communicated off this blog as we heard from Dianne on December 22nd. http://isaacbrocksociety.ca/renunciation/comment-page-217/#comment-6989407.
Hi,
Thanks for the various replies!
@tdott, I am filing UK tax years, so having renounced in year 2014/2015 (UK tax year) I was hoping to file backwards from that year and have it finish at that. I didn’t want to file for 2015/2016, and thought that if the 8854 covers up to the end of 2014/2015 then that may do it?
I don’t really know anything about foreign tax credits, and I am not getting professional help at this point. Personally I believe that tax should be easily understandable by the people it is being levied on. What an ideal world that would be, eh?
My wife and I are trying to save for our first home and it has already cost me about $3k to get rid of a citizenship I didn’t want or even know I had! So really not wanting to pay yet more for an expert to walk me through this great American mess.
My net worth is under $100k, so I am not sure if being a ‘covered expat’ by choice may in fact be the simpler approach? According to my calculations, I ‘owe’ the USA about $600 for interest that I got on my savings, and from minor dividends etc. So my 1040’s would need to reflect that, and include a cheque…
Best,
Chris
Chris, you owe the USA nothing! The USA is just stupid enough to think you do.
@Chris; based on your net worth less than $£100k, I would say its almost impossible to owe any tax to the USA because of dividends and/or interest.
You need to invest in prior year copies of TurboTax software off ebay and amazon.
Your end state will hopefully be that zero tax is owed so you are not bringing attention to yourself.
Again, if your calculation shows $600 is owed then something is likely wrong and you need tax software. The software for back copies is cheap.
Chris. I’m afraid you are about to be hit by a train
Filing 5 yrs of1040s without help is fraught. Firstly, the IRS requires calendar years and US dollars.
Normally you would take advantage of the earned income deduction and owe no taxes on employment income.
You would take advantage of the foreign (only foreign to the US) tax credit for your dividend and interest income. The instructions for this are 24 pages long and might as wellbe written in Sanscrit.
Ethically, you don’t owe a penny but they wan’t you to spend thousands on an accountant or hundreds of hours of your time.
As you mentioned, being a covered expat by choice is a simpler approach. Don’t bother filing- you will never hear from them. Or if you do write back, say you are no longer American, you owe no taxes and you can’t afford an accountant. There isn’t anything they can do about it. They have no budget to deal with minnows living in another country.
@ Portland PLC
“You would take advantage of the foreign (only foreign to the US) tax credit for your dividend and interest income. The instructions for this are 24 pages long and might as wellbe written in Sanscrit.”
Would that be Form 1116? My husband never read the instructions (24 pages? — WOW!). He just plugged in numbers as best he could, muddled through the crazy calculations and transferred the result to the 1040 — VOILA, the tax owed came out to zero — somehow. (He did one 1116 for “general limitation” income which he thought was his salary and one for “passive” income or what he thought was interest & dividends.) He did that for many years without one peep coming back from the IRS. If they squawk about it sometime in the future he’ll likely ignore them because he’s been nothing but a Canadian for two years now.
@embee. Turbotax makes what you wrote far easier
With a big disclaimer that I am not a professional anything related to taxes, and I’m just thinking about Chris’s situation if filing tax forms — If salary (?) can be excluded by using the Foreign Earned Income Exclusion, i.e. Form 2555-EZ, then the standard deduction on Form 1040 (which is a basic personal exemption) might possibly be enough to cover any taxable interest or dividends, so you wouldn’t have to use the foreign tax credit. Just a thought.
@ george
We didn’t have a computer back then and after we got one I put the 1116 calculations into a spreadsheet to make things easier and he just used the previous years as patterns. Later he usually only needed standard deductions to zero out. I’m afraid fools (like us) fill in forms that wise ones fear to try. Until the FATCA hit the fan we didn’t know enough to worry about all this.
Hi,
@George, that amount ‘owed’ is over the course of the past five years. It is purely from savings and capital gains and includes the interest on them. Looked on Amazon for TurboTax, but the years I would need to file are not available unfortunately, seems I can get them on eBay at about $100 a go…
@Portland, there is provision in the 1040s to file non-standard (non-US) tax periods. What would be the implications of becoming a covered Expat, how do I go about this?
@canoe, my salary is indeed excluded on 2555-EZ, unfortunately, as far as I understood, the foreign earned income does not extend to include dividends, capital gains and interest.
Thanks all,
Chris
@Chris, becoming a covered expat is easy, just don’t file any tax returns or 8854 and job done. You automatically become a covered expat.
Implications: well so long as you never return to the States not much as there’s nothing the IRS can do to you if you don’t. As they don’t know your bank they can’t contact them to get your account/s frozen under FATCA. If they should issue any fines/penalties and you do try and visit the US in future then you could find yourself stopped at the border until you pay up or you could end up going to jail. Also remember that the Reed Amendment barring ex-citizens from ever returning to the States if they’re considered to have renounced/relinquished for tax purposes is US law though currently unenforceable. Mr. Reed keeps trying though. Basically stay out of the US (air space too just in case of possible emergency landings on US soil) and you shouldn’t have any problems being a covered expat.
What may cause a problem would be if your bank asked for proof that you’re US tax compliant as well as a copy of your CLN. This is what happened with some banks here in Switzerland. One of my banks wanted the CLN and proof that I’d entered one of the US tax compliancy programs. Luckily I was able to show them that I’d entered Streamlined so they were happy with that.
Hi Chris – congratulations on the CLN. I renounced in Oct 2015 so I’m still waiting.
Like you, my first thought was that to get clear of the IRS for good, I would have to file 5 years of returns and FBARs through the Streamlined procedures. I actually got as far as doing the FBARs, but eventually realized (after much searching and trying to understand the UK/US Treaty plus all the explanations and publications and instructions etc ad infinitum) that I don’t owe any tax and therefore I’m not among those the Streamlined Procedures are intended for. This makes the exiting business much simpler – all I have to do is file the five years normally, showing nil tax due, and it means I don’t have to put my name to the craven Streamlined Certification Form, which is quite revolting.
Even if I owed some tax, I would give Streamlined a miss and just file the forms, enclosing a cheque (Lloyds will do a dollar cheque). The way I see it, I’m not in need of an “amnesty”, not having done anything wrong, and actually I don’t believe the IRS is interested in spending time and money trying to lay uncollectable “penalties” on us foreign-dwelling clearly innocent small fry, who can’t possibly bring them much of a payoff to show to their bosses.
So that’s the way I see it. I think your misgivings about Streamlined are well-founded. “Quiet disclosure” is in my view perfectly adequate to meet their unjust demands. Good luck.
“Looked on Amazon for TurboTax, but the years I would need to file are not available unfortunately, seems I can get them on eBay at about $100 a go…”
TaxAct has some of the relevant years, so you could use those, and then for the missing years you could use the TaxAct-generated years as a model to follow.
Taxact prior years:
https://www.taxact.com/products/all_previous.asp
@Medea, I thought that even to be a covered expat that an 8854 needed to be filed?
Unfortunately I still have family in the USA. Whilst I have pretty much sworn on a moral basis not to go to the US for tourism etc, if my mother, brother or sister were to get terminally sick, I would probably want to go see them… so can’t really fully escape the place :(.
@iota, where did you renounce? Hopefully you get your CLN faster than I got mine! I get the impression from your story that you maybe already have an SSN or TIN? I am not sure if it would now be possible for me to get a TIN without Streamlined process.
@Chris, no the 8854 instructions are quite clear. Even if you don’t meet the income/wealth threshholds failing to file an 8854 form automatically makes you a covered expat.
https://www.irs.gov/pub/irs-pdf/i8854.pdf
And if you don’t plan to file the 8854 there’s not really much point in doing the returns. You’ll still be a covered expat whether you file them or not so why bother.
Iirc you can file returns using an application to get a TIN so maybe you could include the returns, the 8854, the TIN application in the one package and then let the IRS sort it all out.
“@iota, where did you renounce? Hopefully you get your CLN faster than I got mine! I get the impression from your story that you maybe already have an SSN or TIN? I am not sure if it would now be possible for me to get a TIN without Streamlined process.”
I renounced in Amsterdam, which I thoroughly enjoyed as it gave me an excuse for a trip over on the ferry and a couple of days sightseeing. (I am not fond of Grosvenor Square.)
I was told to expect a six month wait, so we’ll see. In the meantime I have my receipt should any of my banks get anxious, though in fact I don’t believe they will. If they do, I’ll fluourish my tiny $2350 receipt and explain that I’m waiting for the CLN.
I do have a SSN. I honestly think that if I were in your position, with no number and the US deliberately making it harder and harder to get one, I would be strongly inclined to take the position that they’ve made it unreasonably difficult to “come into compliance”. You’ve got your CLN, for the banks, and you’ve got your UK passport, which together with your CLN will let you visit the US just like any other non-citizen when you need/want to do so. And there’s no SSN associated with your renunciation so you’re practically nonexistent as far as the IRS is concerned.