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
@Jane: I now see your question “What do I do come US tax time?”
My reply is that you should file a 1040 up to the date you claim to have lost US citizenship and a 1040NR (even if it is all zeroed out) for the remainder of the year.
For future years do nothing unless you have US income. Filing the way I suggested starts the statute of limitations running. After 3 (or 6) years you the IRS cannot come back to you, absent fraud or gross underreporting.
Renunciation question? Has anyone renounced and as part of that made a separate statement that was attached to the CLN?
I ask because I know persons who would otherwise renounce but would want to do something to “reduce” the stigma from an “unexplained renunciation.” As in they want to document a reason for the record in memorial.
@George, I wouldn’t think so. A renunciation is straightforward with no need to give any explanation so why bother? And who’s copy is this supposed to be attached to? Theirs, the State Department’s, the IRS’s? If they want a personal note attached to their copy once they receive it that’s up to them, but I doubt either the State Department or IRS will notice or even care. They’ll simply end up in a file somewhere gathering dust along with the rest of the renunciation paperwork for that person.
Nothing gets attached to the CLN. Any statements made will be filed, that’s all. Then, when approved, the CLN will be sent out to the receipient sans anything else except the cancelled US passport, the Oath of Renunciation and the Statement of Understanding.
If they’re worried about fallout if they tell friends/family the answer is simple – don’t tell them. I haven’t told my American relatives and don’t intend to, it’s none of their business. Anyway, it’s not a stigma, it’s a badge of honour to have a CLN.
@andy05
Is the SOL 3 years or 6 years? There doesn’t seem to be a clear answer on that.
@tdott: The SOL is 3 years, 6 years, or never, depending on factors explained here: http://tax.findlaw.com/tax-problems-audits/what-is-the-irs-statute-of-limitations-or-deadline-for-action-on-.html
What happens if you renounce without a SSN? Does the IRS care about a dual citizen that has never lived in the US?
@Joe, they may care possibly, but there’s not a lot they can do. You’re not in their system, having no SSN, so the only way they know you is from the copy of the CLN they’ll be sent. It’s entirely up to you whether you want to go through the hassle of filing tax returns/8854 form with a ITIN number application attached or not. Getting a SSN is pretty impossible for anyone outside of the US as I believe you have to make a personal appearance at some point before they’ll let you have one. And given that technically you’d no longer be a citizen once you’ve renounced anyway it’s certain they won’t.
The IRS is overworked and understaffed so much as they may like to follow up when they get the CLN it’ll be pretty impossible for them to do so.
@Joe
I’m not entirely sure what the focus of your questions are, but in case it has to do with becoming compliant, below is my usual blurb (with a change from last post), which is somewhat Canada-centric. Note that I tend to be a risk averse person and that bias likely comes thru below.
As MF says above, if you renounce before filing, you can’t get a SSN and will need an ITIN for filing (if that’s what’s decided).
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If you are considering renouncing without filing those 5 previous years of returns, note that there is no statute of limitations on those unfiled returns, because they’re unfiled. So that will theoretically hang over your head for the rest of your life. It’s difficult to say what that means in practical terms (e.g., is there a real likelihood of the IRS catching up with you 20 or 30 years from now?), but it is worth keeping in mind.
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. Note that the IRS is supposed to get a copy of your CLN from the State Department.
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 pensions and RRSPs 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. [Note: because a RRSP is neither a real pension, nor a traditional investment vehicle, it is not entirely clear to me if it’s taxed on gain or total]
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 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).
Phil Hodgen has a blurb on this subject: http://hodgen.com/will-your-future-self-hate-you/
Joe, Whenever this subject comes up tdott and I line up on opposite sides of the fence. He is a ‘the sky is falling’ kind of a guy in favour of complying with a foreign government’s arcane rules and regulations.
I’m with Medea. There is nothing bad that will happen to you unless you make the mistake of exposing yourself to them. Contrary to the fears of many we have seen no reports of the IRS going after minnows living outside the US unless the minnow jumped into the net. Their primary targets have been US residents deliberately hiding funds offshore.
Google Monty Python -‘how not to be seen’ on YouTube.
@joe
Chicken Little or Pollyanna – all depends on what you have the stomach for.
Me personally – I’d rather not have to look over my shoulder the rest of my life.
Please- Can anyone tell me the current wait time for an appointment to renounce in Vancouver? Thanks. P.
Having passed the 10 month mark waiting for my CLN, I emailed the Consulate again asking that they “Please advise how I may follow up on the reason for the long delay in this very straightforward process.” To my surprise the reply was “We will follow up with the Department of State in Washington.” Saves me that hassle for now. I’ll let you know if anything comes of it.
I don’t know about Vancouver wait time, but I checked with the US Consulate in Calgary this morning.
A reply from American Citizen Services LES Supervisor said that wait time at the Calgary US Consulate for appointments for renunciations / relinquishments is into November of this year. Included in the message was *I cannot answer for any other post’s workload*.
Thanks! I currently don’t hold a valid US passport or SSN. If I want to renounce the clean/safe way, would it be better to take care of the tax filings before or after the renunciation? If I do it before I would have to apply for a new passport. In order to get the banks happy I need a SSN or a proof that I am no longer a USC.
Is it advisable to enter the streamline program or just file 5 years of back tax returns and FBARS?
There are so many questions and ifs. It makes me lose traction. I wish it was more straightforward so I could just do what I was supposed to do and get out of this bureaucratic maze. It’s quite incredible how much FATCA (Fatwa + Kafka?) has drained me on energy and time. I never thought I would experience something similar.
Joe, If a bank asks your citizenship you can reply ‘Canadian’ Period.
If you decide you must renounce, then you have a choice on whether to file or to say bugger it.
If you decide to file, you can do the 5 yrs. after you renounce.
There are myriad other considerations. Your age, your connections to the US, your net worth, whether or not, if you file, you owe taxes penalties and interest, the complexity of any investments and on and on. If you have much in the way of retirement or investment assets figure on 5-10K or even more in accounting fees. If your financial life is truly simple it’s possible to do yourself. Whether or not to do streamlined is another question. In my view, streamlined is meant for those who wish to remain US citizens. Good luck.
@Joe, that’s going to depend on how long you’re prepared to wait to renounce. If you want to do taxes before then you’ll need to get a SSN and that can take years. You have to present the original documents, copies – notarized or not – are not accepted and you’d need to make a personal visit to an office in the US to be interviewed.
https://www.ssa.gov/ssnumber/
You may be able to get all this done at a US embassy/consulate.
If you renounce first, then you could attach an application form for an ITIN number to the returns. You can do it either way; just file the necessary back years or do it via Streamlined. Some people here will tell you to avoid Streamlined, and yes admittedly it is designed to get people who plan to keep their citizenship tax compliant, but I’ve not heard any reports of problems with people using it to get up to date when they’re renouncing. I used it myself, though I only had FBARs to be filed. Nearly 3 years on and I haven’t heard a thing from the IRS. To a certain extent it will depend on how complicated your tax situation is. Note that FBARs can only be filed electronically now so whether you could do that without a SSN/ITIN I don’t know. I had a SSN and was able to file paper copies when I did mine.
Or as has been said, you could simply do nothing on the tax side. You can renounce without being tax compliant, the two are separate issues and apart from reminding you that you may have US tax obligations to fulfill the consular staff are not allowed to question you on your tax status.
So you need to decide what is the best approach for you personally and then take the necessary steps to get there.
@ Joe,
Regarding renunciation, a renunciation will go through whether or not the person is up-to-date on tax filing.
Also, wait times for a renunciation appointment are quite long currently. Calgary411 reported that the Calgary Consulate told her today that they are booking for November.
So, you could book your renunciation appointment while you think about whether you will proceed with getting an SSN/filing tax or not. Should you choose to do so, you could start working on that whilst awaiting your consulate appointment. But, as stated, it doesn’t matter if you’ve filed or not by the time of your consulate appointment.
As for IRS, if one renounces this year (2016), they have up til 15 June 2017 to back file 2011-15 so they can certify on their 8854 that they’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 is important if you’re claiming to have relinquished some time ago (in which case you’re trying to illustrate your lack of ties/connections/citizenship behaviour). For renunciations, it’s irrelevant if you have ties/connections/citizenship behaviour or not.
Note: Not all consulates require the DS-4079 for renunciations. They don’t have to, but some do. (DoS Foreign Affaris Manual, Renunciation, 7 FAM 1264) Your local consulate will let you know which forms and documents they require when you contact them to book an appointment.
(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.
FWIW, if a person chooses not to file, the citizenship itself remains terminated and the CLN remains valid.
Joe. Switch to this comment by Ginny. Good advice.
http://isaacbrocksociety.ca/media-and-blog-articles-open-for-comments-part-3-of-3/comment-page-7/#comment-7074800
Thank you for all the information. I don’t live in Canada. I live overseas in a small country. I guess the waiting time here is shorter than in Canada.
When it comes to non-US mutual funds, I’ve heard that it is very complex to file them. Is that true?
Are there any documentaries made (or in the process of being made) about this FATCA madness?
@Joe
Non-US domiciled mutual funds and ETFs are considered to be PFICs (Passive Foreign Investment Company) and are indeed non-trivial to file and can have punitive taxation associated with them. I would expect that many a DIY filer just ignores the issue, assuming they even realize it exists.
As for the FATCA madness: you must be new :-). Despite much and prolonged noise being made about it by individuals and organizations alike, nobody with the power to do anything concrete cares about what is happening to expats. Expats are for all intents and purposes invisible to the powers-that-be (I’m looking at you, new Liberal government of Canada).
Yes, sort of new. The first time I encountered it was maybe less than a year ago when I took the family to the bank to get accounts for our children. We were denied because I didn’t have the SSN. I contacted the embassy to apply for it but they told me that they didn’t provide that service. They informed me that I had to go to the neighboring country in order to apply. I was so pissed about that that I just set it aside. I am now in my second awakening. A couple of weeks ago one of my banks notified me that they were going to close down my investment account (in which I have mutual funds and ETFs). The last week of 2015 I spent many days and nights in front of the computer trying to figure out how to get into compliance. Easier said than done.
For some reason, I just ventured into this area of Brock. My mind boggles. I am amazed and fascinated but how many of you are so familiar with US tax forms and terms. I know nothing about them and never intend to.
Yes, Duke of Devon, you and I think alike and you have often explained the two options available to people. I don’t think the USA is coming after me and I do not fear them. They don’t ( should I now as a plaintiff revise that to “didn’t”} know I exist. I am not about to introduce myself to them.
However having read some of these stories here, when people are having their bank accounts closed etc. I can appreciate the nightmare they are living daily.
But where that is not happening or similar impacts, being compliant for the sake of being compliant is something I cannot wrap my mind around too easily especially for Canadians. It’s such a personal choice of course.
I congratulate all those who have received their CLNs and wish the best for those still in the process.
I know I have committed at least two relinquishing acts in past years. The fact the the USG has retroactively changed its laws to state I haven’t is water over my back. And I sleep just fine, but I know your mileage may vary. With all my heart I wish the best to those of you struggling with the terrible choices you are facing. There is no free world that I can conceive of where this should be the reality.
And yet here we are. Thus the law suit and why I am a plaintiff. I can do what I want to. But for some of you who can’t, I will do what I can for you to put an end to this. One last thought. If you are are current donor or not, when you receive your CLN please continue as or become a donor if you can, so we can continue to help others. Few people who are not caught up in this nightmare have an appreciation of what it is like to deal with this in our daily lives. Best wishes to all.
@Joe, I can understand being pissed, but it’s a shame you didn’t act at the time. Even if you get an appointment and renounce in the near future, there’s no telling how long it will take for your CLN to be issued and that’s the only thing that will get the banks off your back. My advice would be to try and renounce asap and at least you’ll have a receipt for the $2,350 fee to show the banks. If they’re reasonable they may allow you to keep the accounts open until your get your CLN. Depending on your country the CLN could be issued in a matter of weeks or it could be months, there’s simply no way to tell. Delivery times seem to vary wildly. Once you’ve renounced you can then tackle the tax side if that’s what you want to do, filing the returns/8854 form with an ITIN application.
Like you my wakeup call came when we applied for a mortgage and my citizenship almost got us refused. I took action and renounced, luckily a few days before I had a letter from our bank asking for us to sign W-9 forms. I was able to tell the bank I’d renounced and they gave me extra time before responding in the hope that the CLN would be received which it was a few weeks later.
You might want to look here to see how people have gone through the process in your country and it may also give you an idea of how quickly CLN’s are being received.
http://isaacbrocksociety.ca/wp-content/uploads/2015/11/Consulate-Report-Directory-2015.11.e.pdf
@andy05 –
In your comment to Jane last week, you said: “you should file a 1040 up to the date you claim to have lost US citizenship and a 1040NR (even if it is all zeroed out) for the remainder of the year.”
I renounced in the spring of 2014 and in April 2015 submitted a 1040 for the period up to the day before my renunciation meeting at the consulate. This renunciation process went smoothly and my CLN arrived around 5 months later.
I don’t recall being told to (and did not) submit a 1040NR covering the 2014 days post my renunciation appointment. If one has no US source income, and thus does not have to file any US tax forms in the years after one’s renunciation, why (and where is it indicated) that one should file a 1040NR for the partial-year period AFTER ones day of renunciation for that year in which one renounces?
Providing the link to the IRS instructions in this regard will be appreciated.
LM There has been extensive speculation on this issue with no clear answers. AFAIK the IRS does not cover this- perhaps in disbelief that anyone would renounce.
Phil Hodgen agrees with the 2 return, dual status policy. However when you read the IRS bumpf, dual status clearly refers to someone who is a US person throughout the year but who is resident part of the year and non resident the rest. They don’t talk about someone who is a NRA with no US source income for part of the year. The other factor is that status is determined at the end of the year. So someone who renounces is a NRA but, according to most tax pros, he has to include a 1040 for the beginning of the year and carry that onto the NRA return.
I have always thought that the instructions, if taken as written, lead to only filing up to the renunciation date. In the end, probably either will work unless the sums are significant. You pays your money and you take your chances. Clear as mud?