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
My understanding (and IANAL) for the rationale of filing a 1040NR and a 1040 (attachment) is that you’re supposed to file the form appropriate for your status as of the last day of the year. Since someone who has renounced will be a NRA on the last day of their renouncing year, they file a 1040NR. However, income from the part of the year that they were a USC must be accounted for (and taxed “appropriately”), and that’s where the 1040 as an attachment to the 1040NR comes in.
I remember when I first heard of this it was from a friend who had a friend that had renounced, and that person’s accountant was filing a 1040NR (+1040) for them. I said, “well, that’s just wrong”, as I thought it only made sense to file a 1040 for the part of the year they were a USC. Since then I’ve seen just about every tax professional advocate the 1040NR + 1040 attachment. So, as odd as it seems, that appears to be the correct (or at least safest) way to file.
Having said all that, it’s not obvious that there’s any real downside to filing a 1040 (and only a 1040) if the 1040NR would have not added any additional tax burden (which I imagine would be the case for 99.99% of filers). One’s status as a non-covered expat would not be affected AFAICT (anyone disagree?), and the penalty for not filing would be based on tax owed (and any percent of $0 is $0). Worst case scenario, the IRS contacts you and tells you to file a 1040NR (and AFAIK this hasn’t happened to anyone), and the only cost is in the time and/or money expended preparing the 1040NR return.
So:
1040NR + 1040 attachment: safest way to file
1040 by itself: although technically not correct, probably OK
Again IANAL so take what I say with a grain of salt and do your own research.
@tdott – OK, I won’t worry about it/ won’t lose any sleep unless I hear from the IRS about the missing 1040NR (which others have said may not be a problem anyway as the IRS will just fill it in themselves).
I can certainly see accountants and other professional tax filers urging up and coming renunciants to do this form in addition to the 1040 – – while likely not adding much to their fee, they probably know this will be the last time they can get money from your pocket so why not extend the work as much as possible (or am I just being cynical?)
I renounced in December 2014 and did all tax filing myself. 5 years prior 1040’s, form 8854 and 1040 for 2014. Technically, a tax condor would likely have recommended more forms. Also I filed no FBARs. According to Phil Hodgen, one can expatriate without filing FBARs.
http://hodgen.com/expatriating-without-filing-fbars/
My financial picture was simple and there was no tax owed. Also my funds were all in financial institutions with FATCA exemptions, like Vancity. I opted out of the big banks prior to July, 2014, when FATCA went into effect in Canada.
The amount of precautions one takes and the use of tax professionals depends on one’s risk tolerance and individual circumstances.
My Enrolled Agent has repeated to me once and again that there is no obligation to file a 1040NR. I have even disputed this given all the advice I have seen to the contrary. He insists it is not necessary as I was only a US citizen up to date of relinquishment. So, I’m just going to do it that way and be done with it and wash my hands of the whole affair.
The 8854 Instructions include the following (emphasis added):
I interpret this to mean that you can evaluate if you are required to file either a 1040 or a 1040NR according to the rules for each of those forms. If you are below the filing limits for either form you do not need to file it. Most people would not need to file a 1040NR. Some people may also be below the filing limits for a 1040 up to the renunciation date. In this case you don’t need to file either form and you send your 8854 to the address shown.
That is what the instructions say FWIW.
@osgood
I am fond of your handle/name. My mind boggles when I read about these USG forms. It’s amazing people can keep track of them.
The only one I used to be familiar with,(and it wasn’t tax related )a long time ago was the one we had to fill out if we were crossing the river by private boat to go to a great diner on the US side, like the Roostertail. A place everyone hung out to watch the hydroplane boat races or fireworks They were rarely checked- you just phoned them in from the marina restaurant after you tied up to the dock, because in almost all cases, there was no immigration or customs officer hanging around. Those were the salad days of summer on the international river, once upon a time. Now we watch them on our side of the shore.
@LM, I didn’t file a NR return either for the same reasons you listed http://isaacbrocksociety.ca/renunciation/comment-page-221/#comment-7092748 ;
I had no US income (while I was a USC as well as after I relinquished), I wasn’t and hadn’t been an actual US resident since I was a minor many decades ago, I barely made enough to have to file, owed them a big fat ZERO, was not a covered expatriate and I had had more than enough – and despite what Phil Hodgen said, I figured since I was no longer property of the US, they could go whistle for anything after the date of my expatriation – and if they came back to me, they could explain why a zero NR return was required since I was formally no longer a USP …..
Also, I had to help the accountant figure out the forms since they’d never done an expatriation. I wasn’t going to file one more piece of paper than I had to.
Perhaps not everyone’s choice, but I really didn’t see that I had anything left to lose at that point.
@Canadian Ginny
This sound like happy memories from a previous era!
I was a naturalised USC and spent only 4 years there a very long time ago, which was long enough to trap me in the CBT nonsense. Entrapment ….that’s what it was.
I renounced at the beginning of January several years ago and had no income for the year that I renounced up to the date of renunciation. On that basis I did not file a 1040 or a 1040NR, but simply sent the 8854 to the address in Philadelphia marked “Not required to file 1040/1040NR” at the top. I know some people advocate filling in these forms with zeros but I took the position that I wanted to file the least amount of paperwork required to get out of the system.
I use the
This sound like happy memories from a previous era!
Yes@Osgood it really was a nice time. So simple. friendly and peaceful then. Our two border cities are still very closely connected for many celebrations even today. There is always a wonderful annual fireworks display between Detroit/Windsor on a barge on the river. Millions come to watch it from each side of the river. We celebrate their 4th of July and they celebrate our 1st of July. There are little yellow duck races across the river, tug boat contests and even a rope pull between their firefighters and ours. We are still good neighbors despite all things.
It’s just a very narrow river which didn’t use to divide us in the halcyon days. Now the buoys mark the division. I know where they are; the feds of both countries apparently do not. I prefer a world where I could be an international citizen- just a simple plain citizen of the world we were all born into.
Congratulations on your renunciation. I hope that wasn’t an awful experience for you, like it is for so many.
I have been frequently asked why I don’t. Mainly because I believe I did twice in the past, but aside from that: I really don’t care about the USG rules. They can and will come up with new ones, invoke old dusty ones and I will still ignore them.
@Canadian Ginny
If I was in your situation I would probably take the same position. Unfortunately, I was entrapped in the US tax filing system despite not having lived there for over 20 years. I stressed myself out annually on how to deal with all the filing requirements and nonsense forms, foreign tax credits, etc.I wanted to renounce many years ago to be rid of the burden of it but nobody renounced back then and I thought it might be a huge issue. Then FATCA came along and renouncing became fashionable, so it was a no-brainer for me after that.
Onwards and upwards…..stay strong.
@osgood
I understand and I am happy for you to be free of the stress, which I cannot even imagine. I support anyone who has the option and ability to be free. But when I read the stories and see the horrendous costs for many who have, I actually get a stomach ache or more. It doesn’t matter how many I read or how often, it is still mind boggling each time.
The only upside is that it helps me to carry on.
Thank you for commenting and sharing. Every summary helps educate us all and deserves to be heard loud and clear. I wish you well, osgood.
James Surowecki writes on finance and business for The New Yorker. He is an excellent writer and seems to research his stuff quite thoroughly. In the latest issue he tackles corporate inversions and manages to explain it in terms that are fairly easy to understand His bottom line conclusion is that the tax code needs to be revised. Could one or more of our really smart and informed family members write to him and encourage him to look at our issue? It would be a really nice segue to the piece he has just published.
@Tdott (and others) on the issue of whether submission of a 1040NR is needed as well as a 1040 for one’s last year of citizenship: The IRS document referring to such filing obligations for the year of expatriation says:
A covered expatriate must file a dual-status return if he or she was a U.S. citizen or long-term resident for only part of the taxable year that includes the day before the expatriation date. A dual-status return requires the covered expatriate to file a Form 1040NR with a Form 1040 attached as a schedule. See Treas. Reg. § 1.6012-1(b)(2)(ii)(b), Treas. Reg. § 1.871-13, and chapter 6 of IRS Publication 519 for the requirements for filing a dual-status return. If the covered expatriate’s expatriation date is January 1, then he or she will not be required to file a dual-status return.
IMHO, if one is NOT a COVERED EXPATRIATE then this additional (1040NR) filing expectation does NOT apply / is not required – – thus, in one’s last US tax filing, submission of a 1040 IS SUFFICIENT.
Anyone have a different opinion?
Filing obligations for subsequent years. A covered expatriate must file Form 1040NR in accordance with Treas. Reg. §1.6012-1(b). If the covered expatriate is fully withheld upon at source for a particular taxable year and has no income effectively connected with the conduct of a trade or business in the United States for that year, then he or she will not be required to file a Form 1040NR for that year. See Treas. Reg. §1.6012-1(b)(2).
@No name
Why don’t you give writing to Mr Surowecki as shot, if you haven’t already? You may want to include this recent paper by Prof Christians:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2717367
If you wait until January 30th, you could tie it in with the total US renunciation count for 2015.
How much is it reasonable to pay an accountant/specialist to prepare an exit/renunciation. I talked to an accountant from my country that is familiar with both tax systems. He estimated that it would cost me about 6000 dollars to prepare all the forms. The PFICs made the price go up a lot.
Joe. Sounds about right. You could leave the PFIC calculations out and only record income as it is received. That might save a bit.
I suspect a cross-border accountant may have an issue with leaving out PFICs. However, if you are going to leave out PFICs and you don’t have any other complicating factors (e.g. ‘foreign’ trusts) and your income is below the FEIE limit, then why not just do the filing yourself. Forms 1040 and 2555 (or 1040-EZ and 2555-EZ ???) by themselves are fairly straightforward IIRC.
BTW, how many tax years does the $6000 preparation fee cover?
The 6000 dollar preparation would cover all forms needed for the renunciation + the Streamlined. The whole package. I have no experience with US tax forms.
Well, if you’re getting 5 years of returns (including PFICs) for $6000, then you’re doing fine, I think.
Does that include FBARs? Streamlined requires 6 years of FBARs.
Also, if you’re not sure, you want to confirm that it is 5 years of returns that are being done. Streamlined only requires 3 years, but making a clean exit of the US tax system requires 5 years (not a problem to file more than the 3 required years in Streamlined).
Lastly, a final year return (in addition to the 5 years already mentioned) plus form 8854 will be required, so you’d want to know if that’s included.
@Joe, you don’t need any help for the renunciation. Simply make an appointment at the embassy/consulate to renounce, fill in the DS-4079 if required (quite simple to do), return to said embassy/consulate, go on appointment day and swear the Oath of Renuncation. Job done. Don’t pay any accountant to help you do this because IT’S NOT NEEDED! If they tell you otherwise, they’re lying. The forms for a renunciation are here, study them at your leisure.
https://eforms.state.gov/editdocument.aspx?documentid=240
http://www.state.gov/documents/organization/81606.pdf
https://eforms.state.gov/editdocument.aspx?documentid=55
You will only need to fill in the 4079, the other two will be prepared by the embassy/consulate ready for your appointment date.
Your tax status has nothing to do with your renunciation, they are two separate things. All the embassy/consulate are allowed to do is remind you may have outstanding US tax obligations to deal with, that’s all. They’re not allowed to ask if you’re tax compliant or not or whether you intend to be or not. It’s none of their business.
@Medea Yes, I am aware of that. I am just worried what will happen if the IRS finds out about my tax status. What would happen if they contacted me after some years? It seems harder to hide under the radar these days. My bank know about my US citizenship.
@Joe
You should email the Embassy in your country to book an appointment. Depending on where you are they will tell you the procedure. Each Embassy/Consulate do things differently. The 4079 form should officially only be used to determine whether you have already relinquished your UD citizenship by commuting an expatriating act (like taking another citizenship with the intention of losing your US one)but some use it for renunciation too. Your US taxes should be completed by June in the year following your renunciation.The 8854 form which is a declaration of your net wealth also needs to be filed then but the calculation is done on the day BEFORE your renunciation. This is important if your net wealth is above 2,000,000 as you may want to try to avoid becoming a covered expatriate.
This is where an accountant may be useful. You do not need him to help you renounce.
@Joe.
You need to state on the 8854 that you have filed the last 5 yrs of taxes preeceeding the renunciation year.
You can renounce this year and file 2010-2015 and then a partial year for 2016, also 6 yrs of fbars with an explanation that you had no knowledge of needing to file.
@Joe, I’m not saying don’t do the tax side, but if you decide to get an accountant to do them make sure it’s only for the tax and not doing the forms for renuncation as well. That should save some money which can go towards the $2,350 renunciation fee instead.
As for the IRS finding out, how? Unless you have a SSN, you’re not in the US tax system to start with. Mind you if you plan to do the tax I do hope you have an SSN because they’re a pain to get if you don’t. If you haven’t got one, renounce first and then do the tax filing accompanied by an application for an ITIN instead.
@Joe
You do not have to state on any form at the Embassy that you are up to date on your taxes when you renounce. You can catch up on taxes afterwards. Just be aware that you need to calculate your net worth for the 8854 on the day before you renounce. Familiarize yourself with these forms first.