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
@badger
Yes, you must have sufficient time frame to use Canada Post to send forms to IRS/US treasury. FedEx is more reliable but more expensive. And as you have said, ” Canada Post receipt date isn’t recognized by the IRS as proof of timely mailing.”
Anyone sending forms to IRS or US Treasury needs to keep in mind the time frames to avoid penalties and possible covered expat status. I did the forms myself as my financial situation was relatively simple. Then mailed everything by Canada Post with tracking and delivery signatures required. All related paperwork needs to be kept in one’s files, maybe forever.
We are among the fortunate ones to find closure and be able to say goodbye to a toxic relationship with the IRS.
Just received instructions for an appointment in Canada to renounce. They no longer require the redundant and confusing DS-4079.
In the case of two US citizens married, gobsmacked to discover they are both US taxpayers after decades of living overseas, (bloody unlucky!), where both want to renounce and exit cleanly, is there any reason to file married versus single? Not looking for tax refunds, not expecting to owe tax, just looking to get out as simply as possible.
Given that both are US citizens, filing as Married Filing Jointly (MFJ) would mean one return for each filing year instead of two, could save tax preparer’s fees (if you use one), reduce the quantity of forms to file, may avoid form 8938, and potentially give a bigger safety margin for zero tax. As a US citizen married to an alien, I changed to MFJ, because in the year I received retirement/severance pay it made the US1040 bottom line equal zero, whereas filing a return for myself alone would have created US tax owing.
Wondering where this might lead if it creates even more unwilling and unknowing US “taxable persons” around the world – outside the boundaries and jurisdiction of the US:
http://www.scotusblog.com/case-files/cases/lynch-v-morales-santana/
“Lynch v. Morales-Santana
Docket No. Op. Below Argument Opinion Vote Author Term
15-1191 2d Cir. Nov 9, 2016
TBD TBD TBD OT 2016
Issue: (1) Whether Congress’s decision to impose a different physical-presence requirement on unwed citizen mothers of foreign-born children than on other citizen parents of foreign-born children through 8 U.S.C. 1401 and 1409 (1958) violates the Fifth Amendment’s guarantee of equal protection; and (2) whether the court of appeals erred in conferring U.S. citizenship on respondent, in the absence of any express statutory authority to do so……………..”
I came across information about “Selective Service Registration: Renunciation of Citizenship by Dual Nationals” on the US Embassy, Bahamas, website, which appears to have been added yesterday. Thought I’d post, because although the this topic is mentioned in the Statement of Understanding of Consequences (DS-4081, point 7), I don’t recall running into much (any?) actual information about Selective Service and Renunciation prior to this on the consulates’ sites.
fn0, thank you for your thoughts. Also wondering if it is better or worse from an audit perspective for two married people to file joint versus separately.
@Malice, it would depend on what you’re trying to protect against. MFS would shield separately owned assets of one spouse from being used to pay the tax liability of the other. MFJ mingles all the income together and might make it more difficult to figure out from the return who owns what. “Better” will depend on facts and circumstances. If real money is involved, might be best to consult a lawyer (not an accountant).
Re: Also wondering if it is better or worse from an audit perspective for two married people to file joint versus separately.
The tax software I have used has always told me that with zero tax owing, my risk of being audited is very low, both when I filed singly and jointly. Can’t guarantee the software is right, but I didn’t think it worthwhile to pay for an expert opinion on audit risk. My earned income was always less than the Foreign Earned Income exclusion (FEIE) except in the year I retired, and passive income was low, The US taxes on earnings and passive income were cancelled by the combined effect of the FIEI and Foreign Tax Credits (FTC). These thoughts are not advice and I don’t know whether or how FEIE and FTC can all be claimed when the filings are for back years – you will likely need an expert to help you with the filings.
Report on renunciation experience earlier today (2016-09-07) in Vancouver BC.
I had requested the instructions and forms by email in February and received them almost immediately. It took some time to complete the forms, and to assemble and scan the requested documents. On 2 June 2016 I emailed completed questionnaire and forms DS-4079, 4080, 4081, with scans of a US passport, US passport card, US naturalization certificate, and Canadian passport. An email response on 28 June 2016 scheduled a Loss of Nationality (LON) appointment for 7 September 2016 at 14:00.
Arrived for appointment about 13:45, cleared initial security outside side door of building. I already knew not to have a car key fob, USB, cellphone or anything else with electronics in it like a smart-watch. I was warned there were no washrooms on the 20th floor, and escorted to the elevator, which took me and another customer up to the 20th floor. There another security check airport-style (belt removal, empty pockets, scanning of tray of belongings, walk through detector, manual check of eyeglasses, watch and tie, and checking I had no sealed envelopes). The checks were thorough, quick, professional and more polite than the TSA would have been. Through security at 13:55 I was directed towards a heavy glass windowed counter. A helpful assistant was ready and took my US passport, US passport card, naturalization certificate, Canadian citizenship certificate, Canadian passport, pre-purchased ExpressPost envelope with my name and address in the “To:” field, and Nexus card. The Canadian citizenship certificate was returned right away. It was stated that the US passport would be returned cancelled when the COLN is sent out, and I would get the Canadian passport back from the officer who would take my oath. If the Nexus card had said US citizen on it it would have been retained but as it said Canadian citizen so I got to keep it (for duals, the citizenship shown on the Nexus card depends on where you reside when you apply). We moved to a payment window and I paid $2350 on my credit card. The “from” field on the ExpressPost envelope was stamped with the address of the American Citizen Services Unit in Vancouver, and I was given the counterfoil to keep as it had a reference number on it. After payment, I was given papers to read about the implications of renunciation and sent to a waiting room for US citizens. When the consular officer was ready I was called to another window to see him. He checked I had not changed my mind, and asked me why, how long had I been thinking about it, and did I understand the implications. I replied I was too old to change my mind, all my family was in Canada, and I had given up ties and property in the USA, had been thinking about it for two years or more, and understood renunciation was irrevocable. He administered the oath, had me sign the papers, and returned my Canadian passport. The officer was businesslike and quick. He said he would be recommending issuance of a COLN. Recent COLNs had been issued quite quickly since some functions had been centralized in Vancouver, but the official advice was 2 to 6 months.
Earlier the assistant had said to make copies of the COLN when received, keep one with my passport to show it only if questioned by US customs and immigration. Until the COLN comes, the receipt for the fee should serve (it says it’s $2350 for a “CERT OF LOSS OF”). In all likelihood I would not be questioned when visiting the US because the country of birth on my passport is other than the USA.
Out of the door at 14:35. The whole process including security and waiting time was 50 minutes.
Not renouncing would not have been fair on the rest of my family In Canada, or myself for that matter. I feel very sad about giving away something I had wanted and worked hard to get, and at the same time very happy to be free of it. I guess like a divorce.
Thank you. 3 months and 5 days for Vancouver doesn’t seem so bad.
3 months from request to appointment was less than I had expected based on other comments. I was happy to get one before year-end 2016 as it will mean no 2018 filing struggle for tax year 2017.
fn0 Would you kindly tell me if you were offered a range of dates for your appointment?
Was I given a range of dates? No – just the one. No confirmation requested.
Update for my children:
19 year old daughter renounced in Calgary at the beginning of June, received her CLN at the beginning of September.
17 year old son requested at the beginning of July a loss of nationality appointment in Calgary for next year, when he will be 18. Had a reply today, at the beginning of September, with a late April date for his appointment.
We are getting there, slowly and surely!
Someone asked me for help in renouncing US citizenship, and is trying to figure out if s/he can afford the exit tax.
This person is past retirement age, and of course the biggest issue is the foreign pension earned after s/he left the US. S/he has already made the decision to not take a lump sum payout, but rather convert it to an annuity in his/her country of residence. IRS Publication 939 can be used to calculate the expected value of the pension, and with some effort, s/he might be able to calculate the sum total of contributions over her/hes working lifetime. Since these contributions have already been us taxed, it would seem that the General Rule documented in IRS Publication 939 applicable to even non-qualified pension plans would also qualify in reducing the exit tax s/he would have to pay on the pension amount, just as the cost basis of the various deemed capital-gains is used to reduce the amount of the tax on the assets at renunciation time.
My question is, is it acceptable to use the General Rule like this? The examples posted on citizenshipsolutions.ca don’t, and they’re shocking. If it were acceptable to do this, which seems morally right as well as consistent with the regulations, that would lessen the exit tax bite considerably.
The better way is to only include assets that total under 2 million or better still don’t file anything.
@Rebecca
Congrats, it’s wonderful that your daughter got her CLN so quickly and your son now has an appointment lined up! That’s fantastic news!
Glad everything went well for your daughter in Calgary and she has her CLN in hand, Rebecca. Only one more child to go before your family is free? Good luck to your now 17 year old son — he’ll know what to anticipate with those in his family that have gone before him.
Thanks for your report, Rebecca, and congratulations on your family’s progress.
@Malice
Are you going into Streamlined?
@CEB: “…Since these contributions have already been US(?) taxed, …”
This suggests the pension isn’t a pension at all from the US perspective, but was treated for US tax as if it is just a ‘normal’ investment account. If that is the case, and if annual US tax was paid on dividends accrued in the account, then you can work out the contributions, find the capital gain, and shelter it using the $690k or so exit tax allowance. A huge problem with pensions that you treat as pass-through for US tax, though, is the high probability that PFIC rules apply to the funds held in them.
Bottom line is that if these are not US qualified pensions (likely), not covered by or elected into any treaty (possible), and both contributions and income have been fully and properly reported for US tax annually (very tricky, and perhaps unlikely, but technically possible, and can perhaps be fixed if necessary by amending earlier returns), then they won’t fall under the exit tax rules for pensions and deferred income.
But you really need professional help with this. It is a minefield, and an expensive one at that. I don’t think anybody here is going to be qualified to answer your questions, even if you handed out every last detail (which you probably shouldn’t).
Actually @Watcher, I think you’re misinformed, and you didn’t read my question. The one thing treated differently for form 8854 is deferred compensation items. Further, even had s/he been able to find out the return on his/her pension funds (which is not at all evident with many foreign pension funds), since the funds have already been annuitized, any paper return shown along the way would be very unlikely to correspond to the value of the deferred compensation item as far as US taxes are concerned. Pub 939 has all sorts of actuarial tables for that, which start from the amount the recipient receives yearly in a pension, his/her age, whether it’s a surviving spouse pension, and other things.
So the only things known are the contributions, which have already been taxed.
This person came to me apparently after having gone to a couple of professionals with ‘impressive’ hourly charge rates, who nonetheless didn’t seem to be too much on the ball. They recommended the most punitive path possible. I am known for simplifying rather than complicating things, and my ability to digest information put in front of me, so I got called into the picture.
That’s the trouble with any law bearing an unfunded mandate which means effectively outsourcing to private entities who get paid by those regulated. Such private entities tend to try to creatively twist the laws to extort more money out of the ‘governed.’
I remember when I first moved abroad nearly 20 years ago, I asked H&R block whether I needed to file a US state tax return, if the only income I had from that state was interest on a bank account. Rather than tell me: “No, interest is considered to be sourced where you live,” the agent started into this complicated process to prove that I was still a resident of that state, asking me whether I went to the dentist there, or church, or doctor. All answers were ‘no,’ but she still kept on going with her inquisition. I finally had to turn her in to her boss to get her to stop.
My default going in position is to read the regs rather than just put my faith in some unfunded third party. When I help people, I always make sure that i have a paper trail of regulations backing up my advice, and encourage them not to take what I say ‘on faith.’
Publication 939 on the general rule is 83 pages. Publication 575 the simplified rule is 42 pages. I imagine no one knows how to get it right for a foreign plan. A long time ago a wise man said on this site-‘only tell them they already know’. Just do it whatever way works best.
@CEB – “I think you’re misinformed … The one thing treated differently for form 8854 is deferred compensation items.
I am more than well aware of the distinction for retirement savings. It is this singular aspect of the US exit tax, and pretty much this one alone, that motivated me to leave the US when I did.
That said, I clearly have not understood the type of pension you refer to here. Mine were all tax-deferred defined contribution schemes, and so relatively easy to value and map down onto US tax laws. The one you are dealing with here sounds like something entirely different, and I am not going to attempt to pick it apart.
My one last suggestion, though, would be to check any tax treaty for possible help. The exit tax is appalling when it comes to pensions and retirement savings, but the fact that it conflicts with several tax treaties might provide an escape route if all else fails.
@Watcher. I explained the difference between a deferred compensation item and other items that get treated on an 8854 in response to your suggestion that the $690K exclusion be applied to a deferred compensation item. As far as I know, this is not possible.
I was also not asking you to ‘pick [this person’s retirement plan] apart.’ Rather, my question was simply whether one could exclude previously taxed contributions to non-US retirement plan savings in the calculation of the exit tax, the same way one excludes them when listing pension income on the tax return using the General Rule. Since the same form is used to compute the exit tax, I would imagine this would be the case.
The US exit tax, odious as it may seem, was designed to capture taxes on non-realized capital gains that might otherwise escape due to expatriation. It does not seem to be designed to simply be a wealth tax — for example, for non-deferred items, it’s possible to exclude the cost basis of the item in question in computing the capital gains tax. For cash positions, which have already been taxed throughout the years the person was a US citizen, the cost basis will be the value of the cash position, leaving as a capital gain only the (epsilonic) bank interest on accrues on such accounts.
So it would seem reasonable to do the same thing for deferred compensation items. Portions previously taxed should not be taxed again. I was simply asking if others had already followed this approach.
The examples I’ve seen suggest not, but then again, this is a brand new tax (or it’s application is new, because people have been driven to expatriate). So I’m curious about why this hasn’t been included in the published examples (cf. John Richardson’s site).