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.
Participants will need to provide their e-mail address (real or fake) and an alias. The only written rule is that participants must use a same alias each time they post (and not “anonymous” or derivatives thereof).
Bear in mind that any responses that you get from participants is peer-to-peer help, and it is not intended as a replacement for professional advice. Also, the Isaac Brock Society provides this disclaimer: neither the Society nor any of its members are professionals. We offer our advice here only in friendship and we recommend that our readers seek professional advice if they need it.
If you wish to receive an e-mail notification of comments, check the box to that effect when making your first comment.
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
It’s not just about the money. Making the recipient responsible for determining whether the donor is a covered expatriate, effectively makes the recipient choose between complying with the law and turning in their donor as non-compliant. When the recipient is a young person, and the would-be donor is their parent, it’s potentially a very painful situation.
Not too sure my sister is going to be thrilled about it, for that matter, even though she is far from young. 🙁
@heidi – “… then they do not have to fill in any US estate forms”
Aren’t you forgetting form 3520, Annual Return To Report … Receipt of Certain Foreign Gifts? It is required when a US person receives more than $100k as a gift or bequest from a non-US donor or decedent.
The penalty for non-filing of form 3520 is 35%. Now ordinarily that might look excessive, but there is a delicious irony in this actually being lower than the 40% section 2801 tax that would come about on actually filing this and then form 708 (whenever the IRS gets round to releasing it, that is) for a ‘covered’ gift or bequest. Incredibly, the penalty for compliance here is larger than the penalty for non-compliance.
Admittedly this leaves the IRS with a blind spot at between $14k and $100k, but I guess we can be confident that the NY City Bar, AICPA, or some similar body will step in handily to help the IRS crack down on those thoroughly despicable, not to mention criminal, gift givers.
I’m surprised the compliance condors don’t add this to the Reed Amendment in their pitch for would-be renunciants to be tax compliant when advertising renunciation services. It would certainly bring about a further examination by the US citizen as to whether their children are in fact considered US citizens.
What a mess this creates!
@Watcher
No, not forgetting, just trying to make the point that any US person who lives outside the US who receives a non US gift or bequest, and who thinks it could stay under the radar by not filing any US forms, would have a hard time keeping it off the screen because fbars would ring alarm bells .
“where has this 200,000 euros come from?” Unforgiven said his son wanted to stay an American, and would passport means compliance.
@ Iota.
“Making the recipient responsible for determining whether the donor is a covered expatriate, effectively makes the recipient choose between complying with the law and turning in their donor as non-compliant. When the recipient is a young person, and the would-be donor is their parent, it’s potentially a very painful situation.”
Yes, I agree, that’s really nasty, the whole thing could drive a wedge between parent and child.
I think my spouse has finally agreed it is better that they know the full implications but we won’t adjust the will yet, til we see who dies first or Congress comes to its senses.
PS. I think you should get the Brock prize for Google searches 🙂
@all
Kinda in a hurry so no time to note who wrote what.
You’re right. A gift would definitely be a problem because I would then be on the radar. But a bequest? The my estate would be taxed in Germany and I would not be alive to drag into a US tax court.
What if my wife gave him the money? Is she covered with me?
@ Unforgiven
If she is not an American or not a covered ex American, then better that she gives the gift in your lifetime or you die first for the estate gift.
@ Unforgiven
If you are covered, the US would want their bite of your estate after Germany took it’s share, if left to your US children. If you died first, your wife, if a non US person or an ex, non covered, US person could leave it to them untouched by the USA.
@ Iota.
Just to say, I was always fully compliant, just covered, spouse compliant, not covered. Our tax advisor did not inform us of our potential US children’s future inheritance problem.
As far as I have understood it, the US taxes only money left by a renunciant if it is bequeathed to another american citizen. So if one leaves something to a german citizen, then it is not a matter for the IRS.
@polly
If the renunciant is not covered, he can leave up to the 5 + million limit to an American, before the US charges estate tax.
When it is between two non Americans it has nothing to do with America!
Heidi, but if the person has anywhere over 2 mill he is by definition covered, no? How can you NOT be covered if you have an estate somewhere near 5 million?
There’s my loophole. I’ll just give it all to her. Might as well, anyway, she’s always been the one doing the financial stuff. I usually don’t even know how much is in my checking account. That’s why I can never go out clean, there are just so many little savings accounts, bonds, funds, and insurance policies (all for little amounts) spread around at different banks, some even empty and dormant. I may even have a left over account or two I don’t know about (maybe €50 max). At $10,000 per account x6 years, they could easily take everything and I would still owe. At least with FATCA, maybe I might find one of those abandoned accounts with enough in it to have a night on the town.
But not preach to the the choir, that is extremely unfair (unjust) to families with two ex-American parents.
RE: “Heidi, but if the person has anywhere over 2 mill he is by definition covered, no? How can you NOT be covered if you have an estate somewhere near 5 million?”
There are cases where I think this is possible. One example: An individual renounces US citizenship. This individual has very modest income and assets definitely less than 2 million. A few years later this same individual, no longer a US citizen, gets a generous inheritance in the millions US$. Since this person has filed required back US taxes and form 8854 previously, they are a non US person and now “uncovered”.
@no name
The 2 million is an assesment of your net worth before expatriation
If you have more, then when you renounce you do so as a covered expat you pay tax at 15% to the US on any unrealised gains over 690,000 aprox.
If you are covered and have American heirs to your estate, they will be taxed on that estate
At 40% above $135,000 allowance when you die.
If you are not covered, when you die you may lesve your American heirs up to aprox 5.5 million untaxed.(at present)
If you are covered or not covered and your heirs are NOT American Then your estate has nothing to do with America and will be taxed in
the country in which it is situated.
@Heidi
Yes, I agree, that’s really nasty, the whole thing could drive a wedge between parent and child.
Not, “could drive”, but “is driving” or “has driven” in my case.
@Pat Canadian
You are deemed covered or not covered st time of expstriation it cannot be reversed.
Covered status is given by having over 2 million in assets the day before renounving, having an average tax liability over last 5 yrs over 135,000 aprox, OR being non compliant by not sending 5 full yrs of tax returns, before expatriation and not submitting 8854.
Unforgiven Too – “That’s why I can never go out clean, there are just so many little savings accounts, bonds, funds, and insurance policies (all for little amounts) spread around at different banks, some even empty and dormant. I may even have a left over account or two I don’t know about (maybe €50 max). At $10,000 per account x6 years, they could easily take everything and I would still owe.”
You don’t get fined $10,000 per account per 6 years. There are mitigation guidelines.
If you could locate the accounts, you could file Streamlined and not get any FBAR fines. But it would indeed mean that you would have to rustle up five years of returns and pay any taxes due.
Could be an option to consider, if by doing so you could come out uncovered.
This discussion on possible hypothetical future gotchas, has me wondering about something:
Scenario: kid born outside of US to one or more US parents who can transmit USC. Kid is not registered as a USC at birth or as a youth. At age 30, say, kid wants to move to and work in the US (e.g. for career reasons), so kid officially claims US citizenship.
Question: as far as the IRS is concerned, does the kid have to become compliant by back-filing taxes (either via Streamlined or ‘quiet’)? Since the ‘kid’ is now 30 and has been working he/she has been above the filing threshold for a number of years.
My guess is that the IRS’ position would be that the kid would have to become compliant (since he/she is considered to have been a USC from birth), but I’m interested to hear if anyone thinks otherwise.
“You are deemed covered or not covered st time of expstriation it cannot be reversed.”
Yes, this is absolutely correct Heidi. I was referring to the odd case where a person expatriates as not covered. Then several years down the road inherits several million US$ from US relative. I don’t think the US IRS can touch that.
The exit tax is a REALLY NASTY SITUATION! That I’m sure of.
@tdott – “Question: as far as the IRS is concerned, does the kid have to become compliant by back-filing taxes (either via Streamlined or ‘quiet’)”
Undoubtedly. From the IRS perspective, this is just one more foreign-dwelling citizen who hasn’t been filing. Being registered or not registered doesn’t make any difference to US citizenship status, except that if a person was registered it’s simpler applying for the first US passport (because the citizenship has been documented).
@patC
Yes, whatever you accumulate after expatiation will not affect your uncovered status.
@iota
Even if it comes less per account, there is no way I can sort it all out to the point that an audit would not find something I missed. Then there’s the “fonds” (PFIC), the “fonds”-based life and retirement insurance policies, my combined savings / loan method I used to finance my home. Not to speak of the “Riester Rente”, a state-sponsored supplemental retirement insurance based partly on “fonds”. All the financial junk any middle-class German has or has had. The compliance condors would end up with anything the IRS vultures left over. There wouldn’t be anything left to bequeath. And the stress would probably kill me anyway.
No they aren’t getting one piece of paper from me. I starting to think: if my son wants it, he better be a man and do what needs to be done, painful or not.
@tdott
I’ve wondered that too and have may have even floated a similar question about that here.
The IRS may not even think (if they think at all) it suspicious one starts paying US taxes after the age of 30 when poverty often keeps people under the filing threshold a great part, if not all of their lives.
True, the person might not attract adverse attention if they just started filing. But that’s a different question.
Unforgiven Too – have you considered just showing your son the numbers? As in: “Here’s what you’ll receive as a US citizen” and “Here’s what you’ll receive if you renounce.”