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
Regarding the FBAR penalties: there is a programe called the Streamlined Procedures which lets you file without risking the scary FBAR penalties. Or you can just backfile, if you owe no tax. That’s what I did.
See https://www.irs.gov/individuals/international-taxpayers/streamlined-filing-compliance-procedures
and https://www.irs.gov/individuals/international-taxpayers/delinquent-fbar-submission-procedures
@ Valentina,
Re:
No problem to renounce first, as Karen said in the previous comment:
Here’s some general information relating to that and the relation between DoS and IRS in the context of renunciation.
(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) This is probably not relevant to you, as they’re not using the DS-4079 for renunciations in Canada anymore (or most places elsewhere AFAIK). But in case it’s relevant to someone else reading this . . .
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 years 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 – it’s never been required, but they can use it if they want to — less and less seem to be using it. They’re not using it in Canada any more (unless they’ve changed back, but if they have it’ll be in the list in the e-mail they send you.)
(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.
If a person does not file, the citizenship itself remains terminated and the CLN remains valid.
Thanks Karen, iota, and pacifica777 for your timely help! We’ve got a lot of smart people on this forum.
From your advice, I will attempt to get my CLN, then backfile years 2012-2016, file the 1040 and 1040NR for 2017 along with the final form 8854.
I’ll keep everyone updated of my “journey” (if you can call this a journey) and I have no doubt I will come back with more questions in the future. I’ll also spend some time digging through the archives here at IBS. I look forward to the day when the fog will finally clear. 🙂
Once again, I am grateful for everyone who responded not just to my post, but to everyone else here who has assisted their fellow brockers struggling with navigating their way through the needless quagmire of insanity and bureaucracy.
@ valentina
Any particular reason why you, a person with a Canadian birth certificate, are so intent on “coming clean” with the IRS? Have you had a scary demand letter from your Canadian bank? Are you thinking that those US tax forms you filed 20 years ago might put you under the IRS radar? Are you worried that sometime in the future you won’t be able to go shopping in the USA or visit friends or family there? Just curious as to what is motivating you to re-enter the den of thieves or as you put it “the needless quagmire of insanity and bureaucracy”.
Valentina,
This suggestion makes sense only if you want a CLN quickly, have always been interested in visiting Iceland, and have the travel funds for a visit to an interesting country:
Consider renouncing at the U.S. Embassy in Reykjavik. I found all staff to be very pleasant and sympathetic, was able to select the renunciation date (a wednesday), and obtain quickly a CLN. You may well find other Canadians in the renunciation waiting room as I did.
https://is.usembassy.gov/u-s-citizen-services/citizenship-services/renunciation-u-s-citizenship/
@ Valentina,
EmBee wrote: “Any particular reason why you, a person with a Canadian birth certificate, are so intent on “coming clean” with the IRS?”
Glad you brought that up, EmBee.
The last tax filing in the US was a long time ago (also per the Tax Treaty CRA won’t help IRS in collections against Canadian citizens, and the IRS hasn’t been harassing minnows here). So, not filing is a possibility. Also with a Canadian birth certificate, should a bank ever ask for proof of place of birth, they’d not suspect US citizenship. So in that regard, the possibility exists of going forward without a CLN.
I mention this as options, not specific recommendations, because everyone’s fact set is different. And even if two people had the same fact set (and the same knowledge), they might well come to different choices dealing with this because everyone‘s personality is different too. In fact, people here in pretty similar situations to each other have chosen different ways of dealing with this (got a CLN/didn’t get a CLN; filed tax/didn’t file tax) — the really important thing with this US citizenship/tax mess is to have solid information and to be aware of the various options, mull it over, and do what feels best for you.
Valentina. I’m confused. Why do you feel the need to renounce and get a CLN? EmBee is absolutely right. There is no real need.
If perhaps, there is a good reason, you can still avoid being a covered expatriate by filing 5 yrs. in that case, you could file 2012-2016, and still renounce in 2017. It’s getting a bit late in the year because getting an appointment takes about 6 months. Or you can renounce and not file anything. This would mean you would be a ‘covered expat’ but so what?
Think twice about whether or not you even need to renounce.
@Valentina
I would agree, with a Canadian birthplace you could easily ignore all this. I’m ignoring it with a US birthplace – so far so good.
Just be prepared with the right answer if you’re ever asked about US citizenship – if for example a bank had an old US address on file and followed up. Don’t be afraid to lie.
@ pacifica777 On September 7, 2016, fn0 posted a very detailed and very helpful report of renunciation appointment at Vancouver. I don’t think this was caught in the Consulate Report Directory. If it wasn’t, and can be found (in this thread), it is a good one to keep. I saved a copy to read a few times before my own appointment. Thank you to @ fn0 for this!
I started thinking seriously in February 2016 about gathering the required documents to apply for an appointment. It took me awhile to figure out how to put together PDF versions on our old computer, but while I was figuring that out, I learned from IBS that the 4079 form had been discontinued for renunciations in Canada. That was good news. I finally sent the documents in July, and requested an appointment in Vancouver. I heard back in just a few weeks, with a date later in November. The appointment went well. I thought the CLN might get caught up and delayed in the government transition after the election, but it took about two months, so no longer than I’d guessed. Now to do the final tax and FBAR filings, so I’m back to being a bit nervous until those are done. I will be glad to have it finished; glad for an end to researching tax stuff on my iPod when I wake up thinking about it in the middle of the night!
Reading here on IBS, it certainly is apparent that there are many different circumstances and situations, and everyone needs to figure out what works, and what is best, for themselves and their families. In my case, it just came to “All roads lead to renunciation.”
EmBee, Stephen, pacifica777, DoD, & Nononymous – thanks so much for your feedback.
@Stephen Kish – I just watched Michael Moore’s documentary “Where to invade Next” a couple of weeks ago and his segment on how Iceland reacted to the Banking Crisis inspired me to want to visit one day! I don’t really have it in my budget to visit but if I did I would seriously consider it as a possibility so thanks so much for your suggestion!
@EmBee, DoD, Nononymous – I certainly have thought of doing nothing. Since I can see advantages / disadvantages to each possibility it has been difficult to lean in any one direction and that is why I have been in kind of a holding pattern for the last few years. As pacifica777 mentions, different people with the same situation and knowledge set will take different paths.
I can’t list one overarching reason why I now want to renounce. I’m hesitant When I first came here over 20 years ago I was a romantic idealist and was glad that I was starting my new life in Canada. I had a political viewpoint even in my early 20s and I wasn’t happy with the gulf war, Vietnam, and the growing gap between the rich and the poor in America. I hesitate to bring this up because IBS is not a political forum but I am an honest person and this is the truth. At one point I seriously considered giving up my citizenship but I thought this would be a very silly and completely emotional move on my part fueled by an inner symbolic and sentimental drive. At the time I congratulated myself on my practical aspect. Fatca was 20 years away at this point. If I had gone ahead I would have been years ahead of the curve. Sometimes in life our intuition is spot on. My intuition is telling me it’s time to leave now.
Given that I am an honest person I feel like I am now in a position where I have to hide, evade and be dishonest. This is unsettling for me. I feel I have done nothing wrong. Yes, I can morally justify and rationalize to myself that I have no choice given the unfair position I am faced with. This whole Citizen Based Taxation is untenable and I certainly don’t agree with punishing your own citizens by using bulldozers to clear out ant hills.
No bank has asked threatened me and I am just a minnow. Even the most incompetent and lazy of detectives could easily merge my two identities together. I do feel like I am hiding out in the open.
I also feel that if I am going to renounce I should do it now. Currently I am a small minnow with very little assets and wealth and my tax situation is simple. In the future I may have a house, business, and kids. My tax situation will have increased in complexity and I don’t want my children to inherit this mess. It’s theoretically possible that my net wealth twenty years down the road would have risen to the point where I would have to pay an actual exit tax. And the laws may get worse. The renunciation fee may be increased again.
All in all this is not an easy decision but this is the path that I have decided to take.
I wish everyone here the best of luck no matter what decision or path they have opted for.
Valentina Fair enough. Figure on about 5-6 months to get an appointment. we are here to hlp any way we can. Good luck to you.
What I’m beginning to realize is that in addition to saving US$2350 by not renouncing, I actually like the dishonesty. I enjoy breaking US law from my safe perch in Canada. All the fun of being rebellious but with no real danger.
“Given that I am an honest person I feel like I am now in a position where I have to hide, evade and be dishonest. This is unsettling for me. I feel I have done nothing wrong.”
Spot on.
I also could have done nothing. I have a US birthplace, but have lived outside the US since the 60s and could have simply refrained from opening any new bank accounts so that I would never be asked the question. But doing so would have meant taking on the mindset of a fugitive – “under the radar”, with something to hide, putting myself in the wrong for having been born where I was born. It was obvious to me from the moment I understood about CBT, that renunciation was the way to remove this sudden blight from my life, and I was fortunate enough to be able to pay the charge to do so. I first heard the word FATCA in July; in October I was no longer a US citizen. Happy days! 🙂
It was only after I renounced that I realised that I really should have done so decades ago, from the time it was clear that I would never go back to America. All those years I had been going with the status quo, because there was no pressing need to do otherwise, because it made life a little simpler when I visited my family, because I thought US citizenship might come in handy sometime. Not good reasons for retaining the passport of a country I actually regarded with fear and dislike, as I had done since childhood. Renouncing was like shedding all that shame. Freedom indeed! 🙂
@Nononymous:
“What I’m beginning to realize is that in addition to saving US$2350 by not renouncing, I actually like the dishonesty. I enjoy breaking US law from my safe perch in Canada. All the fun of being rebellious but with no real danger.”
Maybe sometimes it just comes down to what feels most like winning. For you, gaming America’s stupid system feels like winning. For me, shaking my (metaphorical) skirts completely clear of America feels like winning. 🙂
Correct me if I’m wrong.
@valentina, you have to decide which is the best course of action for you personally. Many are happy to do nothing if their circumstances allow it, others are happy to do some filing, still others want to clear everything to be absolutely sure, still others say I’m not playing the US’s game and they can go jump in the lake for all I care. Your best decision is the one that allows you to sleep at night, not worry about possible problems occurring in the future, etc. Whichever one that is the right decision for you. We’ll be here to support you whatever decision you make and if you have any questions then just ask.
If you opt to file via Streamlined then that requires 3 years of back filing and 6 years of back FBARs, but there’s nothing to stop you adding another couple of years on to make up the 5 needed when filing the 8854 form. If you decide to just backfile then there’s nothing to stop you beginning that while you wait for an appointment at the embassy/consulate.. Filing can be done before, during and/or after renunciation whatever works best for you.
The only thing maybe to watch out for is the timing of the renunciation appointment itself if you do plan to back file returns. As the 8854 isn’t filed until the year following renunciation, getting an appointment late in 2017 will only give you a few months to sort all the tax side out before you need to file in June 2018. So maybe an early 2018 renunciation date would suit better, allowing the 8854 to be filed in 2019. But again, it totally depends on when you can get an appointment and how complicated or not your returns may be. You might not need the extra time if your returns are straightforward, but thought I’d point out the timing thing just in case.
“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 years 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.”
13(g) is another question which may cause concern to some. It’s the reason I travelled to Amsterdam to renounce.
@valentina @all
Does a tax liability determine whether someone is a minnow or whale, or is it whether someone has “reasonable cause” for not knowing about their tax so-called obligation to pay US tax?
I am a minnow in Canada, but had a significant tax liability one year due to the sale of my home in Canada. Was I a whale that year?
@Medea Fleecestealer
6 years FBARs? Does that mean 2017-2012 or 2016-2011, if I plan to renounce in 2017?
As for your statement to @valentina: “Your best decision is the one that allows you to sleep at night, not worry about possible problems occurring in the future, etc.” That is how I see it, too. And for me that means renunciation, which is in itself already a powerful statement.
A significant tax liability might be worth sending a bill; if payment is not forthcoming, other things have to be taken into consideration: does the person have US assets, is there a mutual collection agreement, could the person be served with a summons and successfully prosecuted in a US court.
@E Lise, if you use the Streamlined option then you need completed 6 years for that so probably 2011-2016. You’d then file a final one as part of the winding up tax stuff and the 8854. That is what I did as I only had FBARs to file, having no income. If you don’t use Steamlined and only back file then you’d just need 5 years for the 8854 and that could include the 2017 year.
Remember that any filings only cover up to your renunciation date, although I know some people file a 1040NR for the non-US part of a year but there seems to be conflicting info on whether you need to do that or not.
@Canoe,
Thanks very much for pointing out that I missed fn0’s consulate report – and for your report too!
@fn0,
Sorry I missed your consulate report in September. Thanks very much for posting and it’s great to have such detail! I‘ll add it to the next edition of the Directory, which should be online in a couple of days.
It may be OK to file up to the renunciation date. Maybe. The IRS pubs are clear that your filing status for a dual status year is your year end status, I.e.. NRA filing on 1040NR. Of course the period before the date must be filed on a dual status statement, usually 1040 statement not 1040 return.
The question is, it seems to me, is a renunciant’s year-end status “NRA”?
Or is a renunciant’s year-end status “citizen of X country, with no obligation to file a foreign country’s tax forms.”
And the answer, I would say, depends on whether on 31 Dec of the renunciation year, the renunciant did or did not have US assets and/or income which are treated as US-taxable under a double-taxation treaty.
A former USC who is now a solely French or UK or Canadian citizen, living in their home country with no foreign assets or income, is not a “non-resident alien” on 31 December and has no obligation to file IRS tax forms, any more than their non-USC next-door neighbour.
But if the former USC does have US-taxable assets or incomes, the person does meet the “NRA” definition and the 1040NR is the correct form to use in order to report the US assets or income to the US and pay any tax due – not only for the year of renunciation (which should include a 1040 statement to cover the USC portion of the year), but going forward, in any year during which the former USC has US-taxable assets/income.
Is the way I read it. Short version: no need to file the 1040NR if you didn’t have any US assets/income on 31 Dec of the year in which you renounced. File the FBARs, and the part-year 1040, and the 8854, and go out and celebrate.
I had my final tax return checked by one of the reputable UK accountancy firms that deal with many renunciations, final returns and also returns for wealthier clients.
The final tax return does need to be a dual status return unless one doesn’t need to file at all or your treaty says otherwise. I believe Canada can file a full year.
I was told it’s regulation treas. Reg. § 1.6012-1(b)(2)(ii)(b), Treas. Reg. § 1.871-13
It’s not clear on any of the publications but they refereed me to this and it’s referenced somewhere on the IRS website. However I take it that most final returns will be accepted if signed and the income and numbers are calculated correctly.
If an individual abandons his U.S. citizenship or residence during the taxable year and is not a citizen or resident of the United States on the last day of such year, he must make a return on Form 1040NR for the taxable year, even if an election under section 6013(g) was in effect for the taxable year preceding the year of abandonment. However, a separate schedule is required to be attached to this return to show the income tax computation for the part of the taxable year during which the individual was a citizen or resident of the United States. A Form 1040, clearly marked “Statement” across the top, may be used as such a separate schedule.
A return is required under this subdivision (ii) only if the individual is otherwise required to make a return for the taxable year.
@UK Rose – thanks for posting the statute citation. Here’s a link to the section, for reference:
https://www.law.cornell.edu/cfr/text/26/1.871-13
As I see it, it it depends on whether the renunciant accepts the status of NRA?
To the USG, every person alive in the world, and corpses, come to that) is either a USC (resident or non-resident) or a NRA. But that’s not really the way people of other countries define themselves. It’s just the blinkered US bureaucratic mind.
In the end, as always, each person has to decide which is best for them – to file nothing, or just the 8854, or 1040+8854, or 1040+1040NR+8854. The IRS would be insane to spend time and resources trying to extradite a citizen of another country to the US to be tried in a US court for the crime of failing to file a 1040NR full of zeroes, so it’s probably not going to matter, if the person has no US income or assets..