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
Correction: the US classifies everyone as either USC (US-resident or non-US-resident) or Alien (US-resident or non-US-resident).
Most of the world is Alien (non-US-resident) – they just don’t realise it. 🙂
@iota yes for sure most are Alien and the US has it’s own definition for most things.
It can be confusing. I had actually filed as a dual status but I questioned this approach with the firm because I asked them about the conflicting information and they guided me to citation. They were actually very good at answering questions clearly.
this also clears up the myth that one should file a final tax return regardless. yes of course one can file one for piece of mind but it’s not a requirement.
of course in my last paragraph i mean those under filing thresholds, that there is no requirement.
“this also clears up the myth that one should file a final tax return regardless.”
Yes indeed it does. Very useful to have the statutory citation to confirm that that’s the case.
I treated most of my income as exempt under treaty, therefore non-reportable, thus I wasn’t required to file a 1040 for the renunciation year or for any of the 5 compliance years. The 8854 instructions mention this (very, very inconspicuously – “file 1040 if otherwise required”) – so I took them at their word and didn’t. It saved me a lot of headache, and gave me a very satisfying, though irrational, sense of having triumphed. 🙂
@iota
A triumph indeed for you. I triumphed by exiting the system but can’t say I did with my accountancy costs in the process.
Another thing that might be helpful because there has been discussion here in the past on what exactly goes on the form 1040NR. The accountancy firm I dealt with were pretty clear that even with zero US source income after renunciation, the form 1040NR is not a zero return. Their justification for this is that this is your tax return and controlling document and that the numbers from page two of the form 1040 statement are to be transported on to the form 1040NR and next to it written “From Form 1040 STMT”
Basically my page two of form 1040NR was the same as page two of my form 1040 Statement.
I think different accountancy firms handle this differently but because I was paying for advise and corrections, I decided to go ahead and file like this. However I included an explanation statement as well that explained what periods the income came from and that I was bringing forward the figures from page two line 38 from my form 1040 statement on to the controlling 1040NR tax return document. It was a zero owing return regardless.
Other things to note is on a dual status return is that there is no standard deduction however you can itemize certain allowable deductions. Also if you are using the form 2555 FEIE for the period before renunciation, it was prorated to the qualifying days in 2016 which in my case was 229 days. You don’t sign the statement, just the form 1040NR.
I can’t think of anything else useful right now but if anyone does have questions regarding the final tax return and are doing it alone, feel free to ask in case my situation mirrors theirs. And I do believe that most final returns will be passed if signed and the numbers and calculations add up. All these filings just seem to disappear into some hole somewhere.
The approach of copying numbers from page 2 of the 1040 statement to the 1040NR return sounds OK but my guess is that this would complicate the return a little bit if you have any US source income after renunciation. I had a little Social Security after renunciation which was the only income I put on the 1040NR. Both the 1040 statement and 1040NR were zero tax owing.
@fn0
I didn’t have any US source income so I don’t know how they would have handled that if I did but I know they were charging more for those type of final returns. Also I imagine it would not have made much difference because the totals from my form 1040 statement were all cancelled out with my foreign tax credits on both returns.
I had a lot of foreign passive income that was left after taking the FEIE and it’s this foreign source income which was on the page 2 of my form 1040 Statement. So those numbers, the tax figured on the foreign tax work sheet and the foreign tax credit were all carried over but resulted in zero tax liability on both returns
If I had anything extra like NEC that would have gone on a different line (line 54 I believe in other taxes) and if anything was owed from the second part of the year, that would have been the only tax owing at the end anyway.
It took me a while to wrap my head around what they were doing but I just about understood it in the end.
Actually there is a simpler way to explain this
its the AGI from the 1040 statement that is brought forward.
Then tax figured out on the controlling document. It’s just a duplicate of what was on the form 1040 statement 2nd page for me
I am sure it will be fine whatever method is used as long as tax is calculated correctly.
The firm even alluded as such even though they said this was technically the correct way to file and tie tie the returns together
also no dates on top of the form 1040nr
it’s the controlling document for the whole year
Does anyone know what happens if 1) there is no US source income for the part of the year after renouncing and 2) No worldwide income before renouncing other than treaty exempt social insurance?
Is it then OK to file neither 1040 nor 1040NR and to file only the exit tax form 8854?
@Portland – that’s what I did. Most of my income was treaty-exempt, and none of it was US-source or US connected. I filed only FBARs and the 8854. Never heard anything.
@Portland, I was similar to iota. Had no income, US or otherwise, to report so only filed FBARs under Steamlined to become compliant and then filed a final FBAR and the 8854. That was in 2014 and so far nothing.
Just to add that I filed the FBARs at first choosing the Streamlined option, then when it became clear that I didn’t need to file 1040s, I went back and amended all the FBARs, changing the option to “Didn’t know I had to file.” No problems.
Personally I think that when they have so little information about a person, they probably don’t waste any of their time scrutinizing the 8854 but just send it for filing.
@Portland
Yes as others stated, no need to file anything except the form 8854. It’s not a requirement to file if you are under the filing threshold.
Also regarding the dual status return and for those following my earlier posts on how to transport numbers, I looked back into my inbox to find the diagram the firm sent me. it’s clearer here (hope the link works)
https://www.irs.gov/irm/part3/34010044.html
This is a very basic diagram but you can see here that this person left or renounced on May 18th 2016 and the numbers from 1040 were added to the controlling document form 1040NR (47,000 from form 1040 added to 76,000 from form 1040NR which was crossed out and 123,000 written next to it.
the idea being that all taxable income (except anything exempted under form 2555) would be transported on the controlling document and this return processed.
The firm alluded to me that if it wasn’t filled like that, then the IRS would add it over themselves and process the controlling document like shown here.
However as with most things, it’s never that clear or logical.
Phil Hodgen has a pithy piece at https://hodgen.com/dual-status-tax-returns-and-treaty-tax-rates/ discussing what you should do about Item L on the 1040NR, if you have US-source income.
@ all.
If anyone wishes to retain a US bank account after renunciation, the interest (such that there is) is tax free, so no need to file. One does not need to be put off by thinking retention of a bank account would need IRS filing.
Social Security income payments are dealt with mainly through a tax treaty, so social security will act as the withholding agent, if the treaty requires it. Some countries such as the UK Ireland and Germany have a 0% withold.
Re: My first question is simple. Is there any standard form or phrase I should use when sending my initial email to CanadaCLNInquiries@state.gov?
This may have been answered already, but for anyone who missed it, note that it doesn’t matter what the initial email says. The email I just sent to CanadaCLNInquiries@state.gov saying “#$^^$#shit” was replied to 13 seconds later with an email detailing all the steps needed to formally renounce or relinquish U.S. citizenship in Canada.
With regard to final year tax returns, I’m thinking that the more I read, the less I understand. While reading in various places about the dual status return with 1040/1040NR, I have come across references to doing full-year U.S. returns, as they are simpler and easier. I think one comment may have been on Serbinski, something about why would any Canadian do a dual status return when something in the tax treaty allows the option to do a full-year return. I can’t find what that would be.
Also, in one of Phil Hodgen’s newsletters: “How can we make the individual’s final year tax return return as simple as possible, and avoid filing extra and avoidable tax returns?…In general, it means we prefer full-year resident tax returns as the final income tax return for an individual. Why? Because they are easier, therefore cheaper to prepare. And for people who can use a foreign tax credit, the full-year tax status probably will not cost them extra money. For citizens, that means timing a renunciation date very early or very late in the year.”
Does anyone know what this means for the final year tax filing, and who can use a full-year U.S. return instead of the dual-status return?
I too thought it would make things simpler if I could file a 1040 (married filing jointly) for the whole expatriation year 2016 instead of splitting everything into pre and post expatriation. Per the IRS, if you are resident at the end of a dual-status year you can chose to have a non-resident spouse treated as resident and file a whole-year same-status joint 1040 for the whole year, but they don’t say you have the choice of a whole-year same-status return if you are both NRAs at the end of an expatriation year. Phil suggests that if you left very early (January) or very late (December) you could file a full year same-status return instead of a dual-status return. In this case presumably the IRS doesn’t care as long as all income’s reported, even though a filing a whole-year same-status 1040 for an expatriation year does conflict with the principle that the return be based on year-end status. My renunciation was not close to year-end anyway, and I filed dual-status returns with the expectation that the IRS will be OK with a 1040 married filing jointly statement attached to a 1040NR individual filing (all income was reported and no tax owed).
I used this approach because IRS Pub 519 indicated you can file jointly in a final dual-status year, i.e.: “Dick Brown was a resident alien on December 31, 2013, and married to Judy, a nonresident alien. They chose to treat Judy as a resident alien and filed joint 2013 and 2014 income tax returns. On January 10, 2015, Dick became a nonresident alien. Judy had remained a nonresident alien throughout the period. Dick and Judy could have filed joint or separate returns for 2015 because Dick was a resident alien for part of that year.” But then the IRS does not explain how to file jointly when a 1040NR return only allows individual filing so I had to guess.
I didn’t know to transfer amounts from the 1040 statement to the 1040NR return – how would that work if the 1040 is joint and the 1040s are individual.
It would be so much simpler if you could expatriate on New Year’s day.
Canoe. I read that piece by Phil Hodgen. It is quite confusing because that is not what the IRS instructions tell you to do. How can expatriating near the beginning of a year or near the end of a year be any different than any other time?
I think that if someone owes no tax then it probably doesn’t matter a great deal if you don’t get the timing exactly correct.
@canoe
You are meant to fill as a dual status return when you are a non resident alien on the last day. this is for renunciation/ relinquishment or moving out of the US. it is in the stature
See Treas. Reg. § 1.6012-1(b)(2)(ii)(b), Treas. Reg. § 1.871-13,
Also it does not make any difference when you expatriate, the only time someone does not have to file a dual status return is when they renounce/relinquish on January 1st. This is what my accountant told me and I have also seen it online on the IRS website. I don’t know about any treaty for Canada but one could very well exist as I have seen it mentioned myself during research.
I found this online in an IRS training manual when I was researching myself to file and it sums up the basics. and also confirms what my accountant said, the IRS will look to see if the figures on the form 1040 have been combined with a 1040NR or not and add them. so most dual status returns will pass either way. Mine was filed around 8 weeks ago so should have been processed by now.
I copied it below in case someone finds it useful.
3.38.147.10.2 (01-01-2017)
Form 1040NR or Form 1040NR-EZ Dual-Status (D/S) Return
1. A Form 1040NR or Form 1040NR-EZ Dual-Status (D/S) is required when taxpayer is a nonresident alien of the United States on the last day of the year.
2. Generally, Form 1040NR or Form 1040NR-EZ D/S returns show a foreign address. If return shows domestic address, review to ensure dual-status.
3. Dual-Status returns are taxed according to two separate tax periods under provisions applicable to nonresident aliens and resident aliens.
4. If the taxpayer computes tax on non-effectively connected income on Schedule NEC, page 4 of Form 1040NR the amount is carried over to the tax on income not connected with the U.S. trade or business on line 54 of Form 1040NR.
5. Non-effectively connected income received during non residency is taxed at 30 percent or applicable treaty rate.
6. A Form 1040 dual-status return is attached as a statement to Form 1040NR or Form 1040NR-EZ to show U.S. source income earned during non residency.
7. When nonresident aliens give up U.S. residency and file Form 1040NR, they are required to attach Form 1040 as a statement to show tax on income received during residency.
Note:
Nonresident aliens who give up U.S. residency are not allowed to file Form 1040NR-EZ for the tax year in which they give up their U.S. residency.
8. The combination of incomes and withholding amounts shown on both Form 1040 and Form 1040NR or Form 1040NR-EZ is totaled on Form 1040NR or Form 1040NR-EZ.
9. If the amounts on the Form 1040NRor Form 1040NR-EZ and Form 1040 are the same, do not combine amounts to the Form 1040NR or Form 1040NR-EZ.
Note:
If the amounts on the Form 1040 have been X’ed out and/or have been combined with the Form 1040NR or From 1040NR-EZ amount, then return to original taxpayer figures.
10. If the amounts on the Form 1040 and 1040NR or Form 1040NR-EZ are not the same, combine the amounts from the 1040 to Form 1040NR or Form 1040NR-EZ.
11. During the period of residency, all exemptions can be claimed just like Form 1040 filing but cannot exceed taxpayer’s taxable income (computed without regard for personal exemptions).
12. Only filing status codes 1, 3 or 6 are allowed.
13. Earned Income Tax Credit (Schedule EIC), Education Credits (Form 8863), and Credit for the Elderly or Disabled (Schedule R) cannot be claimed by a taxpayer who is filing as a nonresident alien.
14. Self-employment tax is paid only on income earned during residency.
15. Commuters from Canada and Mexico file Form 1040NR and are not liable for self-employment tax.
Typical IRS gobbledygook. 10,000 fine if you get it wrong.
fn0, DoD, and UK Rose, thank you for your thoughts and information. I appreciate it. With the dual status return it just feels weird to be using, or shoe-horned into, the “resident alien” status for the first part of the year.
I had my appointment at the Calgary consulate last week, so here’s my timeline, in case anyone else is going through there in the next while:
:: Early May 2016: requested appointment by email to U.S. Consulate in Calgary
:: Next day: reply letting me know that scheduling/prelim paperwork are now centralized at the consulate in Vancouver and that I should redirect my request to the Vancouver email address
:: Same day: sent email to U.S. Consulate in Vancouver, had reply requesting documentation to be sent them by email
:: Early Sept: email with notification of appointment in late April
:: Late April appointment at Calgary consulate
I was at the consulate for roughly 40 minutes. I don’t know if there were any other renunciations that day, but there were several families with lots of kids sorting out U.S. passports. I met with two staffers (not including the cashier, who was the first person I spent a substantial amount of time with), the one who began the process (took my documents and photocopied them) and then the vice consul, and both seemed to make a point of telling me that my application would be “reviewed at the State Department in Washington by a team of lawyers”. Each used the phrase “team of lawyers”, which I found — as it is likely meant to be — off-putting and unnecessary. My daughter, who renounced in Calgary last June at age 18, says she doesn’t recall anyone using that phrase at her appointment. The vice consul also made a point of telling me several times that I might need a visa if I ever want to go to the U.S. again, and especially if I ever wanted to work in or retire to the U.S., or become a snowbird.
The first staffer told me I should have my CLN in “1 to 3 months, maybe 4”. I’ll report back when I get it, including if it arrives with a form 8854.
The early September 2016 email I received with my appointment date also advised me to bring to my appointment a “Completed and unsigned Form DS-4081”, which I did, but it turned out to be unnecessary, because the Consulate had a copy they had already completed for me to sign.
For Sheila, your kids don’t need to have had U.S. passports at any time. My daughter renounced last year at age 18 and didn’t have one, just her Report of Birth Abroad and Social Security card, and same for my son who is now 18 and renouncing in June. In fact, their reason for renouncing is that they are Canadian, have never considered themselves to be anything but Canadian, and would like their documentation to be in line with their reality.
Rebecca—many, many thanks! While I’ve certainly appreciated everyone’s feedback and the chain of discussion, what I’ve been hoping for is someone’s recent experience of renouncing without ever having had a US passport. Your kids’ experience directly relates to my kids’ situation; my mind, and theirs, will now be at ease moving forward. Thank you so much for taking the time to post.
@Rebecca
” both seemed to make a point of telling me that my application would be “reviewed at the State Department in Washington by a team of lawyers”. Each used the phrase “team of lawyers”, which I found — as it is likely meant to be — off-putting and unnecessary.”
What a couple of arrogant pr*cks! Not a shred of human decency or compassion that this act *might* just be an emotional event for you to undertake in the first place, & absolutely NO commiseration that you ought not even have to be there, at all. Oh, but they very happily & officiously scoop up those dollars now, don’t they? Jerks.