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
I filled out and returned the 4080 and 4081 forms, minus signatures. Then, as requested in the instructions, I took printed copies to my renunciation appointment. There, they had printed copies already. That was fine with me — I’d rather be over-prepared and have extra documents just in case they are needed. I took landed immigrant papers, Canadian citizenship card and dated certificate, and all the forms of birth certificate I had, just in case something extra was needed.
Does anyone know a reason WHY the standard deduction cannot be used when filing U.S. taxes for the year after renouncing/expatriation, i.e., for the final, dual-status year? As issues raised on this site go, this is just a little thing, but it is bugging me as I figure out using itemized deductions in U.S. taxes for the first time, and whether itemized is going to result in more costs.
“Does anyone know a reason WHY the standard deduction cannot be used when filing U.S. taxes for the year after renouncing/expatriation, i.e., for the final, dual-status year?”
Where does it say you can’t? Logically it should be allowed pro rata.
@canoe, you sound like me. I took all sorts of miscellaneous papers with me just in case. Didn’t need them, but I felt happier having them with me just in case they’d be wanted for some obscure reason.
@Medea, Yes, I was glad to know I had everything anyone could possibly ask for. And my only U.S. passport had expired so long ago that they did ask to see a birth certificate. I am normally cautious, but I’d read the suggestion to take extra documents from others on this site — good idea.
@iota, I think that once again for this topic, logic doesn’t apply. As for not being allowed to take the standard deduction, one place for that is in Publication 519, page 32, Restrictions for Dual-Status Taxpayers: 1) You cannot use the SD allowed on Form 1040. However, you can itemize any allowable deductions. Never having had to itemize before, I’m taking this as just one more aggravation on the way out, as I read about what is do-able for itemized deductions.
Somewhere, I read that Canadians can just opt to file a full-year 1040, even for the final expatriation year — and thus use the standard deduction. This sounds like a fairy tale, and I can’t find a source in writing in the tax treaty or otherwise, Everything always comes back to the dual-status year, and restrictions on standard deduction.
@canoe – Indeed, it’s probably unrealistic of me to expect the IRS to be logical. I do think there’s a logic in their rules about filing 1040/1040NR for R-year though.
A 1040 return signed by a non-US-citizen is in theory invalid as a return, regardless of whether the person is Canadian or some other nationality. But if a renunciant sends in a 1040 with final-part-year information, and doesn’t send in an accompanying 1040NR, they’re probably not going to waste time pursuing the matter, unless there’s US assets, or a lot of unpaid tax, or they have court-worthy evidence of tax crime.
That may be why there’s so much confusion about whether the 1040NR is required – it is, in theory, but they probably don’t often bother chasing it. Just my guess.
Thanks for the info, OhDear and DoD. I will send the forms in without my signature. I’ll be sending in my forms pretty soon. Time to get the ball rolling! 🙂
I concur with iota – dual status returns are supposed to consist of a signed 1040NR and an unsigned 1040 (to indicate where at least some of the 1040NR’s figures came from). That’s what my tax guy did for me, and it’s what I’ve seen written by other tax people. *However*, the IRS doesn’t seem to get its panties in a bunch when people send in signed 1040s only, despite the fact that that’s incorrect.
I’d add that since AFAICT that return has no effect on your previous 5 years tax compliance, and thus no effect on determining whether you’re a covered expat or not, it’s probably not something to get worked up about. If the IRS has an issue with a 1040-only return, it’ll let you know and you sort it out (or not) – your non-covered expat status should not be affected.
After having unintentionally hijacked another thread to discuss my ongoing renunciation strategy, a big new question arises from a comment in today’s post about the Pitfalls of being a Green Card Holder. We’re not green card holders, but the question of phantom capital gains come up.
To recap: we want to sell our local rental property and use the funds to buy a rental property in a passport haven for purposes of acquiring citizenship. The “mortgage boot” unfair tax would require us to pay around US$30,000 to the IRS on money that never belonged to us (the mortgage itself).
The most interesting advice I received was that I renounce alone, have my husband “gift” me his share of the property, then as a non-US citizen I can go ahead and sell it. Being a non-US citizen by that time, there will be no capital gains tax to the US.
Then I saw this in today’s Green Card thread:
“However, if I own the Toronto property on the day of expatriation, the US taxes me on any paper profit.”
What this sounds like is that on the day of my expatriation, the IRS is going to tax me anyway on paper-only capital gains, even though we haven’t yet sold the property, and despite my being way under the $2 million covered expatriate limit. Coincidentally, that capital gains tax would also amount to around US$30,000.
So either way I don’t escape. Either way they screw me over. Am I reading this correctly?
@Barbara – only if you’re a covered expatriate, surely?
Non-covered expatriates only report the gain (on the 8854). They don’t get taxed on it.
@Iota: Okay, I guess that wasn’t super clear to me when I read the article. Reading it again, it does seem to indicate that the author is only referring to covered expatriates.
Just had a huge argument with hubby about this whole idea. He’s getting cold feet. His “spiritual advisor” predicts trouble if we renounce our US citizenship. Either that spiritual advisor is jealous, based on uninformed notions of the value of US citizenship, or her cousin is a tax condor. Heck, at this point, I’d even grab Syrian citizenship. Then we can walk into Germany as refugees while people applaud us.
Meanwhile, I am still plotting our potential courses of action.
@Barbara (& @iota) – the tax on unrealised gain only applies to a covered expatriate. The author of the green card post is unable to avoid being a covered expatriate if he leaves the US (see his first paragraph), so the post is written from that point of view.
Barbara, won’t that leave you stateless for the time between when you renounce and when you’re able to sell the property to buy the new citizenship?
You might also want to research a bit about gift taxes. If the value of a gift by a USC to a NRA spouse exceeds US149,000 a gift tax return is required (no tax, but a return). I remember reading somewhere that the spouse that’s gifting may need to be a US citizen on the last day of the year of the gift to qualify for the lifetime exemption. There was some confusion about this, and I’m not sure what the final conclusion was (if there was one). Something to bear in mind.
@Barbara – sorry to hear of the problems. It does seem as if Heidi’s plan would work. Maybe if you leave it for a while, your husband may come round to the idea.
Pretty rotten to have to go through such a complicated route to do something you shouldn’t have to do.
@Barbara
Adding to the comments above, note that the exit tax’s ‘pretend’ sale of assets and tax on unrealised gain has a $699k exemption before tax is due even for covered expatriates. This exemption doesn’t apply to things like pension savings (they are not ‘capital gains’), but would certainly apply to your property. So even if you were ‘covered’ you would still be in the clear on that item.
Aside from a few understandable short-cuts, the Forbes commenter’s notes were for the most part pretty accurate. I know, since I have lived the green-card and exit tax nightmare first-hand. The passage of the exit tax law was the primary reason I left the US when I did. I have not been back since.
@Barbara
I had to reread that article but then realized the author was considering himself a covered expat.
You should study 3520 gift reporting form and see is there is any mention of the last day of the year criteria.
Hodgen makes no mention of it, but you could email him that question.
https://www.irs.gov/uac/about-form-3520
I see that the costs of citizenship by investment have been rising in many countries. If it might take a while to sell your apt, I would make quite certain of the cost and how long it will be fixed if you are close to your cost limits.
No need to argue about it; this whole thing is just too much stress as is.
That’s one thing that has changed for the better in my family as a result of the US government’s evilness: my wife (who has a slightly extremer version typical German thriftiness) and I do NOT argue about money anymore, period. We figure that if the IRS ever finds a way to collect those penalties they think we owe them, it will be more than we both have ever earned in our past and future lifetimes, much less owned at anytime in our lives, so just we just relax and give out some of the IRS’s money for things we enjoy. Makes life easier.
@Unforgiven – “We figure that if the IRS ever finds a way to collect those penalties they think we owe them, it will be more than we both have ever earned in our past and future lifetimes, much less owned at anytime in our lives, so just we just relax and give out some of the IRS’s money for things we enjoy. Makes life easier.”
Excellent way to look at it!
@Barbara
If you go ahead with this plan, when it comes time for hubby to renounce and he fills in his 8854 as a non covered expat, he will just have to list the value of his half of the apt you have bought in your new citizenship country. When it was bought and where it is located does not come into it, it can be listed as ‘foreign’ property. How would they know the difference between his old one and new one? You as an Alien have sold it. Filing a 3520 is your choice.
I am sorry to hear of the ‘conflict’ at home. It happened in our marriage too, it took a while for spouse to understand the full ramifications of being a US citizen even though we were fully compliant. It still causes much conflict with our children and I have been forbidden to even discuss the subject when visiting.
I truly hate the US for the harm they have caused so many families.
As someone made the analogy to the end of the movie Fargo, “all this for just a little bit of money”
Just remembered Spouse gifted to children (to avoid covered status)., renounced before end of year, filed 3520 to qualify for lifetime exclusion, no problems. That was 5 years ago.
@ Barbara,
You say
“The most interesting advice I received was that I renounce alone, have my husband “gift” me his share of the property, then as a non-US citizen I can go ahead and sell it. Being a non-US citizen by that time, there will be no capital gains tax to the US.”
Just to be sure.
Your hubby would have to gift you his half of the existing house when you are still both US citizens, ie before you renounce.
To anyone who’s filed the 8854 and final year returns:
Please help, my accountant’s never done one of these and I seem to giving him more guidance than he is able to give me. To say that I’m panicking is totally understating the matter, since I know the deadline is around the corner.
Questions:
1. What did you use for the time range at the very top of 8854? Assuming the expatriation date was Mar 15, 2016, would the dates at the top of the form be Jan 1, 2016 to Mar 14, 2016? If not, what?
2. Should the other usual forms, such as the 8891 (for RRSPs), also be dated at the top of the form the same way as the 8854, or do I leave that blank so that it applies to all of 2016 (since I’m submitting a 1040 and 1040NR to cover the entire year)?
3. Where do I declare household goods and my car? Is that under Part V Schedule A #19 under “Other Assets”? Do I just put the fair market value and eave it at that?
Any info would be much appreciated!! Along with any other tips!
WestCoaster –
For the 1040 and 8854 use the dates you were a US citizen (Jan 1 – Mar 14). The 1040NR covers the entire year. I don’t think this is a make or break issue – since your renunciation date is on the 8854 and the 1040NR, it would be pretty clear what time period should be covered.
I put my car etc. on line 19 Other Assets – FMV in column a and original cost in column b (personal use only asset, so no depreciation).
@WestCoaster
My suggestions, based on what I do. 1 – Leave blank, since your ‘tax year’ is not different to the normal US calendar year. 2 – Leave blank, same reasoning. 3 – Yes, to both use line 19 and put fair market value (or best guess thereof). Provided you’re not a ‘covered expat’ the 8854 numbers won’t generate any actual tax liability, so rough-ish or even largely made up (as long as they appear believable!) should be fine.
Final tip: Don’t forget that you have to send the 8854 to the IRS twice over, one with your return and one again and separately to Philly. Why? Pfft, who knows. It’s the IRS.
@Karen, @Watcher
Thanks! No, I should’ve mentioned that I am NOT a covered expat! (If I were, I could afford to hire a competent accountant, ha ha. That’s gallow’s humour, by the way. It’s going to be a while before I can laugh about any of this, if ever.)
@Watcher
The 8854 definitely needs a time range at the top (unless you’re one of the unfortunates that expatriated during a time period where you had to file an 8854 on a yearly basis for several years). For those of us that renounced last year (and probably this year, too), you do need a date range so I’m going to take Karen’s advice and go with Jan 1, 2016 to the day before my CLN is dated. Thanks for the reminder about the 8854 going two places; honestly, sometimes I think they conspire to trip us up!
One more question, the FBARs seem to automatically be for all of 2016 but I’m putting in the maximum values for the period of January 1, 2016 to March 14, 2016 — is that correct? (For example, if the max value for an account is $1000 between Jan 1 and Mar 14, but the max for the entire year is $1200, I put down $1000.)
All of this makes my head explode!!