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
@UK Rose
To sum up:
– No dates on the 1040 or the 1040NR.
– 1040 covers Jan 1 to day before CLN. For example, let’s say the income for this period is $10k.
– 1040NR covers CLN to Dec 31. If income for this period is $30k, you actually write $40k because you need to include income earned in the 1040 time period. Include explanation statement saying figures from page 2 line 38 from 1040 are brought forward to 1040NR and that 1040 prepared solely for the purpose of calculating the taxpayer’s income for the pre-renunciation part of the year.
– Sign 1040NR, but not the 1040.
– 8854 is dated Jan 1 to day before CLN.
– 8938 is dated Jan 1 to day before CLN (you didn’t specifically mention this form, which summarizes the FBARs, but did say the figures in the FBARs only covered this period).
– Other assets does go on form 8854 line 19 however attach a statement explaining what they are or that they are personal property: Part V Balance Sheet and Income Statement Asset Line 19 – The total value of other assets not included on Lines 1-18 includes my personal property.
Is that right? Or did I miss anything? (I know that some people dated the 1040 from Jan 1 to the day before CLN, but I just wanted to make sure I understood exactly what you did.)
@DoD
“Since you are not a covered expatriate, you do not have to calculate your phantom capital gains. I.E. you can leave columns b,c,&d of Part V Schedule A blank. OTOH, if you feel more comfortable filling them in, it won’t hurt.”
Thanks for clarifying. I was a bit worried about how to calculate this for personal property and cash.
@Westcoaster:
” If you don’t file, they can hassle you forever.”
No, they can’t, any more than they can hassle any other NRA.
If the renunciant is below the threshold they’re not required to file a 1040/1040NR, and they’re also not required to explain to the IRS why they’re not filing a 1040/1040NR.
“Some would argue that it doesn’t matter if you never plan to set foot in the US again”
Not filing a 1040/1040NR due to being below the threshold does NOT have any effect on future visits to the US. How could it? No offence has been committed.
“…but personally I’d rather just bite the bullet and make a clean break. After all, you’ve already cleared the big hurdles — getting the CLN, filling out the 8854 — so you may as well go the distance.”
A renunciant who is not required to file 1040/1040NR has gone the distance once they’ve filed 8854.
” (At least, that’s my approach because it’s the one solution that will let me sleep at night.)”
Everyone should do what lets them sleep at night. From what you’ve said, you _are_ required to file 1040/1040NR, so doing that will hopefully help you sleep at night. But saying that people should file 1040/1040NR even if not required , lest the IRS hassle them forever, can cause unnecessary anxiety to others, and not help them sleep at night.
@WestCoaster
Yes that is correct. For a further explanation of how figures are ported over. My figures were brought forward from line AGI 38 Form 1040 to the second page of the form 1040NR and next to these figures written “from Form 1040 STMT”. This was easier because I had no US source income after the renunciation period.
How it was supposed to work If you had two sets of income for two periods like for example rental income f let’s say $10,000 foreign before renunciation and $10,000 foreign after renunciation and $10,000 US for the whole year. how it’s supposed to work is that $10,000 foreign source income from the before renunciation period goes on the form 1040 statement (the foreign source $10,000 after renunciation does not appear anywhere). you would write on line 18 Rental real estate on form 1040NR $20,000 and next to it $10,000 from form 1040 and of course the other $10,000 is the US source.
Once I understood this concept, the form 1040NR for the full year made more sense. You are basically filing one tax return, the Form 1040NR for the full year, the form 1040 is just a statement. The explanation summary really helps when a situation like this exists.
If you have any NEC income or tax after renunciation, it’s supposed to go on Line 54. Form 8938 I didn’t meet the filing threshold.
If you file the form 2555 you need to prorate the qualifying days to Jan 1st to the day before your renunciation.
Iota is absolutely correct about there being no requirement to file the form 1040NR or form 1040 if you are under filing threshold. One useful thing that came out of my dealings with this firm is that they gave me the stature where these requirements are written, Treas. Reg. § 1.6012-1(b)(2)(ii)(b), Treas. Reg. § 1.871-13
This clears up any misconception that a person has to file if they are under the threshold. they only need to file form 8854.
” 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.
(c) A return is required under this subdivision (ii) only if the individual is otherwise required to make a return for the taxable year. “
@UKRose – thanks for posting the statute info – very useful to know where it’s stated in law.
also another useful tidbit, whether or not you have two sets of wages, wages from two time periods or just wages you exempted on the form 1040 statement form 2555, you never port over these wages that were exempted on the form 1040 statement FEIE over to the 1040NR. the FEIE wages get exempted out on the form 1040 statement and stay exempted out.
It’s only the taxable income that left on the AGI line that gets ported over.
@iota
yes you can rest easily over this, you did exactly the correct thing. however one can file for peace of mind if they like being under, but it’s not a requirement.
@UKRose – yes, it says so in the 8854 instructions. But it’s useful to have the actual statute reference to point people to, so that they can reassure themselves that they really aren’t required to file if below threshold.
For myself, I no longer have any fear of the IRS. It’s apparent to me now (though it wasn’t at the time) that my first reaction to the news of CBT (“they can’t do this!”) was in fact, for me, correct. If I were doing it now, knowing what I now know, I would ignore the IRS and just renounce.
@iota
Yes you certainly have the right attitude for sure, it’s a waste of time worrying. I would have been tempted to ignore everything myself but I still have US based relatives and I could conceivably receive a US inheritance someday (i don’t know what consequences could happen there) so better to check out cleanly. In fact I did receive some inherited US stock from an unmarried uncle but have redeemed them after renunciation. I definitely don’t lose any sleep over this anymore. I did the requirements and if they have any questions, they can ask.
also while it’s fresh in my mind, if you are filing the form 1116 foreign tax credit, those get ported over also to the form 1040NR. so you wind up cancelling your tax there too unless there is some new US source income. I had to file this form but many don’t if it’s just a case of a wage and some bank interest.
and pay attention to the number sequence on top of all the forms. they should be put together in that order. Form 1040NR on top, then the form 1040 statement (i slipped in my explanation sheet between the two) and the rest of the forms in their number sequence.
@UKRose:
“… if they have any questions, they can ask.”
Which is another reason a renunciant might want to think twice before filing any forms. If they don’t file, the IRS has nothing to question them about.
Two different strategies: tell them everything, file every conceivable form, dot every i and cross every t. Or tell them nothing at all. Which is best obviously depends on individual circumstances. If they know little (because the renunciant hasn’t filed ever or for many years, not knowing about CBT), it may well be safer to keep it that way. They can’t question a citizen/resident of another country without going through that country’s competent authority.
Just going on at some length about this in case it may be of interest to anyone reading. IANAL, needless to say. I’ll shut up now. 🙂
@Canoe and @Iota, the IRS rejected my use of the standard deduction in my final dual status year, probably because I filed a 1040NR with a 1040 attached as a statement. From what I understand, it’s a grey area and I was unlucky.
I had around $170 deducted from a large refund they owed me. I don’t believe NRAs can make use of the standard deduction, only the personal exemption.
When I complained to my tax preparer that she could have probably saved me tax by using form 1116 (foreign tax credits) instead of using the FEIE (foreign earned income exclusion), she admired that for her to chase the IRS would wind up racheting more fees than what I would have saved in tax, I just gave up.
I also didn’t want to risk an audit. It turned out to be a blessing in disguise because my accountant ended up doing this final tax return and form 8854 pro bono.
@monalisa – out of interest, had you claimed the full-year standard deduction, or had you claimed only the pro-rata amount?
@iota
As a matter of fact, I was unemployed in 2016 so my income was nil and I am under the threshold for being required to file. (I just used sample numbers to clarify what UK Rose was saying for those that do.) My accountant has filled out the 1040 and 1040NR with lots of zeros, so they’re ready to go as soon as the date ranges are removed. (He doesn’t inspire confidence in me, but he isn’t going to charge me much for doing those returns.)
I don’t have family or other ties to the States, so I actually don’t anticipate ever setting foot on US soil again but I still want to sever ties cleanly. That said, UK Rose confirms that you and DoD are correct in not having to file, so I now know that I don’t have to either.
So, maybe submitting the zero-filled 1040 and 1040NR would make life more complicated than it needs to be even though the forms are already to go. ARGH. I’ll tell him about Treas. Reg. § 1.6012-1(b)(2)(ii)(b), Treas. Reg. § 1.871-13.
The main thing is getting the 8854 right, as far as I’m concerned. Preferably without losing my mind!
@UK Rose
Thank you so much for all your help! I should’ve mentioned that I’m below the filing threshold for 2016, so it seems like I don’t have to file a 1040 or a 1040NR. The accountant has prepared both, just filled with lots of zeros — all that needs to happen is that the date ranges be removed — but maybe it’d be unnecessarily complicating matters to submit them.
The alternative is to submit the 8854 with a statement explaining that I’m not filing a 1040 or 1040NR because that I’m under the threshold, referencing Treas. Reg. § 1.6012-1(b)(2)(ii)(b), Treas. Reg. § 1.871-13.
@monalisa & @iota
I was told by my firm I used that “A person who was a nonresident alien or dual status alien during any part of the year.”.can not use the standard deduction. You can take your personal exemption though.
There are more situations in publication 501
Persons not eligible for the standard deduction.
Your standard deduction is zero and you should itemize any deductions you have if:
1. Your filing status is married filing sepa¬rately, and your spouse itemizes deduc¬tions on his or her return,
2. You are filing a tax return for a short tax year because of a change in your annual
accounting period, or
3. You are a nonresident or dual¬status alien during the year. You are considered a dual¬ status alien if you were both a non¬ resident and resident alien during the year.
If you are a nonresident alien who is married to a U.S. citizen or resident alien at the end of the year, you can choose to be treated as a U.S. resident. (See Pub.
519.) If you make this choice, you can take the standard deduction
@Westcoaster – sorry I misunderstood. I didn’t mean to complicate things for you, or imply that it might be risky to file the 1040/1040NR if not required. Not at all.
No need to worry. There’s no report of any renunciant being pursued over their final filings if they haven’t committed tax evasion, which I assume you haven’t.
Sign it, post it, and celebrate! Congratulations, you’re nearly through! 🙂
@iota, UK Rose
One more question, though: If I don’t file a 1040 and 1040NR, do I still send the 8854 — along with an explanation about being below the filing threshold — to that department (in addition to sending a copy of the 8854 to Philadelphia)?
@iota
Thanks for encouragement! Yes, almost done! I keep hanging onto that thought.
I realize that I shouldn’t stress so about all this, but somehow I just can’t seem to. That’s why I’m being so OCD about trying to tie up all the lose ends. I find when I do that, I can more easily let go of the stress once I can no take action. Once the paperwork is filed, I’ll be able to relax knowing that I did my absolute best to get it done properly and the rest is out of my hands.
@WestCoaster
Just send the form 8854 to Philadelphia (the original). the copy only goes there if you are filing the original with your tax return. No explanations necessary.
“I realize that I shouldn’t stress so about all this, but somehow I just can’t seem to.”
should be
“I realize that I shouldn’t stress so about all this, but somehow I just can’t seem to help it.”
@UK Rose
Thanks again for all your help! You’ve really taken a huge weight off my mind!
@WestCoaster
Believe me it’s normal to stress. I stressed all through January while i was trying to compile these returns to take to the firm for review. weeks and weeks. i can only relax now because it’s over and I realise how irrational all of this worry is in the great scheme of things.
also remember you are certifying on your form 8854 that you compiled with all your tax requirements. Were you under the filing limit all the past 5 years before the final year too? or just the final year?
@UKRose:
“Just send the form 8854 to Philadelphia (the original). the copy only goes there if you are filing the original with your tax return. No explanations necessary.”
Yep, that’s what I did. I sent it tracked, for peace of mind.
@UK Rose
I’m sorry to hear this caused you endless stress as well, though it’s reassuring to know I’m not the only one taking this so hard.
I’ve been filing since 2011, when I first realized I was supposed to. Back then, an accountant (not the one I have now, but a true tax condor) talked me into back-filing seven years. Since then, I have filed annually and can certify on the 8854 that I have met my filing obligations for the preceding five years and that my tax liabilities are nil for each of those years.
(I hated having to pay an accountant every year to prove to the IRS that I don’t owe them any money. I’m so glad this will be the last time!)
@iota
Good point about sending the 8854 to Philadelphia with tracking!
@WestCoaster
Then it looks like you are all set. basically what is supposed to happen is that all your previous 5 filings are up to date before you sign the form 8854 and certify. they don’t need to be up to date when you renounce, just before the form 8854 is signed and filed.
I had my OMG moment end of 2015, and I did the 5 years back filing with the sole intention of renouncing. pretty much the first part of 2016 was compiling all of that, then renounced in the summer 2016.