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
Hi again. Back to my never-ending prevarication about renouncing. I’d like some heartfelt feedback.
The situation again in a nutshell: I want to sell our local investment property and use the proceeds to buy a qualifying property in a passport haven. This is our only option. No, there is no chance of citizenship-by-ancestry anywhere.
On paper, our local property’s selling price will be US$200,000 more than the full cost of the haven property. But we have a $200,000 mortgage to pay off. In other words, we come out even. Great, but…
Upon selling, we will have made a capital gain of $200,000. There is no capital gains tax here. Thus, the IRS will want $30,000 of our money. Thanks to advice here, I learned about “1031 Exchanges”, in which the IRS lets you sell one investment property to buy another, and skip the capital gains tax. BUT, since the selling property is worth $200,000 more on paper than the haven property, the IRS expects to tax the difference, even though the $200,000 owed to the bank was never ours. There’s a name for this BS rule, but I forget it.
In other words, if we pay normal capital gains tax, the IURS suck away $30,000. If we try the fancy 1031 Exchange, the IRS sucks away $30,000. Either way, we end up $30,000 short of the price of the haven property. And we end up mad as hell.
We have examined the idea of one of us renouncing and going stateless, and then selling. Big fat no.
We have examined the idea of one of us pushing for local, unwanted citizenship and then selling. At the soonest, the process (including renunciation) will take a year or more. We want out now.
Hubby says: “F— ’em. Just don’t declare the sale.” He has a point. The bank account that handles our mortgage has never been FATCA’d. We never got FATCA letters, etc. Back when we opened it, a local residency card was enough to qualify, and there were no questions about citizenship or birthplace. Just to be sure, I coyly asked a bank clerk to show me my account records (they one they keep, not the one I access online). Under “citizenship” they listed the name of the country, not the USA. Sadly, in my OMG moment two years ago, I did declare this account on FBARs. But hubby insists that any large amount suddenly coming into that account will be temporary. We can “forget” it on next year’s FBAR, and there is no FATCA record to check it against. So far so good.
But opening the account in the haven country is another matter. There will be standard forms to fill out proving the source of the incoming funds. And there will be the inevitable question about citizenship. And FATCA forms.
What would you do? Pay the 30,000 pounds of flesh to the IRS and make a legal exit, even if it means borrowing more money? Or conveniently make no mention of the transaction, on the hope that by the time they would ever get around to noticing, we’d have our CLNs, and there would be little motivation for the IRS to go snooping around the financial records of ex-citizens?
If we do pay the money, we live with rage the rest of our lives about this theft by the US government against our foreign property paid for with foreign-earned money. If we don’t pay the piper, we live with fear for a few years at least. Either way is ulcer-inducing.
We have decided to renounce. We have decided to do it with qualifying property purchase because we have zero other options, period. We have been fully US tax compliant in every other way for the past three decades. The only thing holding us back from putting up the ‘for sale’ notice is this sticky question of just how compliant we want to be at this final stage.
Has anyone here actually done a similar thing? Know anyone who has? I’m going nuts and can’t stop the crying fits.
God damn the f–cking USA, making me (and all of us here) live with such thoughts every single day!
Don’t you have a $500K exemption between the two of you?
@Bubblebustin: unfortunately, Barbara’s property that she’s selling isn’t her primary residence. (She’d need to forego the rental income and live in that property for two years if she wanted the $250k per head exemption.)
@Barbara – if the present account has not been flagged as US, and the property is not located in the US, maybe consider selling the property and neither of you file a return.
If you stop filing, the IRS doesn’t know why. It might well be flagged by the system, but the system doesn’t know if you were required to file – you could have been below the threshold and not required to file. Or your return could just have gone missing in the post, or be late
If you normally pay no or little US tax, they have to decide whether it’s worth pursuing. They might write a letter, but beyond that, what could they do?
Safer, it seems to me, than to file and not report the sale, because of the jurat. Even if they wrote you to ask why you didn’t file, by the time it got flagged as”no reply”, you might well be NRA or nearly NRA, before they even looked at it – if they ever did even look at it.
That’s what I would do, if I were in a similar situation – tell them nothing and get out as fast as possible.
@Barbara
I agree with Iota. There are reasons why a certain FBAR appears one year and not the next, the account could simply have been closed. I am not sure it would raise any flags unless the bank will be reporting it.
When you come to file your 8854, it seems to me that you simply have list the value of your property as ‘foreign’ real estate. There is no indication of its location.
We have all been scared into playing their game and hence endow them with an all seeing eye. Remember you are a minnow.
@Barbara
Can you buy a more expensive haven property, $200k more at least, under 1031 exchange, renounce, then sell the expensive haven property and buy the one you want? Or, same thing but buy two (say) haven properties under 1031 then sell one of them after renouncing?
When you renounce, the IRS would probably consider the $200k gain you made on your current property to be deferred and unrealised capital gains under 1031. Put differently, your basis in your current property carries over to things bought under 1031 exchange. But… renouncing should then eliminate that potential capital gain. Even if you are a ‘covered’ expat under the exit tax, the unrealised gain would fall within the $690k or so ‘exit tax’ allowance.
Or, of course, just F—- ’em.
@Iota and Heidi, you guys are smart! I love the suggestions! Will discuss with paranoid hubby.
It’s a brilliant idea to simply close the local account after the property sale funds have passed through it. Then next April I can omit it from the FBAR with hand over heart, claiming that the account no longer exists as of the filing date.
What to do about the ‘windfall’ that lands in the haven country bank account prior to the purchase is another question. Even setting FATCA aside, will a few hundred thousand dollars suddenly appearing in the new account be reason enough to trigger one of those ‘suspicious transaction’ warnings, which, thanks to my nationality, will be referred to the US Treasury? After all, that’s the method they’ve used to catch every tax dodger I’ve heard of. And, let’s face it, I am trying to dodge US taxes.
@Watcher: Of course, like you say, if we bought a more expensive haven property, the 1031 Exchange would make the whole thing tax-free. Yes, we have considered this option. But we don’t have that kind of money. And when you buy a tax haven property, it must be for cash; no mortgage allowed. Nobody is going to lend people like us, near retirement age, $200,000 without collateral. Or even at all. As for the exit tax, neither of us will be a covered expat, so there is a possibility of getting out of this US citizenship thing tax-free.
Creeping ever closer to the exit…
@Barbara
I know nothing about the procedure when buying a citizenship by investment property but can’t the money from the sale of current property be sent from your resident bank direct to the ‘Haven’ Gov/property company or their lawyer (ie not into a new ‘Haven’ bank account.) You can open an account in your Haven for property maintenance once you are no longer a US citizen.
I presume we are using the word ‘Haven’ to mean it’s your haven from US citizenship, rather than a tax haven country, as all these countries have signed up for FATCA and CRS, (unlike some).
They are offering these citizenships to boost investment and their standard of living.
@Heidi: interesting thought. I will have to enquire about that. Hubby worries that we’ll somehow get ripped off by simply transferring our entire net worth into a stranger’s bank account. I will look into escrow holdings there.
And, yes, we’re talking about a passport haven, getting a quick and legal passport so that we can shed the US one, and all the anger and worry that is attached to it. Plus having a place to go a couple weeks a year to soak up some sun.
@Barbara
But aren’t these ‘citizenship by investment’ all government controlled programs, so it wouldn’t be a strangers escrow account that accepts your money?
I am looking into all these matters about property purchases, escrow accounts, and so on. It may take a while, but I will report my findings, since others may find it useful.
So, I got all the answers I need about buying a passport haven property. Heidi suggested sending money direct to the seller in the passport haven country, thus bypassing the need to open a FATCA’d bank account there with several hundred thousand dollars of unexplained cash. Having sought advice from a lawyer there, I’ve discovered this is impossible. In that country (and, it turns out, most others), the bank account is crucial to the citizenship application. Part of the process is that the bank will issue a statement which, 1) confirms the receipt of x amount of money transferred in from abroad; 2) the subsequent transfer of those funds for the purchase of an approved property of at least x value. This is a requirement of the citizenship application.
So I’m back to the existential choice:
1) File FBAR on the new account in the passport haven country, plus declare the capital gains on the sale of our local property and pay the IRS $30,000. Borrow from family (or go out and sell my body; as if anyone would offer a penny!) to make up for the $30,000 shortfall in the amount needed to buy the haven property. And end up fully legal and compliant. Angry as hell, but free, both literally and psychologically.
2) File FBAR on the new account, and don’t breathe a word about the property sale and purchase. Renounce ASAP after the new passport arrives. And be prepared to play dumb if anyone from the Treasury Department calls and asks, “Er…where did you suddenly get a few hundred thousand dollars to deposit in one of those sleazy passport haven countries (which also has a past reputation as a tax dodge country)?” Advantage: since this will in fact be our first-time-ever selling an investment property, we can play stupid about capital gains tax, and end up paying some manageable fine and late fees. By filing the FBAR we avoid the more heinous fine of 50% of the account’s value for willful noncompliance.
3) Do nothing as far as the US is concerned. File the same old tax forms and FBAR as every preceding year (not including the new account), hence raising no red flags. Renounce as soon as the new passport arrives. Hope that the IRS never has any reason to examine our case. Live with a certain level of fear for around five years.
This is my final request for feedback. Which would you do?
@Barbara – If it was me, I’d explore an option you haven’t listed – to stop filing, ignore the IRS, never file again, starting now.
Of your listed options – 2 or 1, in that order.
If you go with number 1, aim to see it as buying freedom – a rational choice – and don’t let it make you angry. Eyes on the prize.
@Barbara
We all have our limits on degrees of risk. It sounds like your hubby is more cautious, so this is something you must decide together. You don’t want it to cause conflict between you down the line.
In the long run $30,000 for your freedom and peace of mind may not seem to high a price to pay.
Would it be possible to
– borrow the money to buy the citizenships
– buy the citizenships and get the passports
– renounce, and do final filings
– sell the property and use the money to pay back the loan
@Barbara, because I tend to be cautious, I’d be inclined to be honest and declare everything honestly. Though $30,000 is a lot of money, it is not a fortune; wouldn’t it be better in the long run to get out cleanly so you won’t have anything hanging over you for possibly the rest of your life. It sounds to be as though the other choices could be deemed wilful. If they found out, they could really throw the book at you.
@Barbara
It seems to me that the chances of a new Caribbean fatca compliant bank account with that sum of money appearing might well be queried by the IRS as to its source. They wouldn’t see that sum on previous fbars, so might assume a property had been sold.
Can you sell your primary residence as you are allowed a $500,000 tax free allowance and then move into your rental home?
Thanks for all the feedback. It makes me feel much more confident in our decision. In a way, we we are kicking the can down the road. We’ve decided to sell our local investment property and buy one in the passport haven. We will most likely file truthful FBARs on all accounts.
Coincidentally, just today I had coffee with an acquaintance who happens to be high up in the compliance department at the local national office of an international bank. He hates FATCA very much, by the way. He confirmed that they report all US-connected accounts, not just those over $50,000. He also claimed that FATCA compliance costs his bank at least ten times more per customer than any other sort of national or international requirements. I asked him what triggers an alert (FATCA or no FATCA) which would obligate him to report an account’s activity to the local authorities (and, by extension, the US Treasury). Would the sudden swelling of an account with property sale proceeds be enough? He said no. The bank can see that the money was released in connection with a mortgage payoff, and the international transfer to the other bank would also be seen as above-board and not reportable. Thus, even a few hundred thousand showing up in a Caribbean bank is unlikely to garner undue attention.
As for declaring and paying for the US capital gains tax, we’ve decided to cross that road when we come to it in the middle of next year, depending on our personal circumstances, whether FATCA has been repealed, and which tax reforms (if any) have been enacted in the USA, as well as the general state of things. We’re sick and tired of waiting. We’re sick and tired of the constant fear and anger and our own prevarication. We’re sick and tired of being connected in any way with the USA. And the hubby is especially sick and tired of me always talking about these things (thank the power of nagging!). We’re getting out. The extent of our compliance will be decided later.
@Barbara – that sounds like an excellent decision!
Welcome to Renunciation Road. 🙂
@Barbara, yes that’s one of the many reasons most Swiss banks stopped having US clients. Not only were they scared of getting fined by the US as UBS was, but they looked at the cost of implementing FATCA and decided it wasn’t worth it for the number of American clients they had. So they simply dumped them and told them to go elsewhere. This was 2-3 years before FATCA was even implemented, just in the pipeline. Even now, most cantonal banks won’t take American clients on because they want as little to do with FATCA as possible.
I suspect the same reporting goes on here in Switzerland too – it’s all US tainted accounts, not just those over $50,000. Again, easier for the banks to report everything they’ve got rather than weed out the smaller accounts. They have to do the “are you a US person” due diligence thing anyway no matter how much is in the account so it’s not like it would cut down on the workload. So may as well pass the whole lot on to the US as they’re the ones who want the info. Let them sort it all out.
@Medea F – “…they looked at the cost of implementing FATCA and decided it wasn’t worth it for the number of American clients they had. So they simply dumped them and told them to go elsewhere.”
This is what happened to UK USCs who had a certain savings account with NS&I, which is a bank owned and controlled by the Chancellor. Having helped to create the FATCA IGA, you might think the UKG would feel some responsibility to implement it in the government bank. Not a bit: they negotiated “Deemed compliant” status for NS&I and exemption for most NS&I accounts, then set about closing these vanilla, non-exempt savings accounts (if held by known USCs) specifically in order to avoid the expense of implementing FATCA.
Hello. I was just wondering about the normal wait times in regard to getting a CLN appointment. I requested a CLN appointment on May 15th and I got an automated reply informing me that my application had been received.
It is now now 3 weeks later and I haven’t heard anything back yet. Is this the normal amount of time? Should I be worried yet? They informed me in my automated reply that they won’t respond to requests about wait time.
Hope everyone on this forum is feeling hunky dory!
@valentina, I believe they are fairly long in Canada at the moment. Did you check in the Consular Directory to see what any recent reports might say regarding timelines?
http://catseyesap.com/crd/Consulate%20Report%20Directory%202017.06.b.pdf
4-6 weeks for your first reply. 5-6 months for your appointment.
@Medea Fleecestealer – I’m going to bookmark that link to the report! That’s so helpful!
@DoD – 4 – 6 weeks? Okay, thanks for the heads up! 🙂