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
@patrick
I was just thinking about the reason for this ie (having to be a tax paying resident of your citizenship country for the exemption to apply)
It’s probably to exclude non citizens of 0 or low tax countries such as Monaco. A true Monegasque citizen has to pay taxes in Monaco, its only the foreign residents who don’t.
@patrick
Late to the discussion here, regarding your friend. And admittedly I don’t know much about how foreign-filed 1040s etc. look because I myself don’t file.
First point: if the friend has no US assets, then the assets cannot be collected (though one should be careful in these third-country situations: e.g. a French-US dual would be subject to collection in Canada, but not in France).
The first option, renouncing
withwithout a single US filing of any kind, would probably have been the best one, but it’s too late for that now.The next option is to just renounce and stop filing, and ignore the 8854. Some “risk” of questions since he is on the US radar, although there’s no way for the US to enforce collection of an exit task.
The third option is to simply file the 8854 as a French “resident” – it can’t be perjury if one believes it to be true, surely? – and see if they notice or care. If he only moved 5 years ago I’m sure there are still French bank accounts to be reported on FBARs, or addresses to be used. Possibly renouncing in France rather than Italy to get that on the CLN would be useful too.
I don’t have any evidence to base this on but I’d say that ramming through an 8854 as a French citizen and resident, and claiming full exemption, isn’t necessarily going to ring alarm bells, even if prior tax returns and FBARs were done from Italy. And at the end of the day, payment of any exit tax is voluntary, as the US cannot collect. So not much incentive for the IRS to put much effort into it.
@plaxy
the irs knows he’s an italian resident so it would be a lie swearing under perjury…
i guess ,he’s afraid that the irs will come after him using the french or italian tax authorities tocollect,but heidi say the irs cannot do this…
so i guess the best solution would be to renounce and not file the 8854 waiting for the letters from the irs that ask for the exit tax and still do nothing…
Correction to above, should have read:
“first option, renouncing withOUT a single US filing of any kind”
And lots of other typos due to cat in lap plus fatigue…
Not sure how the timing would work here but one could conceivably file the final-year 1040 from a French address, to add consistency to the story. I don’t know what level of information is provided when one claims either the FEIE or FTCs but who’s to say that one can’t live in France while working for an Italian company and banking with an Italian bank and paying Italian taxes. All kinds of crazy cross-border remote working arrangements are possible these days.
@ Nononymous
“I don’t know what level of information is provided when one claims either the FEIE or FTCs but who’s to say that one can’t live in France while working for an Italian company and banking with an Italian bank and paying Italian taxes. All kinds of crazy cross-border remote working arrangements are possible these days.”
I believe the exemption only applies if the person is resident and TAXED as a resident of his citizenship country, so if anything on his final 1040NR etc points towards him being a tax resident of Italy he doesn’t get out of jail free. In the EU one only has one primary tax residence.
I
Way back in 2011, we were trying to decide to enter OVDI or not. A pro forma showed it would cost mid 6 figures. Somehow we got Mark Matthews on the phone . He made clear it was a business decision rather than a legal or moral one. We opted against OVDI
Your friend can do something similar weigh the cost against the benefits. If there are no
benefits, the decision is easier. i believe arguing with the IRS would be non productive. Lying on aform may be worse than not sending in the form.
“He made clear it was a business decision rather than a legal or moral one.”
In other words, this provision exists to bring in money to the IRS.
@Portland, patrick’s friend is already in Streamlined.
“the irs knows he’s an italian resident so it would be a lie swearing under perjury…”
Exactly. Which is a felony. And very likely to be detected, since your friend would be lying in order to claim an exemption.
“i guess the best solution would be to renounce and not file the 8854 waiting for the letters from the irs that ask for the exit tax and still do nothing…”
Renounce and forget, and keep clear of the devil’s land.
@ Portland
Totally agree.
Also as a potential covered expatriate ‘well over 2,000,000’ the IRS will be in no frame of mind to ‘argue’ any point of residence.
@ Medea
‘Portland, patrick’s friend is already in Streamlined.”
But he hasn’t yet sent in his 8854 listing all his worldly goods ripe for the picking.
So for Patrick’s friend, there are only two options if he wants to avoid the exit tax: skip the 8854 entirely or (falsely) claim French residency. The bad news is, neither option is strictly by the book. I think it’s very difficult to asses the relative risks of each. The good news is, the US has no ability to collect the exit tax, so might not care or look terribly hard in either case.
A simple CLN for the bank, without tax filing or Streamlined or anything else, would have been the better solution.
Heidi. Precisely
@heidi
Yes, that’s another angle, a third option. Fill out the 8854 including no assets/income the US doesn’t already know about due to Streamlined, in the hopes that covered expat status and/or exit tax are avoided by staying under certain limits. Whether that’s possible depends on what was previously reported. But not reason to list anything the US doesn’t know about, so that an otherwise avoidable tax might be voluntarily paid.
@nononymous
Thats still lying by omission on a US tax form.
Better to avoid it all together and simply stop filing and renounce.
@patrick
He could of course lower his net worth below 2,000,000 by gifting prior to expatriation.
https://hodgen.com/make-big-gifts-year-expatriating/
It all comes down to which risk is worse. (#1) Raise a flag by renouncing without filing 8854 after having been compliant. (#2) Claim French tax residency on 8854 after having been tax compliant in Italy. (#3) Under-report assets on 8854 to avoid exit tax.
Bit difficult to asses which option works best. Probably #1 is fairly safe, as it at avoids perjury and puts the onus on the IRS to take the initiative (which is unlikely). But #3 might be safe too if real estate or other undetectable assets are not listed, and he can plausibly keep his net worth under the $2 million limit.
Without knowing the details of this guy’s situation, #2 might also work if he could file US returns from a French address for another year or two, then renounce (in France) and file the 8854 having already established a fictional French residency. Sure there will be FBARs for Italian accounts, but I don’t know what other details are given on the regular 1040 if you claim FEIE or FTC – are you actually listing the details of where your money comes from? And more importantly, will the IRS try to validate this information?
Many questions, not so many clear answers. But options.
A notice popped up in my FB feed from the Vancouver US consulate informing the public that they are planning a “pop-up” consulate on Vancouver Island. I asked them how long their wait times were for renunciations. They wrote back,
“Current wait times are updated weekly and posted within the instructions provided at CanadaCLNInquiries@state.gov.
If you are interested in information about how to renounce or relinquish your U.S. citizenship in Canada, please send an email to CanadaCLNInquiries@state.gov. You will receive a complete set of instructions and forms by email. General information is available at the State Department website.”
There may be anoither option: get italian citizenship and later pretend you have it from birth when filing 8854
I’d join Nononymous: is he in a hurry? Why not just get a French address, file another year, and renounce then. Is he filing official Italian documents proving Italian residency? Probably not.
Also, a lot can happen in a year. Like the assets losing most of their value.
impossible for my friend to go back being a french resident so this is out of the question,so the only remaining solution is renouncing and not filling the 8854,leading to being a covered expat ,because they know his assets are over $2M, so if he files he will have to lie not to be be subject to the exit tax.
“not filling the 8854, leading to being a covered expat ”
Not filing the 8854 is not likely to lead to anything at all.
In theory, the IRS could write to everyone for whom they’ve received a CLN but no 8854; but it would be a pointless exercise if the person has no US assets.
Devil’s advocate here, but since he entered Streamlined to become compliant it sounds a bit silly to balk at the last hurdle. He could file and pay the exit tax and know that he’s free and clear. Yes, it’ll probably be painful, but being a covered expat could mean he’s barred from entering the States in future should the Reed Amendment ever be effectively applied or some other law does the same thing. Penalties will be applied I suspect if he doesn’t file which, if he’s caught entering the States, he could be made to pay along with any tax assessment the IRS might have done. There have been one or two cases of people being held at the border until their IRS debts are cleared.
So the questions he needs to ask himself are:
1) Will he ever want or need to return to the States or even transit through in case any covered expat bar is applied in future?
2) Would the exit tax be less than said penalties for not filing?
3) Does he want the spectre of being a covered expat hanging over him for the rest of his life? Will he be able to sleep easy if he doesn’t wrap everything up?
As mentioned he could look at gifting some of his wealth/assets to bring them below the covered expat thresholds.
Medea Fleecestealer:
“Devil’s advocate here.. “
“Penalties will be applied I suspect if he doesn’t file ”
OK, suppose you are the IRS. 🙂
Why and how would you try to apply a US tax penalty to an individual who is not a US Person?
“Does he want the spectre of being a covered expat hanging over him for the rest of his life? ”
Fortunately, the US doesn’t and can’t send ghosts to hang over former citizens. No need for exorcists – and more importantly, no need for lawyers.
As for handing over the exit tax ransom – would that cause him to sleep soundly? It certainly wouldn’t have that effect on me! What would give me sweet dreams, if I had $2 million, is knowing I still had it – safe from the clutches of the IRS!
But I agree, if the friend needs or wants easy US visiting post-renunciation, he may want to consider retaining US citizenship or doing some “tax planning” to get below the net worth threshold. That is the only reason I can see for filing the 8854.
@medea fleecester
he does not plan on ever going back to the us
his exit tax amount would be around $5M