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
Well, the 8854 instructions state:
“3. You fail to certify on Form 8854 that you have complied with all federal tax obligations for the 5 tax years preceding the date of your expatriation.”
https://www.irs.gov/pub/irs-pdf/i8854.pdf
I assume that includes FBARs.
When I did my tax filing all I needed to do was the FBARS since I have no income. They’re relatively easy to do, just find the highest figure for a given year in all your bank accounts and convert these to US dollars, provide all the bank details on the form and they’re done. Whether you can put any sort of notes on the electronic version I don’t know. Mine were done on paper.
Start researching here:
https://www.fincen.gov/report-foreign-bank-and-financial-accounts
When filing an FBAR, on the first page it says “If this report is being filed late, select the reason for filing late”. One of the 9 reasons proposed is “Did not know that I had to file”. That is the reason I gave when I late-filed 5 years worth of FBARs for my wife back in 2015. I guess I’ll do the same thing for my son. As you may have guessed, I am the self-appointed accountant for my wife and my kids. 🙂
@Formerpatriot and @Medea Fleecestealer Actually it doesn’t include Fbars, An expatriate must certify whether he has complied with all tax obligations under Title 26 of the United States Code. FBAR filings are required under Title 31. Therefore, the expatriate does not need to certify whether he is up to date with FBAR filings.
here is what Phil Hodgen has to say on the issue
https://hodgen.com/expatriating-without-filing-fbars/
If you want to renounce with no loose ends, you can file them late under the Delinquent FBAR Submission Procedures
@Formerpatriot, would you be comfortable with the potential risk of not filing the FBARs?
IF not, perhaps https://www.irs.gov/individuals/international-taxpayers/delinquent-fbar-submission-procedures as @UKRose suggested would be a good idea.
“I wonder if he should bother late-filing a few years of FBAR.”
Several non-residents of the US, including the owner of this blog, refused to file FBARs and the IRS did not pursue them. My best guess is that no US court would have jurisdiction over an attempted civil lawsuit by the US government, and the IRS didn’t want to try a criminal lawsuit against these people.
However, my best guess is that if he files 2018 FBARs during 2019 before the deadline, and doesn’t file for other years, the IRS most likely will not complain.
—
‘Well, the 8854 instructions state:
“3. You fail to certify on Form 8854 that you have complied with all federal tax obligations for the 5 tax years preceding the date of your expatriation.”
https://www.irs.gov/pub/irs-pdf/i8854.pdf
I assume that includes FBARs.’
UK Rose already answered this but I already typed a reply with slightly more information.
It definitely DOES NOT include FBARs. US income tax obligations are in Title 26 US Code, FBARs are a banking secrecy matter in Title 31 US Code, and although US Tax Court would not be involved it is relevant that US Tax Court ruled that the reason US Tax Court has no jurisdiction over FBARs is that FBARs are in Title 31.
If someone agrees to backfile FBARs in an Overseas Voluntary scam or Streamlined, the person agrees to backfile FBARs but that still doesn’t make them Tax obligations.
@Portland
“He files 8854 with values up to the renunciation date.
He does not file 1040 as a tax return. Instead he fills it in with income up to the day of renouncing, writes ‘Statement’ and ‘Dual status return’. clearly across the top. He doesn’t sign it.
He transfers the info to a 1040NR tax return. He is allowed 1 full personal exemption.
Write dual status return across the top and sign it”.
I am confused about the “He transfers the info to a 1040NR tax return”.
What is there to transfer?
Where in the 1040NR is it supposed to be transferred?
I did a simulation. It looks like this:
Form 1040 “Dual Status Statement” (showing world-wide income Jan 1 to July 24):
– Filing status: Single
– Line 6d: 1 exemption
– Line 7 (Salary from job in Canada): 32,485.00
– Line 8a (taxable interest): 275.00
– Line 21: (32,485.00) thanks to 2555-EZ
– Line 37 (adjusted gross income): 275.00
– Line 43 (Taxable income): 0 (the 275.00 is flushed out by the one exemption)
What is there to be transferred to the 1040NR and where on the 1040NR does it have to be transferred?
For, 1040NR “Dual Status Return” (showing US-source income from July 25 to Dec 31):
– Line 23 (total effectively connected income): 0
– Line 36 (adjusted gross income): 0
– Line 61 (total tax): 0
– Line 71 (total payments): 0
Page 3 (Itemized deductions): 0
Page 4 (Schedule NEC): 0
Page 5 (Schedule OI): Check a few boxes and leave the table at Line L empty.
Am I missing something?
@Formerpatriot
Bear in mind that the tax laws have changed. For example, the personal exemption no longer exists. It would be nice to hear from someone who has some understanding of how the new tax law may affect our last returns.
Former Patriot. Your simulation looks just fine to me. We also did a simulation and ended up with all zeros on the 1040NR. and then filed neither because all income was below the threshold (lucky enough to renounce early in the year)
I don’t know the exact correct course of action. The IRS doesn’t allow for people to renounce; remember they conflate citizenship and residency.
I suspect it doesn’t make much difference how you do it for your son. Maybe someone here has better knowledge or you could pay a professional to check your work.
Formerpatriot,
I was in the same situation as your son, except I left the US at just over a year old, returning to Canada.
After renouncing, I completed no tax forms, no FBARs, and just one copy of the 8854 (with a VERY nasty letter) to one address. That was 2013 or 2014. Haven’t heard so much as a peep from the US governmental scam artists to this day.
FWIW
HAPPIEST DAY OF OUR LIVES. Renounciation. No more being part of that 400yr laughing stock empire. No more being attached at the hip with their huge overreach, overly bureaucratic nonsense, NO MORE.
Renounce with pride!
“- Line 43 (Taxable income): 0 (the 275.00 is flushed out by the one exemption)”
I think it gets flushed by the standard deduction. Form 1040NR doesn’t allow the standard deduction but Form 1040 still does even though the Form 1040 is an unsigned schedule. I don’t remember if the limit of standard deduction has to be pro-rated to the portion of the year that the person was subjected to diaspora taxation.
@trebor
You are right! No more exemptions starting with 2018.
@NormanDiamond
Good point! The 1040NR does not allow the standard deduction but since the interest (line 8a) would be on the 1040, I’ll flush out that income using the standard deduction on the 1040.
@TheMom
Good for you! But for us your approach isn’t really an option. We still have ties with the USA (401(k), Social Security benefits, inheritance coming some day. It’s better for us to go by the book.
@SvenM
I know what you mean. I have spent many hours reading all sorts of IRS documents, forms, instructions, etc. It is so incredibly incomprehensible! I suspect that if I have 10 accountants do my taxes, no two of them will agree on what to do.
“I suspect that if I have 10 accountants do my taxes, no two of them will agree on what to do.”
Accountants? You should try judges. A judge can contradict him/herself in a single order without batting an eye.
Sadly on a dual status return, it would appear that the standard deduction cannot be used on the 1040 form (ref: Restrictions for Filing Dual-Status Tax Returns — https://www.irs.gov/individuals/international-taxpayers/taxation-of-dual-status-aliens)
Unfortunately, those without enough itemized deductions may be taxed more than they would be normally. (especially with the personal exemption disappearing next year).
“Sadly on a dual status return, it would appear that the standard deduction cannot be used on the 1040 form”
Right. Let’s hope Trump gets his wish to revoke US citizenship of everyone who burns a US flag, so ceremonies can be held on Jan. 1st each year and avoid having dual status for any year.
Wait…
https://www.irs.gov/individuals/international-taxpayers/taxation-of-dual-status-aliens
‘Dual status does not refer to your citizenship’
Too bad it’s illegal to rely on statements made by the IRS, but if some brave person would try this and file nothing … oh wait, some people already did that.
Formerpatriot and Trebor. There is no standard deduction BUT you are entitled to 1 personal exemption. Therefore taxable income will be zero.
I would take all the credits and the exemption on the 1040 NR although I suspect it doesn’ t much matter
https://www.cnbc.com/2018/02/16/10-tax-changes-you-need-to-know-for-2018.html
“Personal exemption
The personal exemption has been eliminated with the tax reform bill.”
OK , my mistake. Who can keep up? In that case it would be tempting to ‘forget’ the 275 in taxable interest.
One can still use foreign tax credits on tax already paid on that income. Before most would have bank interest flushed out by the personal exemption. But one can still use the foreign tax credit with the reform. My final return had to make use of the foreign tax credit because I had other passive income that would not have been flushed out by the personal exemption alone. It depends what the tax rate is where you live. I was a higher UK tax payer so it was all wiped out. also any previous unused tax credits can be carried forward or back 10 years I believe.
UK Rose, Portland, ND, trebor and everyone else:
Suppose I do 1040NR (with “Dual Status Return” written on top) and 1040 (with “Dual Status Statement” written on top) and suppose that there is absolutely 0 income on the 1040NR (for the post-renunciation part of the year) and there is on the 1040 statement something like 30,000.00 on line 7 (which is flushed away on line 21 due to form 2555-EZ) and something like 300.00 on line 8a. What then? Which one of the following is correct? Reasonable? Not punishable? 🙂
(a) On page 2 of the 1040, I end-up with a 300$ taxable income, thus a 30$ of due taxes on line 63 and 0$ of total payments on line 74. I send the IRS 30$. Nothing from the 1040 is transferred to the 1040NR. End of story.
(b) Since the real return is the 1040NR, approach (a) is incorrect. Somehow the 300$ of line 43 (taxable income) of the 1040 has to be transferred to the 1040NR. Where on the 1040NR? Perhaps on line 2b or 2c of Schedule NEC of the 1040NR, in the “10%” column, thus 30$ on line 15 of the Schedule NEC which is then reported at line 54 on page 2 of the 1040NR. That way I end up with a total tax of 30$ on line 61 of the 1040NR and a total payment of 0$ on line 71 of the 1040 NR. I send the IRS 30$. End of story.
(c) Do not report the 300$ on line 8a of the 1040 dual status statement. End of story.
(d) none of the above.
By the way, I would rather send 30$ to the IRS than pay 800$ to 1500$ to a cross-border accountant for doing that final tax return.
@formerpatriot
Did you already pay tax to your country of residence on that $300?
If so you can fill out a form 1116 for the foreign tax credit for the $300
There is a place on the second page of the form 1040 to enter the foreign tax credit amount from form 1116
@Formerpatriot
how it is supposed to work is you pay the higher tax rate from the two countries. for example on that $300 if you already paid more than the equivalent of the US tax rate then you can claim the foreign tax credit by filing the form 1116 and owe zero. the tax had to have been paid during the filing calendar year though.
If you paid less, you can still use the form 1116 and then you pay the difference to the USA, for example if you only paid $20 but the US rate is $30 then you pay the $10 difference.
This is how it’s supposed to work in theory. of course there are a lot of gotchas where there are tax breaks in one country (no tax at all paid) that the USA does not recognise and that income becomes taxable. This affects passive income where the FEIE can not be used.
Answer B or C or D
B) 1040NR is the real return. Put the 300 under other income on line 9a and write
‘transferred from statement’
or C)Forget the 300. EndOf.
or D). Consider using the foreign tax credit instead of the foreign earned income exclusion which should wipe out any tax oweing.
In the end it won’t make much difference. p.s. I’m not an accountant. Just someone who has gone through the process. ( pay 10 accountants $500 each and get 10 different answers.
Portland:
Your B) is different from my (b).
You write ” Put the 300 under other income on line 9a and write
‘transferred from statement’”
Perhaps you meant “line 21 other income” or perhaps you meant “line 9a taxable interest”.
Either way you are putting the 300 in the “Income effectively connected with US trade/business”. That seems incorrect since the 300$ is interest from Canadian bank accounts (sort of).
That’s why I was suggesting Schedule NEC.
There is a problem with your suggested D) which I need not bother talking about here. Let’s just say that I would rather pay 30$ to the IRS than get into Form 1116 (Foreign tax credit).
Of course there is always option C). In the end it will depend on the exact number. Here the 300$ figure is just for the sake of discussion. The real number could be anywhere between 200$ and 1000$ (so the due tax would be anywhere between 20$ and 100$). Even at 100$ we are well below the fee an accountant would charge. I’d rather keep things as simple as possible and as honest as possible.
Sorry I meant line 21 other income. I prefer C.
We filed neither 1040 nor 1040NR. They had or have no way of knowing whether we should have or not.
If they wrote and said ‘Why didn’t you file’ ,we would answer ‘because we were below the threshold.’
But, in fact, we’ve heard bugger all. That’s why I prefer C. They have no information slips to match.