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
To spell it out, there’s no virtue or vice in continuing to obey US tax laws when you’re neither a US citizen nor a US resident. It’s just a pointless, potentially costly, game of paper.
Play the game, pay the bill, if that’s what floats your boat. Just bear in mind that you’re doing it because you choose to do it, not because anybody’s making you do it.
Generic “you.”
From the minute you swear the renunciation oath, you’re a NRA (in IRS jargon).
Do you file a US 1040NR the following year, for the part of the year you were still a US citizen? Yes if you were filing US returns prior to renunciation and you want to claim a refund.
Do you pretend you sold everything you possess, the day before you renounced, so the IRS can send you a bill for US tax on the non-existent proceeds? Do me a favour.
Note that the IRS knows very well this fantasy sale can’t be imposed on a NRA. If they thought they could get away with it, the 1040NR instructions would tell you to include the fantasy sale proceeds in your taxable income for the portion of R-year preceding R-day. And the “Who Must File” section of the 1040NR instructions would state that former citizens “must file” for the year of renunciation.
The instructions don’t say any such thing, of course, because the IRS can’t tell a NRA that they “must file”, much less that they “must” report nonexistent income to the US and agree to pay real tax on the unreal income.
Whereas, they can tell a US citizen who’s not US-resident that they “must file”, they just can’t make them do it. And to be fair, they don’t try.
@BirdPerson, Heidi, plaxy, Nonoymous. You have helped me tremendously and today I took the decistion and have sent in the forms to renounce. Nonoymous you made me ralise when you said about a stiff drink or medicaiton that this was jsut not worth the agony anymore and ishoudl not have to endure this stress and worry put upin US citizens by the US government. On the questions of filing. I have always filed tax returns and so will most probaly as i have been and in the the system file the final tax returns and the 8854 form for peace of mind. Not sure who or what they do or prcisely look at this but will deal with that if am able to get an appointment bdrfoe the end od trhe year and so my last filiing will be next year. Heidi you were right abut doing it now before another year of this stress goes on! I will keep you all updated as to how long it takes to get my appointment and thank you all again for your support and help.
@Kabby
Well done! and do let us know how things go. Most of us have been through the process and it’s not difficult.
@Plaxy
“Do you pretend you sold everything you possess, the day before you renounced, so the IRS can send you a bill for US tax on the non-existent proceeds? Do me a favour.”
Again it’s horses for courses. An exit tax is only assessed if one has over $2,000,000 and then it’s only on any unrealized gain above approx. $699,000.
If you are up to date on filing and are below the $2,000,000, then why not finish cleanly so as not to be labelled ‘covered’. At present there doesn’t see to be any negative outcome in a ‘covered’ status, they still haven’t got their forms in order to collect, but if one has US heirs there is the threat of a 40% tax on an inheritance on a covered estate going back to the USA.
So as I say
Horses for courses.
PS @ Plaxy
Just want to add that I totally agree with you, that if you have never been in the system I certainly wouldn’t enter it now.
Heidi: “Again it’s horses for courses. ”
I don’t agree. Nobody has anything to gain by offering to estimate for the US the future lifetime value of their earthly possessions, and pay the US a share if the US demands it. The ones who do it, do it because they think it’s somehow “being a good boy/girl” or will magical save them from an imaginary threat.
Their choice, as I said, they just need to understand that it’s a choice not a duty or some kind of insurance.
Kabby –
“today I took the decistion and have sent in the forms to renounce. ”
Congratulations!
@plaxy
Nobody has anything to lose either if they won’t owe the US any tax and they also have the advantage of not being labelled covered, whatever that could mean in the future.
For those who may be in the covered, tax paying bracket, who have no US assets and have earned their money in another country then I would agree with you. Tell them bugger all.
Heidi – not for the first time, we’ll just have to agree to disagree 🙂
Plaxy
With respect.
I have a US private pension that can’t be moved, I have kids in the US who stand to inherit. Why would I have put them at risk by not filing the last couple of their lousy forms?
Thats why you can’t say to everyone “no need to file”
Its all a risk assement.
But the IRs can’t assess a citizen of another country for a tax debt for income they haven’t received, and then confiscate the person’s assets to collect on the nonexistent debt.
US source income paid to a NRA is subject to the withholding of tax. Tell the payer, when you stop being a USC, to make sure the correct amount gets deducted. (generic you)
Tax on non-US-source income is not owed. Obvs.
There’s no point paying $2350 to renounce and then act as if the same old citizenship obligations are still in place.
It’s up to the renouncer to choose whether they want to file. They just need to be aware it’s a choice: nobody’s making them do it, and nobody can make them do it.
@Plaxy
“But the IRs can’t assess a citizen of another country for a tax debt for income they haven’t received, and then confiscate the person’s assets to collect on the nonexistent debt.”
I am not talking about tax debts or tax on my unrealized gains, I didn’t have over $699,000 to qualify me. I am talking about future tax consequences of being covered. That if they get their forms in line could land my kids with a 40% tax on any inheritance. My US pension could also be fair game if labelled a covered expat.
https://hodgen.com/when-should-you-choose-to-be-a-covered-expatriate/
I worked in the US most of my life and continued to file after leaving until banking problems made me decide to renounce. It was simple to file the last 1040 and 8854, as it is should be for Samie and Kabby, so if it avoids stress and perhaps any future tax levies, why not? For those Americans who have spent most of their working lives outside the US and are not in the system, and not as risk, it’s a different scenario and there I agree with you.
Heidi: ” I am talking about future tax consequences of being covered. That if they get their forms in line could land my kids with a 40% tax on any inheritance. My US pension could also be fair game if labelled a covered expat.”
Can you not see these are unreal fears? The IRS can’t magically make your pension provider stop paying your pension by labelling you, a citizen and resident of another country, a
covered expatriatebad person for not filing a form.My advice, to anyone reading who may be considering renunciation and worrying about the scarey-scarey they read on websites:
(a) if following renunciation your US pension payer starts paying you less than you’re due, sue them.
(b) Let your children worry about their own tax problems. They’re adults, it’s their life, let them make their own decisions and handle their own ups (inheritance) and downs (taxes). With luck they may decide to leave the US, and renounce and come live near you, well before you kick the bucket; and if so, no doubt you’ll be happy to help them with the immigration costs (settlement visas, etc) and the renunciation fee ($2350 each) as an advance on their inheritance. 🙂
It’s your choice – just be aware it is a choice, you’re not being forced to play the IRS game.
@Plaxy
My US IRA pension, is a US tax deferred compensation item. As a non covered expat it has a 0% tax withhold in the US and distributions qualify for a tax treaty with my resident country to be taxed only there.
If I was a covered expat by having over $2,000,000 or not filing 8854 and 5 yrs 1040’s etc, etc , it would be taxed in one foul swoop at 30% in the US and further distributions would not qualify for any tax treaty.
If you have no funds in the US I agree it is a different kettle of fish.
@Heidi, plaxy, Bird Person, Nonoymous, UK Rose & others who went through the renunciation. Did you feel sick and regret once you sent off the renunciation forms? One part of me says Phew the other says gosh what have I done.. but I know deep down this is the best for the future. did anyone have any regrets or does everyone now wish they did it long ago Deep breath. I think I need that drink now!
“if following renunciation your US pension payer starts paying you less than you’re due, sue them. ”
That’s ridiculous, I wouldn’t have a leg to stand on, my US pension provider follows US law .
“It was simple to file the … [1040NR]?and 8854… so if it avoids stress and perhaps any future tax levies, why not?
If it feels less stressful, that at least makes some sense as a reason for continuing to act as if citizenship had not been renounced.
Voluntarily accepting the scary-scary that the IRS could tax you on future predicted value of non-US-source, non-US-taxable assets, if you don’t pretend their deeming is reality, is just pointless. But it’s your choice.
“That’s ridiculous, I wouldn’t have a leg to stand on, my US pension provider follows US law .”
It’s not ridiculous at all. The IRS can’t confiscate your pension to pay non-existent tax liabilities, unless you file one of their p-o-p forms agreeing to be assessed, voluntarily providing the information needed for the assessment, and accepting the liability.
@Kabby
Perhaps stress once I sent off the forms, but I felt complete and utter relief when I walked out of that Embassy after renunciation!
I wished I had never naturalized in the first place, but I guess even green card holders have similar compliance problems.
Go easy on those drinks, quite a few of us have used them as a prop beforehand 🙂
Kabby:
“Did you feel sick and regret once you sent off the renunciation forms?”
Not at all, but I left the US long long ago, rejoicing as I went. Renouncing was just a bureaucratic formality for me. I went straight to lunch and ordered champagne on the basis of escape from FATCA. 🙂
@ Plaxy
The IRS does not confiscate it. TIA Creff my pension provider is a withholding agent for them. I had to demonstrate that I qualified for the tax treaty, CLN and non covered.
If your pension provider is not in the US, no problems
@Kabby, no, no regrets. I did feel a little bit funny coming out of the embassy after renouncing, but never regretted it. I’d already realised that I’d changed over the years since leaving the States. My views/outlook weren’t American anymore, they were British. I hadn’t realised it until all this FATCA business blew up, but when I sat down and thought about it I realised I wasn’t as American as I’d assumed I was.
Heidi:
“TIA Creff my pension provider is a withholding agent for them.”
Yes, I know from your earlier posts.
“I had to demonstrate that I qualified for the tax treaty, CLN and non covered.”
And likewise, to interfere with the correct withholding rate, the IRS would need to prove the debt was owed and correctly assesed, or rely on payer collusion.
It is impossible for the IRS to just order a withholding agent to withhold at a punitive rate, on the basis of nothing more than the non-receipt of consent from the foreign owner of the asset/income.
It’s weird. The IRS and the tax advisers seem to have confused a lot of US-born individuals into accepting that they have no rights.
@Kabby
I haven’t renounced. I’m a dual citizen in Canada, no US assets or financial ties, not compliant with US taxes. There is literally no reason to renounce at present because there are no negative consequences to having the US birthplace. Lie to banks and you face no FATCA problems.
If the situation changes I will renounce and feel no emotion other than annoyance about the fee.
@ Plaxy
Why would I give myself all this stress of fighting city hall when all I needed to do was what I had always done for the last and final time and file?
I kept the 8854 simple, the IRS could pretty much figure my net worth as it was earned there.
Anyway I am out , stress free and happy to have my pension taxed only in sweet, safe, sane little Switzerland where you get what you pay your taxes for. 🙂