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.
Participants will need to provide their e-mail address (real or fake) and an alias. The only written rule is that participants must use a same alias each time they post (and not “anonymous” or derivatives thereof).
Bear in mind that any responses that you get from participants is peer-to-peer help, and it is not intended as a replacement for professional advice. Also, the Isaac Brock Society provides this disclaimer: neither the Society nor any of its members are professionals. We offer our advice here only in friendship and we recommend that our readers seek professional advice if they need it.
If you wish to receive an e-mail notification of comments, check the box to that effect when making your first comment.
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. I think you are missing our point.
Assume ex cit A renounces on Jan 15. 2019. Up til then, she has received zero income for 2019. Therefore no 1040 required. From Jan 16 to Dec 31 she has no US source income. Therefore no 1040NR required. Makes it beautifully simple. 8854 is still supposed to be filed.
All of which supposes she wants to bother filing anything at all.
That’s what we did. It has been almost 2 years.
I said:
“US-source income is different. NRAs don’t need to file to report it – tax either gets withheld by the payer (and the residence country gives credit), or in some countries including the UK if it hasn’t been taxed by the source country, it’s taxable by the residence country.”
This of course is why most countries stick to residence-based taxation. It’s easier to collect.
@ Plaxy
As I have mentioned before the rules are different if you are a covered Expat, and a problem for those with a US pension,
Tax on deferred compensation and non-grantor trusts for covered expats
Deferred compensation, such as IRAs, pension plans, and stock option plans, is not counted as part of your assets under the “deemed sale” described above. Instead, 30% of the total will be withheld and given directly by the payer to the government any time taxable payments are made to you from the deferred compensation item. This withholding replaces all other taxes on the deferred compensation.
To qualify for this treatment, the deferred compensation must be “eligible”, which means a) that the payer must be a U.S. entity or, if non-U.S., must agree to U.S. withholding and other requirements, b) that you tell the payer of your ex-citizen status (there actually is an IRS form for this, Form W-8CE), and c) that you permanently and irrevocably waive all claims to a reduction of the withholding tax under any tax treaty.
If those requirements aren’t met, then the deferred compensation would be considered part of your total assets and be subject to the “deemed sale” and mark-to-market tax described above.
Non-grantor trusts which pay distributions after your expatriation will also be subject to the 30% withholding tax. You’ll also have to waive all claim to tax treaty benefits to receive this treatment for them.
Note that the exemption of $699,000 (as of 2018) doesn’t apply to any gain you have from these deferred compensation or non-grantor trusts.
@Heidi
I’m assuming that, if said trusts are not in the USA and you don’t tell the IRS about them, all of the above doesn’t apply!
The idea that the IRS could claim to monies from a pension plan which was earned by someone living and working abroad leaves me simply fuming… It’s got nothing to do with the USA.
@BirdPerson
It applies by their rules but if your not in the US then it doesn’t have to…. 🙂
Heidi:
“As I have mentioned before the rules are different if you are
a covered Expatrich”As I have mentioned before, the US rules don’t matter. A former citizen doesn’t have to file US tax returns in the year following renunciation.
Rich people care about the rules and can pay high-priced advisers to keep the wheels going round the way they want them to go.
“a problem for those with a US pension,”
A NRA recipient of a US pension is indeed at the mercy of the always-changing US tax laws + the relevant tax treaty provisions if there’s a tax treaty. That’s the way it goes.
, and a problem for those with a US pension,
I said:
“A NRA recipient of a US pension is indeed at the mercy of the always-changing US tax laws + the relevant tax treaty provisions if there’s a tax treaty. That’s the way it goes.”
And the thing is, it’s obvious. Does anyone accumulate a significant US pension and then move to another country without giving any thought to US taxation of said pension?
A pension is an asset not a problem. People with good pensions aren’t victims, they’re fortunate.
@plaxy
Whatever
You don’t have to be neccessarily a ‘ rich person’ to have a high value US pension which with other assets takes you into covered territory and thus takes the pension out of tax treaty land.
US citizenship, also, is an asset, not a problem, provided one is able to pay renunciation fees if/when it becomes a problem.
The IGA, though, is indeed a problem for a US-born individual who hasn’t got $2350 to spare. A blight with no compensating blessing. Let’s hope that may change, as a result of the legal actions.
Heidi –
“You don’t have to be neccessarily a ‘ rich person’ to have a high value US pension which with other assets takes you into covered territory ”
I think we’ve had this argument before, and agreed (eventually) to agree to disagree. 🙂
@Plaxy
I am loathe to continue this conversation but I can’t let this statement go
“And the thing is, it’s obvious. Does anyone accumulate a significant US pension and then move to another country without giving any thought to US taxation of said pension?”
People decide to move countries for all sorts of reasons. The treatment of US pension taxation abroad was not a problem before the ‘covered’ expatriate label was invented. There were tax treaties to prevent double taxation in many countries. I just make this point so as to demonstrate that these general statements you make do not apply to every situation.
“The treatment of US pension taxation abroad was not a problem before the ‘covered’ expatriate label was invented.”
Yes, I understand your point, I just don’t agree. The US expatriation tax laws tell people who aren’t US citizens to list their worldwide goods; pretend everything was sold the day before the owner swore the renunciation oath; provide an estimate of the non-existent proceeds; and if certain thresholds are exceeded, pay a percentage if the imaginary proceeds from the imaginary sale to the US.
You think (as I understand it) that if a person with a US pension doesn’t file Form 8854, the US can enforce this taxation of imaginary income, whereas I think the US couldn’t.
It would be interesting to see what the courts would think, if the IRS ever risked taking it to court. Which they haven’t, so far, and my guess would be that they never will.
In the meantime, as I’ve said before (more than once), we must agree to disagree. I really don’t know why you seem to find that troubling. People have different opinions about many things.
“The treatment of US pension taxation abroad was not a problem before the ‘covered’ expatriate label was invented.”
US income’s always at the mercy of US tax law fluctuations, unless the treaty provides for the US to concede taxing rights to the residence country.
“Wasn’t it the case with Norman that he chose to go to the US to face them in court?”
Because if you “choose” not to petition Tax Court then the IRS’s lien or intent to levy is automatically upheld. For example the IRS still has an opportunity to issue a Notice of Determination on my wife’s Request for Collection Due Process Hearing for 2002. If the IRS issues one and if she doesn’t petition Tax Court in time then the US can seize anything she’s carrying if she enters the US again, or if she inherits an account that I have there, etc.
More or less like “He CHOSE to give me the contents of his wallet. I politely informed him that he could decide for himself if I was happy to see him (I’m gay) or if that was a gun in my pocket. He chose what he wanted to do.”
@Plaxy
“You think (as I understand it) that if a person with a US pension doesn’t file Form 8854, the US can enforce this taxation of imaginary income, whereas I think the US couldn’t.
It would be interesting to see what the courts would think, if the IRS ever risked taking it to court. Which they haven’t, so far, and my guess would be that they never will”
I don’t have imaginary income, it is all there sitting in a US pension fund just waiting to be taxed with no tax treaty protect if I am covered!
Anyway, I will let someone else test your theory in court, I’m not up for it. 🙂
“I don’t have imaginary income, it is all there sitting in a US pension fund just waiting to be taxed with no tax treaty protect if I am covered!”
That would be the question before the court, it seems to me. Can the IRS assess a tax debt against a NRA (a person who is not subject to US law) for failing to file a US tax form; and can the IRS seize assets in payment of tax on predicted future income.
I daresay (non-lawyer obvs) the second bit would be child’s play if they could win the first bit, but if they lost the first bit it would risk a ruling against the whole concept of the US expatriation tax. My guess (again, merely my non-lawyerly guess) is that they’re never going to risk so much on the piddling matter of trying to make a former citizen file a US penalty-of-perjury form denying tax evasion.
“ I will let someone else test your theory in court, I’m not up for it. 🙂 ”
The imaginary and unlikely case I’m musing about would be IRS v. withholding agent, not NRA v. IRS. 🙂
I said:
“Can the IRS assess a tax debt against a NRA (a person who is not subject to US law) for failing to file a US tax form;”
For US citizens and residents, there is a “failure to file (a return of worldwide income)” penalty of 5% (?) of tax due. But Form 8854 is not a tax return, the non-8854-filer is not a US citizen or resident, is not subject to US tax law, and does not have any unpaid US tax debt. And the non-8854-filer’s US asset(s) are already being taxed by the US at the appropriate rate.
On what possible grounds could the IRS seize assets belonging to this hypothetical individual?
“Can the IRS assess a tax debt against a NRA”
Yes.
“(a person who is not subject to US law)”
As far as Title 26 US Code is concerned, no such person exists. Even if the person is in a country that doesn’t have a tax treaty with the US (therefore no savings clause and let’s hope some degree of sovereignty) there is almost nothing that prevents the IRS from assessing by filing its assessment form in Washington DC. Essentially the only exception is that the IRS first has to issue a Notice of Deficiency and has to wait 150 days to give the person an opportunity to petition Tax Court if the person wants to dispute the deficiency.
“for failing to file a US tax form;”
No, it would be for the allegation that tax is owing.
“and can the IRS seize assets in payment of tax on predicted future income.”
The IRS can seize assets located in the US, and the IRS can persuade other countries to seize assets located there if the victim isn’t a citizen of the country where the assets are located. Actually the person gets a second chance to petition Tax Court to prevent the levy but if the person skipped the opportunity to petition on a Notice of Deficiency then they can’t dispute the assessment. Also the time periods are much shorter, 30 days from the date the IRS mails a notice. If the IRS chooses a method of mailing that is reasonably calculated to take more than 30 days and actually does take more than 30 days to be delivered, Mr. Atuke in Kenya and other victims just get screwed.
So if the IRS makes an accusation against you, you’d better keep your assets in countries where you have citizenship.
“The imaginary and unlikely case I’m musing about would be IRS v. withholding agent, not NRA v. IRS”
That’s not what the rest of your comment was talking about. If a withholding agent made a Qualified Intermediary contract with the IRS and violated the contract, the IRS might have a solid case even in the country where the withholding agent operates.
“That’s not what the rest of your comment was talking about.”
I think you may have misunderstood my post – unsurprisingly I admit, as I am just musing somewhat incoherently about the unenforceability of the US post-renunciation exit tax form (basically, trying to tax after the bird has flown).
Im getting a bit lost here reading all this. Was Norman Diamond audited or in toruble or something when he renounced?
@Kabby
Just ignore Norman. His weird situation decades ago has no bearing on you or your decision to renounce.
In fact probably best to also ignore a lot of the comments over the past 48 hours that, while important discussions of the finer points of extraterritorial US taxation, are also not super relevant to your case.
Just renounce as soon as you can, file what you need to file (or don’t file anything at all) and relax. Your situation is very straightforward and there is no reason for you to worry about anything at all.
@Kabby
You have no worries, only the discussion addressed to you is relevant. Ignore the rest.
“Im getting a bit lost here reading all this. Was Norman Diamond audited or in toruble or something when he renounced?”
Long before I renounced, the IRS penalized me and my wife for frivolous returns but refused to say why. After the first Tax Court case, the IRS’s lawyer said something that made me figure out that the years for which the IRS penalized us were years when I had withholding reported on Form 1099 and not in other years. Several months after that, newspapers reported about former IRS data entry clerk Monica Hernandez. Later I found more details. Guess which tax form Monica Hernandez was embezzling the withholding from, by inputting data attributing the withholding to her SSN.
The IRS continues to cover up its activity. The US Department of Justice continues to cover up its activity. Courts side with the government except on rare occasions when the government admits it did something wrong, and even then, the IRS doesn’t have to obey court orders.
While the first Tax Court case was under way, the IRS told me one reason for penalties was that I illegally wrote honest declarations instead of signing the preprinted jurat at the bottom of Form 1040. That’s when I renounced. There are enough discussions on this site about square pegs not fitting in round holes, I reported the facts, the IRS said they penalized me for telling the truth, and I’d already had more than I could take. Of course now I think the IRS didn’t really care about honest declarations, that’s why they didn’t penalize me in years when US withholding was only reported on Form 1042-S or T-5 (US securities held in a Canadian brokerage account).
Renunciation has not made a bit of difference to the problems that were already under way.
I tried to compel the IRS to audit me. The DOJ persuaded courts not to make the IRS audit me. What is the IRS trying to hide?
Anyway, the IRS and DOJ have established in court that it’s illegal to write and sign an honest declaration under penalty of perjury. You have to sign the preprinted jurat no matter how much you know it’s false. The DOJ has further established in court that if the IRS rejects your spouse’s application for ITIN then you must fabricate an SSN to put next to your spouse’s name on the return.
The IRS’s Taxpayer Advocate reported to Congress in 2011 that thousands of honest taxpayers were forced to renounce US citizenship because honesty gets them penalized, makes them overpay taxes, and subjects them to possible criminal prosecution. Better believe it.
@Kabby
Fascinating though that might be, it has no relevance to your concerns.
Kabby asked. Kabby must surely appreciate people telling people not to answer Kabby’s questions.
re Norman’s situation
https://www.justice.gov/usao-edca/pr/former-irs-employee-sentenced-more-4-years-prison-claiming-over-1745000-false-tax
FOR IMMEDIATE RELEASE
Wednesday, July 9, 2014
Former IRS Employee Sentenced To More Than 4 Years In Prison For Claiming Over $1,745,000 In False Tax Returns
FRESNO, Calif. – Monica Nanette Hernandez, 41, of Fresno, was sentenced on Monday by United States District Judge Anthony W. Ishii to four years and five months in prison for filing false tax returns, wire fraud, and aggravated identity theft, United States Attorney Benjamin B. Wagner announced. Judge Ishii also ordered Hernandez to pay $175,144 in restitution.
According to court documents, Hernandez worked for the IRS Service Center in Fresno as a part-time data entry clerk. While employed in that capacity, Hernandez filed three tax returns for herself claiming excessive federal tax withholdings based on falsely claimed interest and dividend income. Because of these fraudulent returns, Hernandez obtained more than $175,000 in refunds from the IRS.
In addition, in April 2010, Hernandez stole 68 tax returns from the IRS Service Center that had not yet been entered into the IRS’s computer system. She electronically filed fraudulent tax returns for her own benefit using the identification information of some of these taxpayers in which she claimed excessive federal tax withholdings from dividends and interest income. In total, Hernandez attempted to claim more than $1,745,000 in fraudulent tax refunds through the returns she filed using other taxpayers’ personal information…………………..
https://groups.google.com/forum/#!topic/misc.legal.moderated/w5Jrt3MAeCE