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
https://www.youtube.com/watch?v=FyM8NVl4yBY
This a youtube to go with that pretending parody because not everyone knows these oldy but goody tunes. Couldn’t resist tossing this in today. Hope it doesn’t break the flow of good advice for Pauly.
I said:
“Those [renunciants] who have been filing, presumably get a note on their files to the effect that they are now Non Resident Aliens [when the IRS receives notice of the loss of citizenship from the DoS]. The following year, if the renunciant files a tax return and 8854, the IRS processes them.”
So what happens if the renunciant doesn’t file Form 8854?
As far as I’m aware, there is no stated time period within which Form 8854 must be filed. If the person renounced in 2017, and two years later, pr three years later, or four years later, no 8854 has yet been received, that is a non-event.
If that’s correct, then there is no date after which a former citizen can be sent a letter requesting payment of $10,000.
Therefore the bit about the $10,000 fine is just there to keep up the pretence that the Exit Tax is enforceable.
IMO.
It’s already absurd for a country to make laws stating that an individual who is not a resident and is no longer a citizen “must” sign a form agreeing to hand over a percentage of the value of their global assets.
The idea that a non-resident non-citizen who doesn’t sign could be forced to sign by being threatened that if they don’t sign they will be treated as if they had signed, is … well … it’s nuts.
Congress passes these crazy laws, giving apparently no thought as to whether the law can be implemented.
@plaxy
Don’t some other countries have various forms of an exit tax where unrealized gains are taxed when leaving the place of residence where the gains occured? Australia and Canada spring to mind. The problem with the US is that they equate US citizenship with US residence and quiting citizenship means leaving the plantation.
Heidi – yes, but only with respect to gain which has occurred in the country during the residence period? As I understand it? Please correct me if I’m wrong.
That gain is legitimately taxable by the country the person is leaving.
Yep, unrealized (untaxed gain). But that is what the exit tax taxes. The hooker is that they pretend Americans live there even if they have never set foot in the ‘land of the free’.
I believe in the case of NRA’s and Naturalized citizens, form 8854 also takes into account the value of any assets one may have had before US residence as the base value, and uses that to calculate gain.
Heidi:
“Yep, unrealized (untaxed gain). But that is what the exit tax taxes.”
That’s what the US exit tax purports to be able to tax. But cannot, unless the taxee co-operates by providing a list of assets and estimated value, and agreeing to pay the tax.
The US can’t tax future gain on non-US assets owned by citizens of other countries who don’t reside in the US. Because the US doesn’t have taxing rights on that gain. The owner’s country of residence has the taxing rights.
It’s simply unenforceable.
Yes, I totally agree it’s unenforceable if all renunciants live abroad and have made their money abroad, but we are not all in the ame position. Many have made gains in the US before they decide to leave, surrender green card or renounce They may have US houses, companies, US stocks pension funds and they are treated in much the same way as lesving Canada or Australia.
The US can’t override another country’s right to tax residents’ income.
A non-resident non-citizen signs Form 8854 is actually volunteering to pay a percentage of future gain out of their own disposable income – exactly the same as the CBT “top-up” tax. Like the top-up tax, it’s not really double taxation: it’s a donation.
And can’t possibly be enforced.
However, some former citizens may opt to sign up to donate the percentage, just as some non-US-resident citizens opt to file US tax returns agreeing to pay US top-up tax.
Nothing wrong with that, as long as they realise they can opt not to sign up to the deal.
“Many have made gains in the US before they decide to leave, surrender green card or renounce They may have US houses, companies, US stocks pension funds and they are treated in much the same way as lesving Canada or Australia.”
Of course. That’s US-source income and the US has taxing rights and has control (subject to treaty agreements) over payment of the income. It doesn’t have to try to strong-arm the owner of the assets into signing a form agreeing to pay. Form 8854 is simply not relevant.
@Plaxy
It doesn’t have to try to strong-arm the owner of the assets into signing a form agreeing to pay. Form 8854 is simply not relevant.
Well Plaxy, I am surprised at you who called Eric a tax evader. By signing the 8854 I am agreeing to pay the tax owed according to the laws of the place where I made my money as did Saverin. If I didn’t, surely I would be a tax evader in the same way that others would be who may have skipped Australia and didn’t pay the taxes due.
“Well Plaxy, I am surprised at you who called Eric a tax evader.”
Interesting.
You think if you hadn’t signed the 8854 you’d be committing tax evasion?
How?
A renunciant with US income should sign a W8 form, not Form 8858,
Send the W8 form to the payer to get the correct withholding rate.
If disposing of a US asset, obviously US taxes may be due and should be paid.
I can’t see what you think Form 8854 has to do with this.
“not Form 8858,”
should be
“not Form 8854.”
I suspect a lot of renunciants may think it’s “safer” to file Form 8854 “just in case.”
But there doesn’t appear to be any reason for this anxiety.
It’s not wise to sign a piece of paper surrendering your rights, unless you understand the implications and are making an informed choice of your own free will.
It seems that many who sign Form 8854 don’t understand the implications and are not making an informed choice.
All too often, I hazard a guess, they’re simply signing because a US tax adviser has told them to. 🙁
@plaxy
How?
Because a calculation would have had to be made as to how much unrealised gain I had made. How else would they do it?. It was pretty evident that they could find out, they had all my past tax records. I showed I owed nothing, being below the threshold, so not a problem and can sleep well.
Perhaps you should ask Mr Saverin why he decided to play ball with his 8854?
I am out to rake leaves.
@plaxy
I did understand the implications after reading copiously beforehand, but agree with you that many do not and in many cases it is better to avoid 8854.
Heidi:
“a calculation would have had to be made as to how much unrealised gain I had made.”
Only if you’re taking the US assets with you (cashing them in and transferring the proceeds to your country of residence).
“I showed I owed nothing, being below the threshold, so not a problem and can sleep well.”
Are you seriously suggesting that renunciants need to sign Form 8854 to save themselves from guilty nightmares?
“Perhaps you should ask Mr Saverin why he decided to play ball with his 8854?”
Surely Saverin was moving his money out of the US, and tax was therefore due.
This attitude that a former citizen is a tax cheat if they don’t sign over their rights, is very destructive, IMO. 🙁
How else would they do it?. It was pretty evident that they could find out, they had all my past tax records.
Heidi:
“I did understand the implications after reading copiously beforehand, but agree with you that many do not and in many cases it is better to avoid 8854.”
In what circumstances would you advise a renunciant to file Form 8854, and why?
Heidi:
“I did understand the implications after reading copiously beforehand”
See, I don’t think you did. You didn’t need to certify to past obedience. You didn’t need to provide a list of your worldwide assets. You didn’t have to show that you didn’t owe anything.
You certainly were entitled to file Form 8854, but if you think you would have been committing tax evasion, or suspected of committing tax evasion, if you had not filed it – that’s just not correct.
Form 8854 is not a problem for a former citizen who previously filed US tax forms and isn’t rich enough to exceed the thresholds.
It is a big problem for those who (sensibly) haven’t been filing US tax returns and mistakenly think that that means they can’t renounce unless they file five years of returns and pay US tax on their investments and/or pension payments.
@plaxy
Of course I wanted to be able to take funds with me. Pension funds needed to qualify for tax treaty. If covered , they wouldn’t.
Would you tell folks leaving Australia that they shouldn’t fill it the relevant tax exit forms?
@Plaxy: “In what circumstances would you advise a renunciant to file Form 8854, and why?”
How about my own circumstance? Former US permanent resident, worked in the US, and still hold a sizeable 401k. US pensions cannot be moved outside the country, and I will need to draw on it when I retire. The US/UK treaty says that this pension is taxable only to the UK. I get that by filing a W-8BEN with the provider.
But until then, this money is at risk of the IRS dipping in to take penalties from paperwork transgressions such as simply not filing enough silly bits of paper, form 8854 included. Filing an 8854 costs me absolutely no money because it adds no tax liability, but it does entirely remove all threat (no matter how remote the possibility) of losses from penalties for “non-compliance”.
Think of the IRS as an infant prone to temper tantrums. If you can shut them up with a pacifier, in this case pointless paperwork, then it is worth doing. There is no nutrition being delivered, but the bawling and threat of damage ceases.
Heidi:
“Of course I wanted to be able to take funds with me. Pension funds needed to qualify for tax treaty.”
Could you explain? You transferred your pension funds to Switzerland?
” If covered , they wouldn’t.”
Could you explain? If you transferred the funds to Switzerland, presumably income from those funds is now paid in Switzerland and has no connection with America.
“Would you tell folks leaving Australia that they shouldn’t fill it the relevant tax exit forms?”
Scuse me? Are you suggesting that by saying it’s not necessary or desirable for a non-US-resident non-US-citizen to file Form 8854, I’m somehow facilitating tax evasion?
Hi at all…Pauly here again 🙂
Two new questions here:
You told me, that its´ ok to renounce and then back file + 8854 (if i feel the need to do it). But i found this:
“You fail to certify on Form 8854 that you have complied with all U.S. federal tax obligations for the 5 years preceding the date of your expatriation or termination of residency.”
My main focus here is on “PRECEDING THE DATE OF YOUR EXPATRIONEN”. So when fling after the rencounce i would not certify under this circumstances. The date on my back filed 5 years tax would be AFTER the date of expatriation.
Not being certified means being a cover expatriate. However, this fact triggers a new question. How can i even become a CE? I thought in my case its not even possible:
“There are two categories of expatriates for whom the net worth test and the net tax liability test will not apply: Dual citizens of acquired U.S. citizenship and another citizenship at birth”.
So what im i if i don´t certify? What´s the consequenz?