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
Heidi:
“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.”
Of course it isn’t. The IRS can’t assess a non-US-resident non-US-citizen for a penalty for not Form 8854, because the non-US-resident non-US-citizen has not signed Form 8854 agreeing to pay any such penalty.
“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.”
That’s just silly.
Pauly:
“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:”
It’s not. “Covered expatriate” is just IRS jargon for a person who has filed Form 8854 and agreed to pretend they sold their worldwide assets and agreed to send the IRS a share of the proceeds.
If you want to file Form 8854, you can backfile the returns and truthfully certify compliance.
Pauly:
“what im i if i don´t certify? What´s the consequenz?”
There are no consequences of not filing Form 8854.
The IRS says you’ll be fined $10,000 but the IRS doesn’t have the power to fine a non-US-citizen. You don’t have to file Form 8854 unless you want to.
@plaxy
I think we have been through this before
My pension funds could not be tranferred to CH, but if I was deemed covered I would by IRS rules have to pay tax on them the day before expatriation in one foul swoop in the US. I would then have to pay a wealth tax on that windfall in Switzerland as they would no longer be pension funds. Now you may doubt the IRS ability to do this but they are my funds and I have the privilege of assessing that risk. I believe financial savy people like Karen in Australia also exited with 8854.
The world according to plaxy is but her opinion only.
Heidi:
“My pension funds could not be tranferred to CH, but if I was deemed covered I would by IRS rules have to pay tax on them the day before expatriation in one foul swoop in the US. I would then have to pay a wealth tax on that windfall in Switzerland as they would no longer be pension funds”
You’ve lost me. What windfall?
Your pension funds can’t be transferred to Switzerland, right? So the funds have not exited the US and tax is being withheld at the appropriate rate. What would be different, if you had not filed Form 8854?
@Plaxy: “That’s just silly.”
Nope. Disagree entirely. Why on earth would one dare the IRS to start threatening penalties for “non-compliance” when feeding them pointless paperwork will satisfy? You appear to have fixated on the wrong aspect of things here, and while there are indeed cases where blowing off an 8854 ‘requirement’ is highly desirable, I believe you have taken your ‘do not file any 8854 ever‘ crusade too far. There is no reason at all to unnecessarily goad the IRS unnecessarily.
On what basis do you conclude that the IRS cannot possibly apply penalties and liens to US based accounts held by non-US persons? Because this is what you appear to be claiming.
“The world according to plaxy is but her opinion only.”
Why the snide remarks?
It matters, this question of whether it’s necessary or advisable or inadvisable to file Form 8854.
So far, no one has suggested any circumstance in which it would be advisable (i.e. unwise not to file it).
@pauly
You will not qualify for the dual at birth non covered status if you do not file 8854.
This dual at birth status is only useful if you would have over the $2,000,000in assests or over the high average earnings. It lets you off any exit tax if you meet that threshold.
Being labelled ‘covered’ for you means very little. They can’t bar you from entry (reed ammendment is unworkable).They can’t fine you as its uncollectable. If you have no US heirs, they cant threaten your estate. If I was in your position I wouldn’t put myself through the process of back tax filing. If your renunciation appointment is in 2019,you have until 2020 to consider it. Its the 8854 where you have to certify, not on any renunciation forms.
@Plaxy “The IRS can’t assess a non-US-resident non-US-citizen for a penalty for not Form 8854, because the non-US-resident non-US-citizen has not signed Form 8854 agreeing to pay any such penalty.“.
Now, that’s just silly. It is a circular argument that lacks all semblance of logic. Of course they can assess it. Whether or not they can collect it may be arguable.
@Plaxy “So far, no one has suggested any circumstance in which it would be advisable (i.e. unwise not to file it).”
I have. You dismissed my comment with your own snide remark, but that does not make it false.
Heidi:
“Nope. Disagree entirely”
We’ll have to agree to differ. Comparing the IRS to a child in a temper tantrum is in my book silly.
“Why on earth would one dare the IRS to start threatening penalties for “non-compliance” when feeding them pointless paperwork will satisfy? ”
It makes you feel better to have filed Form 8854. Nothing wrong with that. The question I’m asking is whether there are any circumstances in which not filing Form 8854 would lead to undesirable consequences.
“On what basis do you conclude that the IRS cannot possibly apply penalties and liens to US based accounts held by non-US persons?”
The rule of law.
The IRS can’t confiscate without an assessment of liability. The IRS can’t fine a foreign investor for not filing a form. Therefore, the IRS can’t assess a liability.
Heidi:
“@Plaxy “So far, no one has suggested any circumstance in which it would be advisable (i.e. unwise not to file it).”
I have. You dismissed my comment with your own snide remark, but that does not make it false.”
I explained why I think you’re mistaken in believing that the IRS could help itself to your funds if you hadn’t filed Form 8854. That’s not snide.
If you cite the statute which you believe gives the IRS the authority to take moneyy from a foreign investor’s funds, or cause payments of income to be subjected to rates of withholding other than the agreed treaty rate, then perhaps I’ll be able to understand your argument.
@Plaxy “The IRS can’t fine a foreign investor for not filing a form. Therefore, the IRS can’t assess a liability.”
Utter BS. Enforcement may be impossible, but assessment surely is not.
And PS, it’s Watcher, not Heidi. We’re tag-teaming. And I’m out now.
@plaxy
As covered my pension funds would be taxable in the US as if I had redeemed them all in one day. I could remove them in one go taking the whole taxed lot to CH where they have a wealth tax and where I would be taxed again. Failing that as covered the other choice would be having them taxed at 30%in the US along with the delightful task of submitting tax returns to them for life. This would also mean I wouldn’t qualify for the US/CH tax treaty so the Swiss would tax them as income. Now the task of filling in an 8854 seems simple in comparison.
Watcher: “Now, that’s just silly. It is a circular argument that lacks all semblance of logic. Of course they can assess it.”
How?
By filing a substitute 1040NR, do you mean?
Heidi:
“[if Form 8854 was not filed] my pension funds would be taxable in the US as if I had redeemed them all in one day.”
I’m trying to understand why you think that would be the case. What statute is it based on? It’s not in the 8854 instructions.
@plaxy
Your mixing up watcher and heidi
Im out too.
My funds, my life, my decision.
I try to give advice not dictates, I suggest you try to do the same.
Watcher:
Apologies if I responded to you thinking I was responding to Heidi.
“Utter BS. Enforcement may be impossible, but assessment surely is not.”
I’m asking you how? How would the IRS go about making an assessment of liability?
“I’m out now.”
No explanation of how the IRS would be able to assess a penalty against a non-US-resident foreigner for not filing a US tax form?
I do think this needs to be thought through. If (as appears to me to be the case) the IRS cannot assess a penalty against a foreigner for not filing FORM 8854, people should be aware of that.
Plaxy
https://www.taxesforexpats.com/articles/expatriation/expatriation-covered-expats-deferred-compensation-form-w-8ce.html
The end
@Plaxy
From this report: https://www.gao.gov/assets/310/303328.pdf
Not a recent document, but nevertheless it shows that the IRS has in the past made assessments against non-compliant non-US persons. In practice, it mostly concentrates on pressuring US based withholding agents, over which it does have considerable leverage. Having a US payer disregard a non-US person’s claim for treaty benefits would be one very easy way to enforce tax or penalty assessments.
There’s just no reason at all to risk any of these if you don’t have to. If the US asked me to sign a form that says black is white or pay a $10k penalty, I would do it. Of course it’s utter nonsense to do so, but resistance purely for the sake of resistance is not a profitable use of my time or energy.
But Heidi, that’s a tax adviser’s site.
The penalty under US tax law for not filing Form 8854 is $10,000. Which can’t be assessed, as far as I can see, because the person is not subject to US tax law.
We do seem to be going in circles. I suspect this is fruitless.
BUT Plaxy
From the renunciation guide here on Brock
http://web.archive.org/web/20121023090722/http://renunciationguide.com/Exit-Tax-on-Renunciants.html#TaxOnDeferredCompensation
Also on Hodgen’s site, which I believe many here on Brock trust
As someone else has written on this site, whatever you decide to do, you probably won’t be entirely happy with it.
Some file, some don’t. Some give the IRS a shopping list in the form of 8854, others don’t. Am I entirely happy that my decision, in that I’m not filing a single thing, is entirely without risk? No. But I refuse to accept that somehow I am owned (or was owned) by the USA and therefore they have a claim to income/assets earned entirely in another country.
Watcher:
“Not a recent document, but nevertheless it shows that the IRS has in the past made assessments against non-compliant non-US persons.”
Yes, I agree. Thanks for posting it.
But these individuals were filing inaccurate or untruthful US tax forms, claiming exemptions to which they weren’t entitled. The liability was real.
“Having a US payer disregard a non-US person’s claim for treaty benefits would be one very easy way to enforce tax or penalty assessments.”
I don’t see how, unless US law gives the IRS statutory authority to assess a liability against a foreigner for not filing a US tax form.
Heidi – the penalty for not filing Form 8854 is a $10,000 fine.