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
@plaxy
We all agree on the unfairness of cbt and the presumption of the US that it can reach in to pockets of its citizens and the treasuries of other countries. The point is these pension funds were earned and untaxed while living and working in the US. In my case that is where nearly all of my assets were accumulated . I am not your usual renouncer, I decided I had had enough of living in the US and wanted to retire back home. I need to protect my only form of income from double taxation.. Why on earth would I chose to put it at risk just for a principle that really does not fit the case? I have not earned my fortune abroad, it was earned in the US. Your argument does not fit my case.
I think it is important to inform others here who may have similar US pension plans of the rules and risks involved. This is not a Socratic discussion or an intellectual argument about the ethics of cbt, it is a carefully considered form of action to protect our livelihoods.
Heidi-
“We all agree on the unfairness of cbt and the presumption of the US that it can reach in to pockets of its citizens and the treasuries of other countries. The point is these pension funds were earned and untaxed while living and working in the US. ”
???
I haven’t said anything about unfairness. Of course the US has a right to tax US pensions.
“I have not earned my fortune abroad, it was earned in the US. Your argument does not fit my case.”
I’ve been talking about when and whether (and why) it might be advisable for a renouncer to file Form 8854, that’s all. And I concluded by agreeing with you that for a renouncer below the exit tax thresholds with a tax-favoured US pension plan, it would indeed be advisable, as a safeguard against being assessed for exit tax liability for not filing Form 8854.
So what’s the problem?
A quick note: my renunciation today went smoothly despite a chaotic atmosphere at US Consulate, Montréal, due to closure yesterday (George H.W. Bush’s day of mourning) clogging service. About 2 hrs (including 30 min. line outside to get into Consulate.)
No questions about why, very polite and matter of fact. I will post more on directory of sites.
One fascinating thing: Among my stack of paperwork in possession of DOS was form for “revocation of renunciation”. This seemed to acknowledge a process for “taking it back”. I was so shocked to see this I could hardly read it. I asked if I could keep a copy and was told no.
There seems to be a mechanism for those who have renounced to re-apply for citizenship; I do recall wording indicated each case would be assessed by DOS. (Not that I am going to do it, but has anyone else seen this document? Unfortunately I could not record form number.)
Congrats Duchess.
Plaxy et al. Pls. give ut a rest.
Portland:
“Pls. give ut a rest.”
I’m not going to rudely not respond to questions or comments addressed to me. No need to read if you don’t choose to.
tdott The regs are entirely different. If a Canadian citizen leaves Canada, he or she is thereafter only liable for taxes on Canada source income. An Ameriican emigrant is liable for US taxes on worldwide income.
The Canadian departure tax only applies to capital gains earned while in Canada. The exit tax is triggered by giving up citizenship as well as giving up a green card. Quite a different kettle of fish.
Congratulations, Duchesse!
Re: ” I do recall wording indicated each case would be assessed by DOS. (Not that I am going to do it, but has anyone else seen this document? Unfortunately I could not record form number.)”
I don’t recall the document you’re referring to. However, page 2 of my CLN does have the contact information for initiating an administrative review of a finding of loss of nationality, which — being delighted to receive my CLN (and having contentedly believed myself to not have been a US citizen since naturalising in Canada 35 years earlier) – I found rather amusing. The wording on this is “Each case will be reviewed on its own merits taking into consideration, for example, statements made by the person at the time of the potentially expatriating act.”
portland wrote:
A Canadian who leaves Canada *and does not sever his tax residency* is liable for Canadian taxes on his worldwide income – he/she is considered to be a “factual resident”, in CRA jargon. FWIW, I know someone who lived in the US for several years, but was subject to Canadian taxes because he couldn’t sever his tax residency due to his spouse and kids still being resident in Canada. So, he got the worst of both worlds w.r.t. taxes.
See:
https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents/leaving-canada-emigrants.html
and
https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/information-been-moved/determining-your-residency-status.html
I’d argue it’s more accurate to say the Departure Tax only applies to unrealized capital gains accrued while you were a *tax resident*. I.e. tax residency is what matters, not physical residency. In that respect it’s similar to the Exit Tax, which is also triggered when you give up your US tax residency (renouncing being the only way to do that if you’re a US citizen).
I receive a small SS pension .If I were to lose it , I wouldn’t worry too much,that much less coffee to consume. For someone who has accumulated a sizeable SS pension,it’s another story. If you stay compliant for the rest of your life, hallelujah you are a true blue IRS model. If you are non compliant, then you hope and pray that Congress and the IRS doesn’t someday and in someway punish you .The uncertainty will always be there unless one’s makes a clean break.
Clearly, if one’s income doesn’t depend on the whims of the US , one can tell the US where to go.
@Duchesse
My understanding, and what I believe is the “accepted wisdom”, is that the only way to re-acquire US citizenship after renouncing is to follow the same rules that every other non-US citizen needs to follow – i.e. there’s no shortcut back. Nonetheless would be interesting to see what the “revocation of renunciation” form is about (says the renunciant who has *zero* interest in jumping back in to that frying pan).
And, BTW, congrats!!!
Did it feel like a giant weight had come off your shoulders when you walked out of the consulate? I thought I was going to float away 🙂
@tdott: It may be my imagination but I wondered if putting that form under my nose (and then whisking it away) was a way of acknowledging that “we know this is wrong”, rather like the draft amnesty after Vietnam. Strictly my perception; I now wish I had asked “What IS this? Why am I shown this?” I would not be surprised if one day people are offered the chance to re-up (with revised laws re CBT) but probably not in my lifetime.
I did not feel elated, I felt resigned and sad. I lived for 45 years as a dual citizen (Canadian/US), without incident. FWIW, filing US tax returns all along. I feel sorry it has come to this, even though I do not plan to live in the US again. Many thanks to Brockers who helped me deal with it. Hope I can return the favour.
Robert Ross:
It varies from country to country. Here in the UK I receive a small SS pension with no US tax withheld. Nothing to do with filing US tax returns – I haven’t filed one since I emigrated, many years ago.
We’ve seen the devastation initially done to expats when the FBAR rules were finally enforced with a vengeance. We’ve seen unintentional, but potentially devastating, damage done by an indifferent Republican president and Republican Congress with section 965. Next time the Democrats hold the presidency, house, and senate, it wouldn’t be surprising to see the focus turned on “tax cheats” in a big way that results in more pain for some non-compliant *and* compliant expats. Sigh.
@Duchesse
Sorry to hear you felt that way. Hopefully in time that sadness will disappear. I always assume that new renunciants feel like they’re at a party (my case), when in fact some feel like it’s a funeral. I have to remember that next time before I start typing.
tdott:
“We’ve seen the devastation initially done to expats when the FBAR rules were finally enforced with a vengeance.”
People were frightened into OVD* programmes by the US tax advice industry, unfortunately.
For those who weren’t filing, nothing changed when the FBAR penalties went up. It was FATCA that changed things for non-filers. I renounced to get back to normal banking.
@plaxy
Yup, and those “tax professionals” who told clients to enter the OVD* programs as their only hope of salvation should be drawn and quartered. Same for the IRS for not initially differentiating between obvious tax evaders and non-willfully non-compliant expats. And, same again for the IRS for not providing an avenue for those non-willfully non-compliant expats who entered the OVD* to recoup the massive penalties some of them paid.
@plaxy
In Canada, my SS is not taxed at source but needs to be declared and taxed accordingly on our income tax forms. I came to Canada over fifty years ago and rather quickly came to the conclusion that if I didn’t receive any salary, any health benefits, any sevices from the US then the idea of filing and paying taxes to the US simply didn’t make any sense especially when the parting was intentionally permanent.
I agree with your perception of the IRS’ limitations in what they can and can not do overseas. You help to put things in perspective and remove the paranoia.
@Tdott
There will be always be another cookie in the cookie jar, there was the exit tax and next it’ll be something worse, no matter which party,elephant or mule. Any real change in the US regarding cbt,Fatca will have wait for an epiphany .
@RobertRoss
“If you stay compliant for the rest of your life, then halleujah”
Just to make things clear, I am not avocating compliance for life! I renounced and filled in 8854 to free my pension funds(not SS) from the threat of continued IRS taxation.
Congrats Duchesse I also felt resignation, also relief and euphoria, a whole range of emotions. I had left kids behind there.
Perhaps the form presented to you had something to do with finding later that you had been coerced?
“ … those “professionals” who told clients to enter the OVD* programs as their only hope of salvation should be drawn and quartered.”
Or regulated by the country of residence.
For example: the transition tax should simply never have affected owners of non-US corporations who were non-resident non-US citizens.
If their accountants had done their job properly, they would have informed their US-citizen clients of the risks involved in allowing a non-US corporation to be classified by the US as a US corporation for purposes of US taxation. Tax advisers who advised their clients to accept the default classification should now be finding themselves in the dock for malpractice.
“Same for the IRS for not initially differentiating between obvious tax evaders and non-willfully non-compliant expats. ”
The obligation for US citizens to file US tax returns was unknown to many (perhaps most) US citizens who emigrated to countries beyond North America during the third quarter of the 20th century. Those of us with no US income never had any reason to give a thought to the IRS.
Things changed when US tax policy changed, during the Reagan era. US citizens living outside the US, and their obligation as US citizens to report their worldwide income to the US for taxation, became significant, as US businesses morphed into multinational corporations and the “deferred until repatriated” corporation tax policy was born.
But nobody mentioned this changing situation to those of us long-term-expat US citizens who didn’t have US incme income, didn’t have businesses, never consulted a tax adviser, and barely knew any other Americans.
We just carried on with our normal life, safely untouched by the US tax system or the IRS. And the IRS likewise carried on with its usual pursuit of US residents who weren’t fully disclosing taxable income.
But that little note about CBT crept into the US passport pages, and the numbers who knew about the obligation gradually increased. And thus, innocent non-filing non-US-resident USCs with no US-taxable income began to be seen as tax evaders — totally unknown to us.
Then the Swiss banking scandal erupted and FATCA was invented, and the IGA was invented, and suddenly the tax advisers were sitting on a gold mine.
A deeply confusing situation. But with the same old facts underlying it:
1. The US can’t tax non-residents on non-US income.
2. US citizens who don’t live in the US, don’t live in the US.
3. A citizenship obligation matters only to those citizens for whom the citizenship matters.
The IGA is a different kettle of fish entirely. Let us hope those fish get fried, next month. 🙂
Same for the IRS for not initially differentiating between obvious tax evaders and non-willfully non-compliant expats.”
Robert Ross:
“In Canada, my SS is not taxed at source but needs to be declared and taxed accordingly on our income tax forms. ”
Yes, same here.
@ Robert Ross
The ability to receive Social Security after renunciation was not in question.
I am not disputing IRS’ limitations in what they can and can not do overseas..
What I wanted to make clear was the risk (after renunciation) to any 401K’s etc earned by US citizens and green card holders while they were living and working in the US.
Covered status would qualify them for the treatment below.
Their pensions would be taxed in the US at source and not qualify for any tax treaty with their resident country, thus being effectively double taxed.
Tax on deferred compensation and non-grantor trusts
Deferred compensation, such as IRAs, pension plans, and stock option plans, is not counted as part of your assets under the “deemed sale” . 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.
Heidi:
”
What I wanted to make clear was the risk (after renunciation) to any 401K’s etc earned by US citizens and green card holders while they were living and working in the US.
Covered status would qualify them for the treatment below.
Their pensions would be taxed in the US at source and not qualify for any tax treaty with their resident country, thus being effectively double taxed.”
Not double taxed – just taxed by the source country (the US), rather than the residence country.
@Plaxy
No, it would be taxed again as it would have to be declared as income in my resident country. I could NOT claim any treaty rights if covered. Believe me, I took advice in both the US and Switzerland on this matter, not by condors but by accountant/lawyer friends.
The Swiss also wanted to tax the whole of my SS even though there was a 15% withhold in the US. Thankfully Watcher was able to find me the Swiss/US treaty on the treatment of SS benefits and confront them and now I get a tax credit for the 15% paid. The IRS do not have a monopoly on nastiness. The tax authorities everywhere are out for what they can get.
This is a point which renunciants with US assets really need to understand before they make the decision to file Form 8854.
By filing Form 8854 you accept that the US has the right to treat you like shit (i.e. label you a
leper“covered expatriate” not entitled to human status). That could include requiring you to surrender your right to treaty benefits such as not being double-taxed.If you don’t file Form 8854, they can’t do this. They might be able to assess you for the exit tax, as a penalty for not agreeing to be treated like shit, but they can’t force you to surrender your right to treaty benefits.