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 – indeed.
It’s one of the creepiest things about the form – the way eligible dual-from-birth renunciants are told they’re exempt from the exit tax but must nevertheless provide a list of their non-US assets.
Fillinchen If you renounce and propose to file 5 years, be prepared for hours of work if your affairs are simple and a hundred hours work and 10,000 in accounting fees if they are complicated. IRS tax forms are not possible to understand or to get precisely correct. All you can do is make your best effort.
Unless there is an over riding interest, I advise not filing.
(full disclosure) We filed 5 years of back taxes with professional help because we have children and grandchildren who are dual and some of whom live in the US. They stand to inherit so it was important.
Otherwise ‘covered expatriate’ is a meaningless term.
@Fillinchen
To expand on Heidi’s point, to not be a covered expat, you’d need to:
– be tax compliant for the 5 years preceding renunciation (i.e. file tax returns for those 5 years plus 6 years of FBARs)
– have an average tax liability (tax, not income) for the prior five years that is less than $162,000 (for 2017)
– file form 8854
Dual from birth only gives you a get-out-of-jail free card for the net worth test (must have a net worth below $2 million USD).
Point 3 is disclosure of all your assets. Not terribly hard to do on your own, but it is financially intrusive.
Point 2 isn’t an issue for anyone who does not make a crazy high income.
Point 1 is a PITA for those that have not been filing and gets into potentially problematic issues re foreign trusts (RESP, RDSP, maybe TFSA [depending on who you talk to]), PFICs, prior sale of a principal residence, etc.
Note that if you renounce without filing, those unfiled returns will stay with you forever as there is no statute of limitations on unfiled returns. There are ramifications of that and you’d have to decide how important they are for you – everyone’s situation is different. One “interesting” ramification is that the executor of your will (sorry, you’d have died) may feel the need to put you thru Streamlined compliance in order to cover his/her ass (he/she knows you were a USC because of your birthplace) – this could have tax implications that your beneficiaries would not appreciate – may be an issue for you, may not be.
Basically, thoroughly understand what becoming compliant or not means in your *specific* case and make a decision that’s right for *you*. Don’t just listen to people who say you must get compliant or those that say don’t bother.
“I am also concerned because, although I am Canadian, I am currently a tax resident of a country not in that list.”
That doesn’t really say if you are or aren’t a tax resident of Canada. If you’re not a tax resident of Canada then you fail this part of the exemption:
‘and, as of the expatriation date, continues to be a citizen of, and is taxed as a resident of, such other country,’
But unless you have US heirs or US assets, you’re probably better off doing nothing. In fact if you can open investment accounts without showing your passport or birth certificate, maybe you can lie about your birthplace and do nothing at all.
If you try to comply, the IRS might be able to obtain collection assistance from a country where you have assets but not citizenship.
@Norman
If your not a tax resident of Csnada, then you fail this part of the exemption ”
No, most countries in the world do not have any collection agreements with the US whether citizen or not while resident . Those 5 have tbe added stipulation that one has to also be a citizen when the supposed debt occurred.
It all depends on where Fillinchen lives.
vpn
“I am currently a tax resident of a country not on that list”
What list?
If not a resident of Canada when you renounce, you don’t get the dual at birth exemption to the exit tax. In any case to avoid covered expat status, you would have to file 5 years. Better to file nothing. If you haven’t filed so far, you don’t exist.
@Fillinchen
I will add UK ISA’s to the problem (US taxable) accounts on Portland’s list.
@Portland.
We were pointing out list of non collection agreement countries.
“If not a resident of Canada when you renounce, you don’t get the dual at birth exemption to the exit tax.”
Of course, I missed that one, he won’t qualify for the get out of jail free card if he doesn’t meet the residency requirement of his country of other “dual’ citizenship!
Renounce and refuse.
@norman
Sorry, you are right, I thought you were talking about the tax collection agreements not dual status exemption!
Head is like fluff this morning.
tdott:
“Note that if you renounce without filing, those unfiled returns will stay with you forever as there is no statute of limitations on unfiled returns. ”
This is exactly the kind of non-existent barrier to renunciation the tax industry is forever trying to erect.
It’s poppycock.
The overwhelming majority of US citizens living outside the US never file US tax returns. I never filed a US tax return after leaving the US decades ago. No ghostly unfiled forms are following me around, or sitting gloomily round my dinner table like unshriven sins. It’s just a bit of tax-adviser’s sales talk.
If a US citizen living outside the US doesn’t have US income or assets or financial involvement, then by definition they don’t have any income over which the US has taxing rights, and there’s absolutely no need to file a US tax return – much less filling in past years’ pointless returns in order to be able to file an exit tax form.
A person in that situation can simply renounce. It’s as simple as that.
On the other hand, if a would-be renunciant takes the position that s/he intends to comply with IRS requirements (for whatever reason), but is concerned about possible exit tax liability, it would seem sensible to invest in professional advice – before renouncing – in order to avoid any potentially costly mistakes.
IMO
@plaxy @fillinchen
Absolutely. If fillinchen decides to file but may have an exit tax liability then an hour or so of professional advice to find out how to lower or avoid the exit tax would be prudent.
There is no jail, and no need for a “get out of jail free” card.
The fee for renouncing is $2350.
Make an appointment with the Consulate, and gather the required documentation.
Attend the appointment and pay the fee.
Swear the oath.
You’re done. That’s it. You’re no longer a US citizen.
Easy-peasy.
Heidi – yes, they may be unreliable when it comes to the question of whether it’s necessary to file, but they do know how to file correctly, as they have to sign the forms too. 🙂
@plaxy
I am suggesting that if one is in covered territory and still wishes to file, then best to take the advice of a tax lawyer rather than a tax accountant. They unlike accountants work for you, not the IRS, they have client privilege and can advise without bias or having to put their names to IRS documents.
Heidi –
Whatever. Consider my comment at http://isaacbrocksociety.ca/renunciation/comment-page-396/#comment-8538618 withdrawn.
Unfortunately there are shitty lawyers out there who give bad advice. A few good ones as well.
Personally, if I was a form-filing US citizen who wanted to renounce only if I could renounce without incurring an exit tax liability, I would pay an IRS-registered agent to put the numbers through the software and give me the answer.
Then, if not at risk of exit tax liability, renounce.
And pay the same agent to file the required forms the following year.
But the would-be renunciant knows best whether they need/want professional advice about the exit tax before deciding to renounce. They just need to understand that renouncing does not require tax compliance.
Two separate issues.
It’s a factually correct statement. There is no SoL on unfiled returns. Only a fool would not want to know this when determining the path to take (file, or not file). Similarly, only a fool would not want to know that there is a $10,000 penalty for not filing 8854.
It is absolutely impossible to properly make a non-trivial decision without knowing all the pertinent facts. And ramifications of not filing are some, not all but some, of those pertinent facts.
I’m not in the US tax industry, and, frankly, I could not care less if a person files or doesn’t file – it’s no skin off my apple. I just hope that people coming to this site don’t stop reading when someone says “you don’t need to file” as so often the advice here seems to be, and instead make the effort to understand the extent of what it means to take that advice.
As Mark Mathews ( not the surfer dude) said to me. ‘It’s a business decision.”
i.e. You weigh the options and do what is best for you.. The law has little to do with it because they make all the rules. Morality has little to do with it because they are immoral.
I agree that knowing all the facts is important. Problem is there are a lot of unknowable unknowns.
It is also a fact that the chance of a foreign resident minnow who doesn’t file being chased is vanishingly small.
“It’s a factually correct statement. There is no SoL on unfiled returns.”
A statute of limitations prescribes limits to the period during which action can be brought.
As no action can be brought against a US citizen who lives outside the US for not filing US tax returns, the statute of limitations doesn’t apply.
The obligation to report worldwide income to the US is a citizenship obligation. A former citizen is not a US citizen. If they have an assessed US tax liability when they lose citizenship, the debt persists after
renunciation; but not having filed US tax forms is not a debt. It’s just a bit of personal biographical memory to bore the grandchildren with.
“only a fool would not want to know that there is a $10,000 penalty for not filing 8854.”
The question is, whether it’s possible to fine a citizen of another country for not filing a form which said citizen is not legally obligated to sign, giving the US a list of his/her worldwide assets.
If the person has no US income or assets, the answer is clearly no. If the person does have US income/assets or other US concerns, the question’s moot, since there’s no sign of the US trying to enforce such a fine.
What matters is for people to be aware that they can renounce without first filing tax forms.
If a dual citizen living in his/her non-US country believes the scary-scary and thinks they can’t renounce because they would have to first file US tax returns and possibly pay taxes and possibly pay a tax accountant, plus the renunciation fee, they can’t get free of FATCA.
FATCA is a real problem; not filing US tax returns is not. People can renounce now, then mull over US tax returns or not, as they prefer.
“The law has little to do with it because they make all the rules.”
The law has nothing to do with it because citizens of Canada or Europe or Australia don’t have a legal duty to report their Canadian or European or Australian income to the US.
“Morality has little to do with it”
A French citizen who doesn’t report his/her French income to the US is not acting immorally, any more than a French citizen who doesn’t report his/her French income to Australia.
I said:
“citizens of Canada or Europe or Australia don’t have a legal duty to report their Canadian or European or Australian income to the US.”
In fact, EU citizens have a specific legal right not to. (GDPR)