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
Kabby. please refer to the recent posts by and about AKS. He also had no income up to date of renunciation and decided not to file 1040 or 1040NR
That is precisely what we decided to do. No income up to R day. No US source income for the balance of the year. Therefore no 1040. No 1040 NR. Added bonus- no 8938 either.. Over a year ago- nary a word from them.
If you do decide to file them , you describe the process correctly in paragraph 1
2. see above
3. No . Only report accounts you had on R day. (with amounts as of that date). After that you aren’t a US person and it’s none of their concern.
4. Here it gets more difficult. The fair marhet value is exactly what it says. What is your house worth on the open market as of R day? Clearly difficult to say. The instructions say you do not ned an appraisal. So you put down a reasonable number and covert to US$
Adjusted cost is roughly what you paid (converted at the purchase date) plus any capital improvements you made over the years. Your goal at all times is to get your net worth under 2 million dollars. Otherwise you have extrawork to do.
Pensions are a whole different kettle of fish. We did not include Canada Pension plan or Old age seccurity. I believe you should ignore state social security plans.
Employment pensions are generally defined benefit or defined contribution.
Defined benefit plans are extremely difficult to value. You could pay thousands to an actuary. The calculation involves life expectancy, future interest rates and so on. Or you could make aneducated guess. The cost basis of a pension plan is anybody’s guess. Who put in what and when?
Defined contribution plans are easier. Your plan admin should be able to tell what was put in and what it’s worth on R day.
5. Use the exchange rate on R day for present value and most smaller items. Use the rate on purchase day for a home. Google Bank of England exchange rates
For example on Jan 4 2016, 1 £=1.47 $
6. 8854 goes to Philadelphia if you don’t file a 1040 for this year.
If you decide to file 1040/1040NR, they go to Austin, Texas with the original 8854 and a copy of the 8854 goes to Philadelphia. Full instructions onthe form.. You have a full year to decide and prepare. You have already done the hard part. The rest is relatively easy. I’m not an actuary, accountant, or lawyer.
@Kabby
One of the big advantages of renouncing January the first month of a year is that one is unlikely to reach filing thresholds so therefore you can ignore all filings and just sent the form 8854 to the Philadelphia office. Many even plan it that way. Don’t file for the sake of it. If one does not need to file, one does not have to file.
@Kabby
Just an addendum to your question 4.
“What does adjusted basis mean”
I cant remember if you were a born or naturalized American , but if Naturalized and you already owned your non US situ house when you became an American , the value at that time is the base value, not the value when you first bought it.
@ BirdPerson, Formerpatriot, Portland, UK Rose, Heidi. Thanks for the Help. Formerpatriot- Answers to your questions and thnaks portland for the list and others who answered. Born a citizen of UK but naturlaized US. Yes compliant last 5 years and always. FABAR only filed this last year as first time had non US account with over 10k in. Income this Jnuary so far almost zero just bit of bank interest I have always filed 1040 returns even now for2 the 2018 last year and started to file FABAR only once back in the UK and opened bank account. So compliant as far as that goes. Earnings frrom the 1st January this year to date of renunciation 28th January are almost nil apart from tiny bit of bank interest on bank account as interest is not credited anwyay till the last day of each month and I renounced before the end of January this year 2019 and same with any earnings as they will be zero at that point. The onnly assett I have is a home which I bought when still living in the US and after I was naturlaized and after whcih I came back to the UK. Not quite sure stilll what US Adjusted basis means in page 5 of the 8854 form for the small private pension i had before I went to the US. Its small less than 10k so reading what you say for value i put down what was paid into it when it wa set up many years before I worked in the US and the adjsuted value woudl what it is worth now? Not much more!. I guess I should file the 1040 and 1040NR even though tiny incomefor this Janaury and the 8854 so I can leave as cleanly as possible in Jan 2020 when i file this. If I did not file the last 1040 for these days in January this year, would they not think it odd that suddently I had stopped filing? Aside from that certianly way under $2M not even a third of thatt. Do you have top put down such things as your car or just property? I dont have to file all this till next year but I want to be prepared and want to get this out of the way as best I can.
@Kabby
Adjusted basis…
There has to be a value for an asset when it is first acquired compared to the value it is now worth.
eg
If you were not a US citizen when you aquired your house, the adjusted value would be the value it was when you became a citizen compared with the value now.
If you were a citizen when you bought it, then you take its value as when you bought it compared to that of now. This is done to assess the gain you have made. This is not important for you as any gain you have made will not be taxed as you will not be covered as you have less 2,000,000 in assests. (Even covered individuals are allowed to make over 650,000 in gains and not incur an exit tax.)
You are meant to list all things of value, cars, boats, works of art, antiques etc but the whole exercise is ridiculous, where do you stop ?…pedigree dogs, Koi fish,
I listed nothing but my real estate property and US pension fund, I had a 10 yr old car and some Ikea furniture and I didn’t think they would be interested in that ! I have heard nothing from them and that was 6 yrs ago
Someone here said “don’t tell them what they don’t already know or can know. Don’t fret about it.
ps
Kabby
Your UK pension
List value of it when you became a US citizen , not when it was set up many years before, then the value of it now.
But all this will not matter one biti for minnows. It is really all a waste of time!
Thanks Heidi
Clear explanation on the home thanks but bought the home after being naturlized and came back to the UK but funny thing is when I bought it the dollar was weak and now stronger agaisnt the pound so worked out I lost money so far in the excnage rate between what I paid at the higher dollar rate and what it is now at the present rate! Do I put a negative in the adjusted column!.On paprer it seems its worth less than I paid once converted to dollars now. I am not sure where I put the car on the asset form and do you state “car” but agree its crazy and where does it stop. How on earth anyway would they know when you bought your home and what ists worth anyway? Do they go throigh the land registry of evvery country in the world where people have filed 8854 and are living. I have a headache.. but I have plenty of time as this does not have to be done till next year but want to get my ducks in a row.
@Kabby
Re house value
Absolutely, you put a negative value.
They really want to know what you have gained while you have had the ‘ privilege’ of being an American citizen or green card holder. If you have made a loss in their currency, so be it.
I made a loss on a house I had in France and listed it as such. They can’t have their cake and eat it!
I guess if your house was worth millions they could check the land registry if they thought it was worth their while but if there is nothing in it for them, then its not worth the effort involved.
Kabby. To file 1040 and 1040NR is a waste of time. They might (emphasis might ) look at your previous returns and realize its not worth the bother.
Remember they get 200 million returns a year. Do you believe they have time for us?
There is a recent post referencing IRS medic. He claims to have dealings with thousands of clients. Not one audit of an 8854. Rest easy.
@ Kabby
They just want numbers because they love numbers. They will file away those numbers and then they will forget them and you. Give them numbers, any numbers that seem reasonable to you and they’ll be happy. My husband didn’t do columns b,c and d on 8854. He figured what’s the point when total assets are way below the $2M mark and gains (had there been any) could not possibly exceed the exemption limit ($600K or so). He also thought if they did not like his numbers they could say so and he’d give them more numbers. They never said anything and if they ever do (5 years and counting) I suspect he’ll just ignore them.
It might be fun to file a 1040/1040NR filled with nothing but zeroes on every line. Plus you would be doing a public service by filing return number 200,000,001 just to waste their time and further clog their system so they have fewer resources to spend on somebody who has more to worry about than you do. Back in the day I used to take perverse pleasure in filing FBARs listing a bunch of closed accounts.
Enjoy your new found freedom, Kabby.
@Heidi. portland. Embee, maz57,UK Rose,Formerpatriot. Birdperson. I wish I could hug each and every one of you for gettign me through this and for all your invaluable advi ce and support although I have not yet receievded the CLN yet but its only just over 2 weeks since I renounced at the London embassy in late January. I wonder what they would say if filing a 1040 and 1040 NR and it was full of zeros! I think it would certianly not be aover say £10. Thanks for the advie on the 8854. I have written down all the advice and will make a mock one that I cancopy and be ready to send next January 2020. I think you are all AMAZING! THANK YOU. Be back in touch x
@Kabby:
Ten days ago I filed the 1040NR/1040/8854 for my wife who renounced in 2018.
I had to work hard to figure out how to do it. Lots of reading. Lots of forums.
I wrote a summary in a word document. I will try a cut-and-paste.
I hope it come out readable:
The situation:
Citizen of Canada, living in Canada, working in Canada.
Renunciation of US citizenship in 2018.
Income in 2018:
Salary from full time job and interest from Quebec government bonds and bank accounts.
Sent to the IRS office in Austin:
1040NR, 1040, Schedule 6, Schedule 1, Schedule B, 2555-EZ, 8965, 8938, 8854.
Sent to IRS office in Philadelphia: 8854.
The 1040:
Form 1040 is used as a statement that you attach to the 1040NR. On top of the 1040, you write “Dual Status Statement”. You do not sign the 1040.
The 1040, line by line:
– Page 1, do not forget to check the box “Full-year health care coverage”.
– Page 2 line 1: enter gross income (salary from job) for the period from January 1 to the day before renunciation, say x dollars.
– Page 2, line 2b: enter total interest earned for that same period, say y dollars.
– Page 2, line 6: In the space next to “Add any amount from Schedule 1, line 22” enter the amount x in parenthesis. Then on line 6 you write the amount y. That is the sum of lines 1 through 5, plus the amount next to “Add any amount from Schedule 1, line 22”, thus Line 6 = x + y + (x) = x + y – x = y.
– Page 2, line 7: enter y (same as line 6), put an asterisk in the margin and in the space below the end of the form put an asterisk followed by “This adjusted gross income is being forwarded to Line 35 of Form 1040NR.
Schedule 6: Pretty simple. Write your address.
Schedule 1:
– Line 1 through 20: all zeros.
– Line 21: on the dotted line, write “2555-EZ”.
– Line 21: write x in parentheses (the same x as on line 1 of 1040).
– Line 22: same as line 22.
– Line 36: zero.
Schedule B:
– Line 1: enter total interest income y. Same as line 2b of 1040.
– Line 1: indicate source of interest income.
– Line 2: same amount as line 1.
– Line 3: zero.
– Line 4: same amount as line 1.
– Lines 5 and 6: zeros.
– Line 7a: check “Yes” and “Yes”.
– Line 7b: Enter name of country (Canada in our case).
– Line 8: check “No”.
2555-EZ:
– Part I: use the Bona Fide Residence Test.
– Line 1a: check “Yes”
– Line 1b: first info: “July 25, 1997” (for example) and second info: “Continues”.
– Skip line 2.
– Line 3: check “Yes”.
– Part II: pretty straightforward.
– Part III: pretty straightforward. For example, if you were on vacation in the USA from July 2 to July 16, you would fill the first line with “July 2”, “July 16”, “0”, “0”.
– Part IV, line 14: write the number of days from January 1st to day before renunciation inclusively.
– Line 14: Put an asterisk in the margin.
– Bottom of form: Put an asterisk and write “This is the number of days from January 1st to September 15. I have renounced my U.S. citizenship on September 16”. (September 16 is just an example).
– Lines 15 and 16: do the math.
– Line 17: write the amount x (same as line 1 of 1040).
– If amount on Line 17 is larger than amount on Line 16, you are rich enough to consult a professional accountant. Stop here.
– Line 18: write amount x (same as before). Write this amount on line 21 of Schedule 1, in parentheses.
8965:
– Skip Part I
– Skip Part II
– Line 8(a): your name.
– Line 8(b): your Social Security Number.
– Line 8(c): Code C.
– Line8(d): check.
8938:
– Fill this form as in previous years.
– Where it asks for “Maximum value of account during tax year”, you could put the maximum value of the account during the period from January 1st to day before renunciation.
1040NR
– Write “Dual Status Return” in the space at the top.
– Line 8 through 34: all zeros.
– Line 35: write the amount y from line 7 of the 1040. Next to it, write “From 1040 Dual Status Statement Line 7”.
– Line 36: same as line 35.
– Lines 37 to 40: all zeros.
– Line 41: same as line 35.
– Line 42: the tax on line 35, according to the tax table. In our case it was z dollars, with z = 10% of y.
– Lines 45, 53, 61, 75: z dollars.
– All other lines: zeros.
Note: you could wipe out the z dollars of line 42 with a foreign tax credit on line 46. In our case, we could not do that.
1040NR
– Page 3: all zeros
– Page 4: write 0 on line 15 and 0 on line 18.
– Page 5: pretty straightforward.
@Kabby
Also when the time comes, remember to write all dates on the form 8854 in the American format, MM/DD/YYYY.
I actually made a mistake on the date that I became a UK citizen but noticed it before sending the form. I put the UK date format and then realised and corrected it. Force of habit.
And I agree with others, don’t fret because you will not hear from them. Just make a good faith effort. That’s what I did and never heard a peep from them and this was three years ago now. I had more assets to list than you describe. Enjoy your freedom!
“If I did not file the last 1040 for these days in January this year, would they not think it odd that suddently I had stopped filing?”
No, instructions for Form 8854 even say they know you might not have to submit a return, in which case you only submit a single copy of 8854.
“Do I put a negative in the adjusted column!”
Yes. Unfortunately, depending on which direction the exchange rate changes, the US expects you to put down a taxable positive for the house and non-deductible negative for the mortgage, or a non-deductible negative for the house and a taxable positive for the mortgage (your imaginary gain because your liability in US yanks has gone down).
@Kabby
Here is how I did Form 8854:
8854 Part I:
– Line 4: check the third box.
– Line 5: check the first box (Citizen), then on the dotted line enter date of renunciation, i.e., date at which you swore your oath of renunciation at the embassy or consulate.
– Line 6: I was not sure if “current year” meant year of renunciation or year when I am filing the 8854, which is the year after renunciation. So I wrote “2018: 6 days; 2019: 0 days”.
– Lines 7 and 8: easy enough.
8854 Part IV Section A:
– Line 1: five zeros.
– Line 2: enter the number from line 25 of Part V Schedule A.
– Line 3: No.
– Line 4: skip it.
– Line 5: No.
– Line 6: Yes.
8854 Part IV Section B:
Does not apply. Skip the whole section.
8854 Part IV Section C:
Check “No” at line 11. Skip the rest of that section.
8854 Part V Schedule A:
– Line 1: Here I entered the total balance of 2 bank accounts on last day as a citizen.
– Lines 2 to 5: all zeros.
– Line 6: Here I entered the value of my wife’s 401(k) on her last day as a citizen.
– Line 7: Here I entered the total value of her various RRSP accounts on her last day as a citizen.
– Lines 8 to 15: all zeros.
– Line 16: Here I entered the total of “book value of her car” + “fair market value of her half of the house” (which she owns jointly with me).
– Lines 17 and 18: zeros.
– Line 19: Here I entered the value of “the government bonds that she owns + 50% of an estimate of the value of the content of our house”.
– Line 20: the total.
– Lines 21 to 24: all zeros.
– Line 25: same as line 20.
– I attached to the Form 8854 a one-page statement in which I gave some explanations for the numbers in column (a) of lines 1, 6, 7, 16, 19.
Note: All these numbers were entered in column (a). For lines 1 and 16, I did put a number in column (b). For lines 6, 7 and 19 I wrote N/A.
8854 Part V Schedule B:
– Zeros everywhere!
– I was not sure about line 9 “Gross income from all other sources”. I did a lot of searching on the Internet. Many people said it meant “from all other US sources”. Others believed that it meant “from all other (worldwide) sources”. I wrote 0. I put an asterisk. In the blank space at the bottom, I wrote “My understanding is that Line 9 asks for “Gross income from all other US sources” which in my case is 0$. I do have income from Canada, as reported on my 1040 Dual Return Statement: Salary: x$; Interest: y$”.
Shouldn’t the date of being a “citizen” be one day earlier than the date of renunciation?
@ND:
Yes. Why?
To avoid disputes about whether the US taxes a non-citizen as a citizen on the day of renunciation.
ND
You are correct. All calculations of net wealth for 8854 should be done for the day before renunciation.
I believe Portland said to use exchange rates etc on R day.
It’s definitely the date before renunciation that all calculations are done. I prepared my own form 8854 but had it checked by my tax adviser before posting and they confirmed that it is the day before you renounce. My tax adviser was very experienced with renunciations as well and had many renounced clients. and yes you use the exchange rate on the day before you renounce.
@ND, UK Rose, Heidi:
Yes, 1040 statement covers worldwide income from January 1 to the day before the Day of renunciation and 1040NR covers US source income from day of renunciation to December 31.
As for 8854, it is a bit more complicated:
For Part V Schedule A (Balance Sheet) it says on the form itself “List in U.S. dollars the fair market value of your assets as of your Expatriation date if you are a Part IV filer”
For Part V Schedule B (Income statement) it says on the form itself “Provide income information for the part of the tax year that ends with the day before your expatriation date”.
P.S. Most people filing 8854 are actually 2350 dollars poorer on renunciation day than the day before. 🙂
My tax lawyer also said all calculations are done based on values the day before.
Unless you win the lottery or are into high stakes gambling, I shouldn’t think it makes much difference .
🙂