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:
Does your tax lawyer know how to read?
Form 8854 (for the year 2018), Part V, Schedule A (Balance Sheet), top of page 5:
“List in U.S. dollars the fair market value (column (a)) and the U.S. adjusted basis (column (b)) of your assets and liabilities as of the following date:
– Part II filers: the end of the tax year for which you are filing the form.
– Part IV filers: your expatriation date.
Yes, I know, unless this or that rare event has occurred, it does not make much of a difference. But precise questions do deserve precise answers.
@formerpatriot
Yes thank you, he does . He was a US lawyer who was also based in Canada and did nothing but renunciations all over the world.
As of your renunciation date can be interpreted as ‘ up to that date’ as most of us here seem to agree.
I was no longer a US citizen on that date,, so my net wealth on that date was of no concern to the USA.
@Heidi
Lawyers are a strange breed (and so are many people on this forum) 🙂
“As of June 10” can mean different things:
It can mean “Since June 10”. Example: “As of June 10, 2018, cats are not allowed in my house”.
It can mean “From June 10”. Example: “As of June 10, 2020, cats will no longer be allowed in my house”.
It can mean “On June 10”. Example: “As of June 10, I had 23 dollars in my bank account”.
But surely “As of June 10” does not mean “On June 9”.
@formerpatriot
https://hodgen.com/resource/chapter-5-mark-to-market-taxation/
@Heidi
Hodgen says “pretend that you sold everything that you own on the day before expatriation”.
That’s probably because the IRS wants the pretend sale to be happening while you were still a US citizen. But that does not contradict the instruction given at the top of page 5 of Form 8854 as well as in the IRS pdf document “Instructions for Form 8854”. Both state clearly (for the Balance Sheet) “as of your renunciation date”. If the IRS had wanted to mean “as of the day before your expatriation date”, they would have said so, as they do for the Income Statement on the next page of Form 8854.
@Former Patriot
The whole raison d’etre of the 8854 is to determine if they can tax you on assets owned by you ‘before you leave’ via the exit tax. They cannot tax you based on assets owned once you have expatriated ie on renunciation day. That is why calculations of your net worth must be done on the day before.
The IRS always seem to be inaccurate or unclear in their instructions. I can only go on what my well qualified lawyer instructed me to do and as others here have seen fit to do.
I really think there would be few cases where it would make a difference.
@Heidi
As of now, let’s end this silly discussion. 🙂
@Formerpatriot
Agreed
After all it’s the absurdity of US tax regulations that make us waste our time on this!
@Heidi
What I should have said was…
As of this minute, which for Heidi means the minute before this minute, let’s end this silly discussion! 🙂
If US tax law weren’t absurd, this site wouldn’t exist.
‘Portland, EmBee, Heidi, maz257, formerpatriot, UK Rose, NormanDiamond. Thanks again for all the input and help and for the long list formerpatriot of the forms. I think my forms are hopefully not too bad. I own nothing now in the USA, have no private pension from there only my social security which I would qaulify for as paid into over 40 quarters but dont think I put that on the 8854 asset form. I have a small amount in the bank in the USA which I will transfer once I recwive my CLN and Ihave no more payments to make.
I now have a home in the UK with no mortgage and a small private pension from work I did before I worked in the USA and way before I was a US citizen. Apart from that I have some funds in the UK bank and thats about it. So my income from the 1 Jan 2019 to just before the end of January will be just a few dollars of interest from my US bank account and maybe a bit from the UK one that is all as I renounced before the end of January 2019. I will have no income coming in apart from that as it was before the 31st of the month. Assets is a house, car and some money in the bank. In fact as I say now the dollar has appreciated agaisint the UK pound from what I paid for the home converted into dollars at the excharge rate then and what it is worth now in $’s converted now, on paper is worth less! I hope the exchanage rate will come back but in actual fact its worked in my favour as far as the 8854 form is concerned. I dont think it makes much diffeence to my balance sheet whether its the day of Renunciation or the day before. I have copied all your advice down and so I have this when I have to deal with this next January and hopefully I wont need to use the servics of an expensvie lawyer or accountant. Imay even do a test one using this years forms so I have it for next year. Shame I have almost a year to still worry about all this and am worrying its been 3 weeks and no CLN yet! Goodness willl I be glad when its all over. I want my life back. Hugs to you all and thank uuuuuuuuu again most sincerely. Kabby
@Formerpatriot. When you refer to from 8854 Pat V schedule A and the lines for example to do with a private non US Pension and say your home. I think Hedi said put the value of the pension and home from the date you became a US citizen in the a columnn and the value of it when you renounced in the b column. I presmume for bank accounts you can only fill in cloumn a?
@Kabby
For bank accounts (or cash in the bank) you write the same value in column A and B and Zero in column C. There is no capital gains on cash hence zero in column C
This is what I did and as previously stated by forms were checked by my tax advisers, tax return and form 8854 both. It worked out cheaper this way. I prepare the forms and they check rather than they do them from scratch. That is is also a possibility if you feel you need some reassurance that it’s done correctly. You can do them all and pay someone to check. You may not need this but it is an option.
Kabby wrote (and I corrected a few typos):
I think that you have interchanged the roles of column (a) and column (b)!
Here is how I handled line 16 (Real property located outside the United States):
We own only one house. The house is located in Canada. The house was purchased after our permanent move to Canada. We are both owner at 50% each. Let us say, for the sake of simplicity, that we paid 250,000 CA$ for the house some 20 years ago and let is say that it was worth 500,000 CA$ as of expatriation date. Let us say, for simplicity, that 250,000 CA$ = 200,000 US$ and 500,000 CA$ = 400,000 US$. Now my wife owns 50%. On line 16 column (a), she writes 200,000 US$ and on line 16 column (b) she writes 100,000 US$. There are other details to consider. We should use the exchange rate of 20 years ago for converting 250,000 CA$ to US$. We should use the rate as of renunciation day (which is, of course, or maybe not, the day before renunciation day, hee hee hee 🙂 :-)) for converting 500,000 CA$ to US$. There may be other details to consider, I do not know.
But you have to keep in mind that with a net worth under 1,000,000 US$, there is no need to be extremely accurate. You are well below the 2,000,000 US$ that would make you a covered expatriate.
For line 1 (Bank accounts):
I put the same number in column (a) and column (b). Maybe we made 15 US$ in interest over the years. Maybe we should have put 2,000 US$ in column (a) and 1,985 US$ in column (b).
For line 7 (Pensions from services performed outside the United States):
My wife has RRSP accounts only. Easy stuff. In column (a) we put the total value of those accounts (in US$). In column (b) we wrote N/A. I do not know anything about pensions in the UK.
@Formerpatriot
Putting the same value in column A and B for cash in correct. Interest earned does not come into it. This is not a tax form. it is a form to compute capital gain. There is no capital gain on cash.
People also have to remember that one does not automatically have an exit tax to pay because they are over the 2 million threshold. For a start, there is a gain exclusion, I believe for 2018 it’s US$713,000 . so any gain over that once you hit the 2 million mark gets included. that Part V at the end is there to work out gain. Pensions have different rules.
One can even convert everything to cash before renouncing and not have to pay a single penny in the exit tax. I know for most this isn’t practical but it’s possible.
Anyone having to file out the form 8854 shouldn’t over think it. Make a good faith estimate of your assets, and what your cost basis was and send it in especially if your net worth is under 2 million.
UK Rose wrote
You are most likely right.
But it makes me wonder why columns (b), (c) and (d) of line 1 are not shaded-out like columns (b), (c) and (d) of line 10…
But as ND would say, we should not expect IRS forms to be logical…
Former Patriot. For someone close to the line it might be useful to have a cost base for a RRSP.
(cloumn b). rather than n/a. Our RRSP statements had an item called ‘book cost ‘ which we put down as cost base. This has the advantage of reducing ant apparent gain. Lord only knows if that is right
@Formerpatriot
Don’t expect logic with the IRS and their forms. Column A is your net worth, Column B is your cost basis and Column C is your gain. You are supposed to fill out all three columns. I know some who were under the 2 million that did not bother with column b and c and if you are under the threshold, the IRS isn’t likely to follow up.
If one is not sure of a cost basis, they can use the same amount in column A and B. this sometimes happens for pensions. As long as you are under the 2 million mark, it hardly matters. For my UK pension i was able to find out my contributions. Social security is left out. Think of this form as a sort of estate tax except the threshold is way too low. It should be the same threshold as the estate tax. The 2 million is nothing for a person in London or Toronto owning a home and a couple of pensions and it can not easily snare middle class people. At least the gain exclusion is indexed for inflation every year.
Remember the IRS is short of resources and they aren’t going to be wasting their time on minnows form 8854. That doesn’t mean that one should take it lightly but for most this form is not going to be difficult to do. Gather the figures from your account, for a house one can look up sales of similar houses at around the time of renunciation and get an average value. For a pension, one can contact the provider and if in doubt a good faith estimate is fine. In some cases the value may even be similar to Fbar values. If one included a pension in an Fbar, make sure it’s included here.
There is no reason for anyone to pay the exit tax. those wealthy enough can take advise. People can gift or convert to cash some assets. You may pay tax when you convert to cash but at least it’s on a real taxable event not an imaginary sale and there is the choice not to file at all.
There is one correction to my previous post. if you aren’t sure of your cost basis or contributions on a pension, leave column B blank and leave the full amount in column C. Only do this of course if you are under the 2 million net worth. cash and anything else with no capital gain would get the same value in column B and if you made a loss, you can show this by adding () around the number let’s say stock $6000 value on R day but you paid $7000 you can put ($7000) in column B. basically when all is said and done, column a total subtracted by column B total gives the total of column c.
What are you talking about???
You should put
$6000 in column (a) [this is the fair market value as of R day]
$7000 in column (b) [this is what you paid for the stocks]
($1000) in column (c) [this is the result of subtracting column (b) from column (a)]
@formerpatriot
“Can your accountant read?!”
“What are you talking about???”
There is no need to be so rude when we are supposedly here to help others sort through this mire. We are not here to score points but to try to collectively help. Good manners don’t cost anything.
@Heidi
I am sorry and I apologize.
I did not mean to be rude or obnoxious.
I should have added some smile faces. 🙂
I’ll work on my online manners.
@fomerpatriot
Ok, we are all on the same page here.
Pax
“Pax”
The Pax Americana, i.e. a forever war, was the reason for lots of renunciations. But that was before FATCA.
@Formerpatriot
Maybe I am not being clear but the instructions are right in the form 8854 and actually when i was doing mine, i understood straight away how it was supposed to work. maybe because I am good at maths.
Column A will be your net worth on R day
Column B is your cost basis, so if you have stock worth $6000 on renunciation day but you actually paid $7000 for the stock when you first bought it then you would write ($7000) in column B. if you paid $3000, you would write $3000 in column B. Column B gets subtracted from Column A to make the final capital gain in column C
The form 8854 instructions say the same.
From Form 8854
Column (c)
Subtract the amounts in column (b) from
the amounts in column (a) and show the
gain or (loss) in column (c). Enter
negative amounts in parentheses