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
anyway i am not an expert, just saying how I understood it. i had no losses but if one does have a loss they have to show it in parentheses. Maybe this is the simplest way of putting it.
column B and C together have to add up to column A.
i think enough on this subject. even my brain is starting to hurt.
and i can see where it can be confusing because i meant to say parentheses in column C
anyway let me spell out better
it should be like this for the stock example
A $6000 B $7000 C ($1000)
or
A $6000 B $3000 C $3000
first example is a loss and second example is a gain
cash always the same column A and B
for example
A$5000 B$5000 C 0
column B and C need to add up to column A.
there is no capital gain on cash.
Column C will only be used by the IRS if you are over 2 million net worth.
i could have said it all in one post. thanks
and now I am done.
With all due respect, UK Rose, I still believe (and in fact I am 100% certain) that you are wrong in your example with the stock paid $7000 which ended up being worth $6000 on Renunciation day.
You say that it should be
$6000 in column (a)
($7000) in column (b)
???? in column (c)
I say that it should be
$6000 in column (a)
$7000 in column (b)
($1000) in column (c)
[It checks out! (a) – (b) = (c), i.e. $6000 – $7000 = -$1000 = ($1000)]
Our last posts were sent a minute apart.
So basically, we agree on everything.
@UKRose, formerpatriot, Heidi again thanks for al the help but I am really confused now. 🙁 I’m unsure of what each column means now after reading the posts. Maybe you can calrify if this is correct?
Column a on page 5 Balamance Sheet says FMV (Fair market value) is that the value on renumciation day or the day you bought say the house an din the case of an emplyers private prension that I had before I even went to the US is that the valiue of it on reninciaiton day also? I can find this out.
Couln b says US Adjsuted basis. i am still confused what this means. Is this the value of the house for example you piad for it when you bought it or the the value of it when you became in my case a US citizen as I was natrulized and the same for the private pension. Is that value of it when it was taken out or started and what was paid in and in my case 1987 or the value of it when naturlized a US citizen? it has not had any payments into it since 1987 but has grown a little in value. I understand cahs is the same in columns a and b and c would be zero.Do we leave column d out? Math’s was never my best subject!
I am also confused as I have read the instructions sheet for the balance sheet but its not that clear it even skips any details from line 11 and 12 and skips to line 19 so misses property on line 15 & 16.One the instrucitons it also says under part v who must complete scheduke a balance sheet it states Note: If there have been significant chnages in your assetts and liabilities for the period that began 5 years beofre your expatriation and ended on the date you first filed Form 8854, you must attach a statement explaining the changes. What does this mean as I thought form 8854 was up to reninciaiton date and this seems to be when you firsr filed form 8854 which is in my case next year. Does this mean if say I
I am also confused as I have read the instructions sheet for the balance sheeton 8854 but its not that clear it even skips any details from line 11 and 12 and skips to line 19 so misses property on line 15 & 16.Oneof the instrucitons, it also says under part v balance sheet “who must complete” schedule A balance sheet it states “Note: If there have been significant chnages in your assetts and liabilities for the period that began 5 years beofre your expatriation and ended on the date you first filed Form 8854, you must attach a statement explaining the changes”. What does this mean as I thought form 8854 was up to reninciaiton date and this seems to be when you firsr filed form 8854 which is in my case next year. Does this mean if say I inherit something after I have renounced I put that down?. Not that I have but the scenario sounds odd and a statement up to next year which is some 11 months after one renounces?
@Kabby:
Relax! It is not that complicated. I am busy today but I’ll be able to reply later (in about 8 hours from now).
In the mean time, have a cup of coffee and something sweet… and relax. 🙂
@Kabby,
While Formerpatriot is off doing something else, I’ll just chip in here with a quick overview. They can fill in the full details later for you.
The US ‘adjusted basis’ is generally just what you paid for something, so its ‘basis’. The ‘adjusted’ part is if it isn’t just what you paid. A prime example would be a home that you rent out. Here, you have to take a depreciation adjustment under US taxes annually. However, that depreciation is then subtracted from your actual basis (what you paid) to give you an adjusted basis (what you paid minus what you depreciated over time). Cash, pensions and so on generally have no ‘adjustment’ element. There is no adjustment to make from time before you became a US citizen. The US doesn’t ‘step up’ basis for stuff held before becoming a resident (with a tiny exception for green card holders and the exit tax, not going to affect you as far as I can tell; and if you’re comfortably below $2mm no reason to bother with it anyway).
As for ‘first filed 8854’ … before HEART in 2008, ‘covered expats’ had to file an 8854 annually for ten years after leaving the US. That was all swept away with HEART, so for you, you will only ever file this one single 8854 and you’re then done. Anything that references multiple 8854 filings is only for pre-2008 renunciations.
All just one giant PITA for no gain to anybody, isn’t it? Here, the process is the punishment.
Thanks Watcher for the explanation. My home was never rented out and bought it when I left the US but before I renounced last month . So preesumably put the price paid and the value now or lack of as I paid more than its worht now with the appreciation of the USD. Not sure what to do about the value of the private pension whci is not large but that was earnt before Ii even went to the US and way before I was a US citizen in fact I had forgot all about it until now. its gone up in value bit not much. I was trying to work out what PINA was and suddenly realise now… haa haa good one and yes I agree!It certainly is.
Kabby In that case, you have absolutely no worries. Put down the cost and current value of your house Don’t mention the pension. As Dan said many years ago ‘ Don’t tell them anything they don’t already know.’- very wise advice. You will never hear a word from them.
@Kabby
I put my pension’s balance at date of renunciation(*), converted to USD, in column a, wrote ‘N/A’ in columns b and c, and left column d blank. Getting a pension value is easy enough for defined contribution pensions such as Canadian RRSPs and UK SIPPs. For defined benefits (final salary) ones, fiddly because they don’t really have a current value, but if yours is one of these there is an actuarial way to arrive at a notional ‘value’ given an annual payment figure (or just make something up!). A non-US pension has no ‘US adjusted basis’ that I can discern.
If you are well below the magic $2mm, it really doesn’t matter at all what you write in here, since below $2mm the ‘exit tax’ payable will be $0, and you really don’t have to sweat this part of the form at all. (And if you are at or above the $2mm, I’d suggest filling out this form ‘creatively’ so that you appear not to be. The ‘exit tax’ is unconscionable and egregious, and there is no reason for anybody to pay it.)
(*) I didn’t actually ‘renounce’ since I was never a citizen. I abandoned my green card after ‘long term’ residency. All the same hassles, though.
At one point I thought I might fill out the 8854, so I asked my UK pension plans for the ‘transferable value’. I thought that might be an appropriate way to value the pension pot. Since then, I’ve decided not to file anything, but it was still an interesting exercise. Showed me just how much of a financial minnow I am!
@Kabby:
I agree with what Portland and Watcher have written.
In your case, there is only one important column on the balance sheet and it is column (a). That’s it!
But you might as well try to make your balance sheet as best as can be. So here is what I think you could do:
Line 16 (Real property located outside the United States). I assume your house is outside the U.S.A.
Column (a): put the fair market value of your house as of renunciation day. Unless you like in Vancouver or in Toronto, it does not matter if we are talking about the day of renunciation or the day before the day of renunciation (with a big 🙂 for my friend Heidi). What is the “fair market value” of your house. I would say it is what you would reasonably expect to get if you were to sell it. If you live in a city where houses sell on average 10% higher than the city assessment of the value of your house, then put down 1.1 time the assessment. That’s good enough.
Column (b). That’s a bit more tricky in your case. If you had been a US citizen by birth, you would put the price you paid for the house. If you became a US citizen later in life, through naturalization, then maybe you should put the value of the house at the time of purchase or at the time of naturalization, whichever is the most recent date. [Heidi, Portland, Watcher, do you agree?]. Another question for Heidi, Portland and Watcher: say you bought the house for 300K and you later spent 100K to build an extension to the house. Is the adjusted base 400K ???
Column (c) = amount in column (a) minus amount in column (b) (and put in parentheses if negative).
Column (d): Always leave column (d) empty on the balance sheet. It does not apply to you.
But the way, the amount in column (b) is the price paid, not just the down payment. So if you paid 300K with 50K cash and 250K borrowed from the bank, you put 300K in column (b). If the 250K mortgage is not entirely repaid to the bank as of renunciation day, you put the mortgage balance on line 22.
Line 7 (Pensions from services performed while outside the United States).
Usually you get quarterly or yearly statements giving the total value of your pension, as of statement date, even for some Defined Benefit pensions. Put that in column (a) (you can do a linear interpolation if you want or you can put the value on the date closest to renunciation date).
As many people have said, since you are well below the 2 million mark, what you put in column (b) will have no consequence at all. If your pension if something similar to a Canadian RRSP, it would be relatively easy to come up with a good estimate of what you have invested over the years and you could put that in column (b). For my wife, I did not bother with column (b). I simply wrote N/A.
Not really. The US does not provide a step-up basis for immigrants who come to the country holding assets with built in gains. It will happily tax capital gains accrued long before ever setting foot in the country. Unfair certainly, though not unique — the UK does the same, for example. By my reckoning, the basis is the value of the property when bought (plus any cost of improvements).
In this case though, assuming total assets below $2mm, as already noted the basis numbers here are immaterial. Below $2mm there will be no ‘deemed disposition’ exit tax.
I’d say yes to this one.
@watcher and formerpatriot
I agree about adjusted base re improvements to property etc. I remember having to keep financial records of all improvements made on my US property to deduct against anything over the $500,000 tax free allowance on the gain. I sold in the US long before renunciation, but I believe the deductions would still be allowed as part of the 8854.
I remember reading that there was a step up basis for immigrants coming to the US with assets already accrued. I can’t remember where I read this, maybe Hodgen? Will have to research when I have time.
@watcher and formerpatriot
https://hodgen.com/if-youre-getting-a-green-card-you-get-a-step-up-in-basis/
Exception for expatriates
@watcher and formerpatriot
https://hodgen.com/resource/chapter-5-mark-to-market-taxation/
‘Step up for immigrants
Green card holders who are Covered Expatriates get a break in the mark-to-market taxation. They may use basis as calculated as fair market value of their assets owned when they became residents of the United States for income tax purposes.
The basis step-up does not apply to U.S. real property interests. The Code is silent on this point but the IRS has announced that it intends to issue regulations to exclude U.S. Real Property Interests from the step-up in basis rule.
Property used or held for use with the conduct of a trade or business within the United States is similarly the target of planned regulations. These, too, will be excluded from the inbound step-up in basis rules.’
I am a former Green Card holder but luckily I was never a so-called “long term permanent resident”. I am under 7 years.
I came on an HI visa and unfortunately then converted it to a green card, then citizenship 🙁
@Watcher et Formerpatriot
(Hodgen points out the step up applies to green card holders or expatriates )
Exception for expatriates
Kate Leonard, who was on the webinar from San Diego, though — reminded me of a special exception to this rule. The exception is for people who are “covered expatriates” and give up their green cards or citizenship. (Thanks, Kate).
If you become a U.S. permanent resident, stay that way for at least eight years, then give up your permanent resident status, you are subject to the exit tax rules. The exit tax is basically a “mark to market” exercise — pretend you’re selling all of your assets and pay U.S. income tax accordingly (first $600,000 exempt, other exceptions, blah blah blah).
Strictly for the purpose of that “mark to market” calculation, you will get a step-up in basis for your assets at the time you get your green card.
@Heidi: “Step up for immigrants: Green card holders who are Covered Expatriates …”
Ah, right. I was aware of the ex-green card holder allowance for step up, but renouncing citizens don’t get that. Except that … a naturalized citizen must also be a former green card holder? Nicely caught. This stuff requires a philosopher, not a tax preparer. (How many angels can dance on this pin’s head?)
So yeah, in Kabby’s case it seems like there should be a step up (albeit pointless, since you cannot reduce the exit tax to below $0!). This would go in column d of the 8854 ‘Balance Sheet’ though, rather than a ‘tweak’ to column b.
“Except that … a naturalized citizen must also be a former green card holder?”
No. A person can be naturalized at birth by inheritance from infected parent(s). Congress can pass a law making a person a citizen. A non-citizen national[*] can enter the US and subsequently can decide to naturalize without needing a green card.
[* Except if the US non-citizen national is a citizen of the Philippines. Even if US Supreme Court, in Afroyim v. Rusk, overturned laws by which Congress thought it could strip a person of US nationality without the person’s consent, the court didn’t try to overturn an earlier law by which Congress treats US non-citizen nationals who are citizens of the Philippines differently from other US non-citizen nationals.]
@Watcher
Interesting that even Hodgen had to be reminded of that rule by a Kate Leonard.
They say one of the longest books in the world is the IRS tax code approx 74,000 pages.
@Norman
I thought all had to Naturalize through the green card route, but you are right.
Here are a few more .
‘By being born in the territory of the United States.
By being born, anywhere in the world, to parents at least one of whom is a US citizen. Certain other conditions must be met.
By naturalization as a US non-citizen national. US non-citizen nationals do not need a green card to lawfully reside in the United States, and are eligible to naturalize once they have fulfilled all other requirements for naturalization.
By collective naturalization through being a national of a country at the time that that country was annexed to the United States.
By naturalization under INA 322 for a child who has at least one US citizen parent where the child did not receive citizenship at birth. Certain other conditions must be met.
By renaturalization under INA 324 for a former citizen who was denaturalized under various forms of naturalization law that applied prior to 1965
By naturalization under INA 318 or INA 319 for a member of the Armed Forces who was not required to be a LPR to enlist due to being a US non-citizen national or a national of the Marshall Islands, Micronesia, or Palau, or (under a now-terminated program) of the Philippines, or due to having this requirement waived under the MAVNI program.
By posthumous naturalization under INA 329A for a member of the US military who died in honorable service during a time of hostilities. (It is rare, but not impossible, for people to serve in the US military without being either a US citizen or a US LPR.)
By Congressional naturalization by private bill. (Congress can, by private bill, make anyone it wants a citizen at any time, entirely without restriction other than the political.)’
What a rat’s nest!
@ND: “No. A person can be naturalized at birth by inheritance from infected parent(s) …”
Right, but this is a distinction without a difference in the context of US exit taxes, and so not useful to the discussion here. A person naturalized at birth has no assets with a basis that can be stepped up, so for them a step up for exit tax purposes has no value. A person who naturalized later in life may however find the step up useful.
The statement on form 8854 that column d is “for long-term residents only” is clearly misleading and possibly just wrong. And the form instructions are perhaps even more wrong: “Only former U.S. LTRs that are Part II filers should complete column (d).” But then, so much of form 8854 is wrong that it seems silly to just single out this one bit.