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.
Participants will need to provide their e-mail address (real or fake) and an alias. The only written rule is that participants must use a same alias each time they post (and not “anonymous” or derivatives thereof).
Bear in mind that any responses that you get from participants is peer-to-peer help, and it is not intended as a replacement for professional advice. Also, the Isaac Brock Society provides this disclaimer: neither the Society nor any of its members are professionals. We offer our advice here only in friendship and we recommend that our readers seek professional advice if they need it.
If you wish to receive an e-mail notification of comments, check the box to that effect when making your first comment.
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
@all
When is a person a covered expat for filing 8854?
Are you covered when you can’t satisfy the 3 thresholds or when you go over the 600k USD capital gains limit. Plus, when would the US use the REED provision?
@AJ
You need the 5 year US tax compliance record and have the option of filing either 2008 or 2013 to establish this. So, if you are looking to minimise your cost, you are trading off your US tax liability for 2008 (plus 40-60% for penalties for late filing and late payment and for interest) versus your US tax liability for 2013 filed and paid on time. Only you can determine the answer to the lowest cost for establishing 5 year compliance.
Waiting for Swiss citizenship doesn’t impact your ability to lose US personhood though it might impact your ability to relinquish as opposed to renouncing (and saving $450 in the meantime). If the timeframe for achieving Swiss citizenship is 2-3 years (ie 2015-2016), then you need to look at the $450 versus your likely US tax liability for 2014 to the point where you renounce. It’s possible you enter the workforce in that timeframe which would complicate your returns and, possibly, increase your US tax liability.
If 2008 shows no or minimal US tax liability (including penalties and interest), I would be tempted to backfile 2008 and renounce now. Otherwise, I would ask the US consulate in Bern for a January 2014 appointment to renounce. If saving the $450 is a driver and you are not entering the workforce between now and acquisition of Swiss citizenship (or otherwise increasing your US tax liability), then waiting for Swiss citizenship might be the overall lowest cost answer. Waiting, however, introduces uncertainty and you don’t need Swiss citizenship to achieve your objective.
@Uncle Tell
You must satisfy all three conditions (ie net assets <$2 million on date of expatriation, average annual US tax liability for preceding 5 years $600k unrealized gains you are not a covered expat.
@Uncle Tell
Looks like I deleted most of my comment accidentally.
You must satisfy all three conditions (ie net assets <$2 million on date of expatriation, average annual US tax liability for preceding 5 years <$147k (2011 8854), and 5 year compliance record) in order to avoid being a covered expat. You also have the dual citizen exemption and the under 18 1/2 exemption both of which also require a 5 year compliance record to avoid being a covered expat.
The $600k capital gains exemption is only relevant if you are a covered expat. If you satisfy all three conditions for to avoid being a covered expat but have $600k unrealized gains you are still not a covered expat.
@AJ:
I would like to gently challenge your assertion that CH naturalization takes two to three years. A poster on Englishforum.ch called “eng_ch” reported on 15.02.2013 that he started the regular naturalization in Canton Zurich at the end of Jun 2012 and received his/ her naturalization certificate on 14 Feb 2013.
Although this may be a record result and we know that the Kantonligeist lives on, your process may be shorter than the two to three years mentioned.
@UncleTell:
A 2010 Journal of Taxation article discusses covered expatriate rules and Form 8854. Might be of use to you:
“IRS Provides Some Guidance on the New Expatriation Exit Tax”
http://www.hklaw.com/files/Publication/454a4da6-d692-41b8-b9dd-367f9f8846c3/Presentation/PublicationAttachment/edb41a72-92bb-419c-bf9a-3de0351be763/Packman-March2010.pdf
Clarification:
My EU passport is the only one I use, the US one hasn’t been valid for a few years. Being born in Switzerland does not make you Swiss, I need to be naturalized just like an immigrant. In 2008 I was a first year university student, so my income was minimal. The FBARs are already filed going back 6 years now.
Thanks ALL!
My question really was in connection with the REED provision or whatever its called. 🙂
Is the REED provision applicable if you are a covered expat AND owe an exit tax, or is applicable already if you are just a covered expat and DON’T owe any exit taxes?
Ah, but you have had a US passport so that means you can’t relinquish, renunciation only is possible at present.
Yes, you and I both know being born in Switzerland doesn’t make you Swiss, but you have to ask yourself if the Americans see it the same way. If you have an EU citizenship, then I’d go ahead and renounce. The $450 fee is a bummer, but it’s cheap for the peace of mind it’ll bring you.
@innocente
The 2-3 years is what I was told by the Gemeinde, though I know someone who did it in 1.5 years. I’m in one of the mountainous Catholic cantons that don’t make it easy.
Uncle Tell. Forget about the Reed amendment. The regulations to enforce it have never been enacted. It has never been enforced. Source-Wikipedia.
*someone, not Simone (Damn spell check 🙂
@DukeofDevon
Unfortunately I believe in the saying “Never say nerver!” 🙁
When the sh*t hits the fan they might just start enforcing that insane amendment.
@To all, I’m just trying to clarify if the Reed Amendment (if enforced)
could apply to all renunciants or just ‘covered’ renunciants.
Mona please stop futsifying. Look it up on Wikipedia. IF it were to be enforced, (which it won’t). It would only be against covered expatriates. By the twisted logic, only covered expatriates , by definition, have renounced ‘for tax purposes’.
MonaLisa, I agree with the Duke. They are not going to start enforcing Reed. That could attract attention and they are benefiting enormously from the fact that no one, so far, really knows about what they are doing to expats. As long as no one knows, we can be vilified easily. Start barring entrance to former citizens who just want to visit aging or sick relatives, attend a funeral or other family function – that makes the US look bad and mean and it blows the cover story of expats being those millionaire types who renounced to get out of paying “their fair share”.
Relax. You are almost out.
I don’t think it’s wise to be so dismissive of future and/or retrospective enforcement of the Reed Amendment. While the necessary additional legislation (to empower the Attorney General to determine whether someone expatriated for tax reasons) has never been enacted to allow for enforcement, the Reed Amendment is, nevertheless, US law. As we all know, FBAR was on the books for nearly 40 years before it began to be enforced and it was done so ruthlessly.
Maybe the Reed Amendment will never be enforced but there is an undercurrent of intense hatred of wealthy Americans who leave the US within some members of Congress and the US also loves collateral damage. The Ex-PATRIOT Act (which, thankfully, didn’t make it out of committee) proposed to replace the Reed Amendment wording with wording that banned all “specified expatriates” from entering the US. A “specified expatriate” was a “covered expatriate” who expatriated from the date 10 years prior to the date of enactment (ie retroactive to 2002 had it been enacted in 2012) of the Ex-PATRIOT act and any future “covered expatriate”. In order to avoid the travel ban you had to prove to the IRS that expatriation “did not result in a substantial reduction in taxes”. Of course, that’s difficult to prove given that freeing yourself from double taxation should result in lower taxation and what does “substantial” mean anyway (2%, 10%, 30%?). The Ex-PATRIOT Act also would have introduced a capital gains tax on “specified expatriates” even though they were no longer US citizens.
It’s probably true that it’s unlikely to ever be an issue for those who are not covered expatriates. But failure to certify that you have 5 years of tax compliance also makes you a “covered expatriate” irrespective of your net assets so it could impact “exit strategies” for the non-wealthy.
Edelweiss, I am not dismissive, but in the shorter term I just don’t see it as likely given that the US seems to be using the semi-stealth to its advantage.
A lot can happen in forty years. I’ll be dead for one thing. But politics and enforcement tends to swing wide in the US. Right now, expats are convenient scapegoats and extra-territorial money grabs are politically paying off but like anything else, it will have its day and then swing back again. As my husband reminds me, if you spend all your time worrying about what might happen instead of what reality is you can easily get caught up in inertia that grinds life to a halt.
Maybe they will enforce Reed and it’s equally likely that maybe they never will.
Hello, can anybody point me a relatively simple answer regarding travel in (or through) the US for ex-patriates? My husband was born in Canada, but his american father registered him as a live birth, born abroad, and he went there to work for 6 months as a minor, so he has a Social Security Number and a US Passport (in addition to his Canadian passport). If he renunciates his US citizenship, can we still travel to the US using his Canadian passort? He back filed 6 or 7 (however many he was supposed to) years of taxes 3 years ago and has filed yearly since. We are in a position to inherit my family farm in the next 4-5 years and I do not want the IRS coming near my family’s money. I cannot see how the border agents would even know he is an ex-patriate considering his birth certificate and pasport both reflect that he was born in Canada, but I don’t want it to ever become an issue, as we frequently have to stop in the US on teh way to the Dominican and other locations.
Sorry, to bust into another discussion. Having had to renounce, after trying to relinquish, what would make me compliant? Dual by birth, non-compliant before renunciation. Will the new streamlined process work for me (3 yrs taxes, 6 yrs FBARs)? Or would I need to do the 5 and 6 I’ve read about? The IRS, on it’s streamlined web page says it’s for duals coming into compliance from ignorance, but it doesn’t say anything about if you’ve renounced.
Forgot to add, would it make me a covered expat, or do I get to retain that exemption due to dual from birth? I’m so freaking confused. Just when I think I’ve got a grasp of everything, I read something else that confuses me. I think my head is going to explode.
@The Mom.
Here is a link that you can read which might help you in your decision: http://isaacbrocksociety.ca/2012/09/07/moodys-llp-part-2-do-you-qualify-for-irss-new-streamlined-procedure-to-bring-us-tax-returns-current/. I don’t think anyone on this site can give you a definitive answer to your question as we aren’t professionals to be able to advise. All of us have to make our individual decisions based on the research we are able to do. I wish I had an answer for you, but I don’t. Perhaps someone else can offer more.
It is my reading that as long as you complete the 8854 Form certifying your compliance with US tax requirements, you will not be a “Covered Expatriate” since you were born with dual citizenship. You might want to confirm your requirements with a competent professional — on this side of the border.
@HerbleBerble, yes of course he can continue to travel to/through the US on his Canadian passport. When he renounces he will be issued with a CLN (Certificate of Loss of Nationality) and should keep a copy of this with his Canadian passport at all times so he can show any officious border guard that he is no longer an American citizen. As his birthplace is listed as Canadian they may never even ask him about it, but it’s always wise to have a copy of your CLN to hand just in case.
@The Mom, I’ve recently renounced and I think I have to file the 5 and 6, being non-compliant. Dual by birth will exempt you from the exit tax so long as your other tax obligations have been fulfilled. That’s my understanding, anyway. I’m only just starting to sort the tax side out.
@The Mom
You can become compliant via the 3 year procedure, if that is all you are trying to do.
You still need to submit 5 years in order to file your 8854. So for renouncers the 3 year prosess is useless.
@a, if I had to place a bet, I’d guess you’re probably right. However, I share Edel-weiss’s concerns, especially as many expatriates even of modest means could be made convenient targets since many will have inevitably failed to have produced five years’ tax compliance or fill out 8854 correctly.
I still wouldn’t put it past Congress to be craze enough to use the threat of the Reed Amendment to deter the upcoming surge in renunciations.
Note the 8854 does appear to have a deadline for filing. From the instructions for Form8854:
So it’s due sometime (June?) during the year after the year of renouncing.
Also, it seems that the tax clock does not stop until 8854 has been filed – so apparently no benefit in renouncing before becoming compliant if you don’t want to be a covered expat.
Note sure what the “initial” part of “initial Form 8854” means above. Anyone have a clue?