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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

 

10,433 thoughts on “Renunciation and Relinquishment of United States Citizenship: Discussion thread (Ask your questions) Part Two”

  1. Molly,

    This is the start of recent discussion on filling out the final Form 8854, to certify your compliance with tax requirements. This is the ONLY (other than the returns you certify here) thing you, as a born dual citizen of both the US and Canada, have to fulfill to not be deemed a ‘covered expatriate’: http://isaacbrocksociety.ca/renunciation/comment-page-92/#comment-1219642. Link for the actual IRS instructions for Form 8854: http://www.irs.gov/instructions/i8854/ar01.html#d0e53.

    Expatriation AfterJune 16, 2008

    The rules in this section apply to persons who are considered to have expatriated after June 16, 2008.
    Who Must File

    If you expatriated after June 16, 2008, the expatriation rules apply to you if any of the following statements apply.

    Your average annual net income tax liability for the 5 tax years ending before the date of expatriation is more than the amount listed next.

    $139,000 for 2008.

    $145,000 for 2009.

    $145,000 for 2010.

    $147,000 for 2011.

    $151,000 for 2012.

    $155,000 for 2013.

    Your net worth was $2 million or more on the date of your expatriation.

    You fail to certify on Form 8854 that you have complied with all federal tax obligations for the 5 tax years preceding the date of your expatriation.

    You expatriated before 2013 and you:

    Deferred the payment of tax,

    Have an item of eligible deferred compensation, or

    Have an interest in a nongrantor trust.

    Covered expatriate. You are a covered expatriate if at least one of the statements in paragraphs (1), (2), or (3), set out above (under Who Must File) applies.

    Exception for dual-citizens and certain minors.

    Dual-citizens and certain minors (defined next) will not be treated as covered expatriates (and therefore will not be subject to the expatriation tax) solely because one or both of the statements in paragraph (1) or (2) above (under Who Must File) applies. However, these individuals will still be treated as covered expatriates unless they file Form 8854 and certify that they have complied with all federal tax obligations for the 5 tax years preceding the date of expatriation as required in paragraph (3) above (under Who Must File).

  2. @WhatAmi

    Can you point me to a link which confirms that S877A only concerns “covered expatriates”

  3. @kermitzii,

    I’m in the same situation. I did the forms myself and don’t know if I did it “correctly”, whatever that is supposed to mean. My non-US spouse owns half of me, so I reduced my net worth by 50% and since I pay all the mortgage debt with my income, I reduced my worth with the debt. That gave me a total net worth of about -60k. This would mean that the US would have to send me 30% of 60k if it declared me as being a “covered expatriate”. But, to be honest, I don’t even know if I was supposed to fill that section out, since I was a dual since birth. Overall, I happy to get that darn thing filled out and sent off to never have to deal with it again. If some moron in America wants to make a big deal out of nothing, then they can contact me and explain to me why they figure that their government is seriously messed up in the head.

  4. @osgood

    From Page 3 of the 8854 instructions: http://www.irs.gov/pub/irs-pdf/i8854.pdf

    Taxation Under Section 877

    You are subject to taxation under
    section 877 if you are a former U.S.
    citizen or former LTR and any one of the
    following applies to you.
    1. Your average annual net income
    tax liability for the 5 tax years ending
    before the date of your expatriation is
    more than the amount listed next.
    a. $124,000 if you expatriated in
    2004.
    b. $127,000 if you expatriated in
    2005.
    c. $131,000 if you expatriated in
    2006.
    d. $136,000 if you expatriated in
    2007.
    e. $139,000 if you expatriated in
    2008.
    2. Your net worth is $2 million or
    more on the date of your expatriation.
    3. You fail to certify on Form 8854
    that you have complied with all of your
    federal tax obligations for the 5 tax
    years preceding the date of your
    expatriation.

    …etc…

    Taxation Under Section 877A

    If you are a covered expatriate in the
    year you expatriate, you are subject to
    income tax on the net unrealized gain in
    your property as if the property had
    been sold for its fair market value on the
    day before your expatriation date
    (“mark-to-market tax”). This applies to
    most types of property interests you
    held on the date of your expatriation.

  6. @Mr A, I suspect they’ve realised what the Republicans are up to and are now trying to show that they feel the same way – but both parties are only doing it to help fund-raising and to get your vote. After that the subject will disappear into a black hole and never surface again. The Republicans have already said that funds and votes are their main aim with this subject.

    @Molly, your main problem – as is Mr A’s – would be not having a SSN so you could do the required back filing to become tax compliant. If you can make a good case for relinquishment then it’s going to save a lot of hassle as you’ll have expatriated before the 2004 date and won’t need to do any filing.

    If the relinquishment doesn’t work and you have to renounce, then you’d have to consider your options: trying to get a SSN which seems to be a long road or maybe consider not bothering to file at all and just get your CLN. If it wasn’t for the bank situation I’d say better to not bother to file, but if the Canadian banks become as zealous in digging out non-compliant Americans as the Swiss banks are then you’ll not only need to provide a CLN, but also prove your compliancy with copies of US tax forms filed. Hopefully, it won’t be as bad in Canada, but do your research and decide on the best path for you.

  7. Has anyone heard anything back from form nation after filing all these forms? Or do they go into a black hole never to hear anything again? Closure would be nice but is closure your proof of mailing?

  8. @George, I suppose I’ll know it’s been processed if I ever receive a refund that’s owed to me from last year’s overpayment. My accountant has explained though that it is quite possible that I could be audited for 2013 sometime in 2016 or 2017. This is because the account balances and income will begin to be reported via FATCA in 2015 for the 2013 tax year onwards, but their reported income and account balances will differ from what I will have reported with my partial-year dual-status return.

  9. George,

    I believe as with everything else, no news is good news from the IRS or Treasury. I only received courier receipts, with a stamp for the “signature required” at the other end. Even with the extra expense, it gave me some peace of mind that they had them — and I had a snippet of proof.

  10. @mona,

    I wonder if our banks would even be able to report account balances if you’ve renounced or relinquished and have your CLN?

    I’ve renounced this past week, obviously before the IGA has been implemented. So would that not mean my bank has no authority passing along my financial info ?

  11. @Stressed, if anything is reported, then it should only be for the time that one was a US citizen.

  12. Stressed and mona and SwissPinoy,

    I would hope our “foreign financial insitutions” have no right to pass on our information to the US once we have renounced / relinquished and have that CLN! Why would they have that right? Perhaps in an audit — but would we have to get and provide that in an audit — not them going directly to our banks?

  13. @Swisspinoy and @Stressed, it should only be reported for the duration within 2013 that I was a USC; However, because I signed a W9, I’d imagine that they will go ahead and continue to report it for the entire year. I have transferred all my assets out of it into another account but they’ll continue to report it to HMRC who will, in turn, report it to the IRS ad finitem. This is in spite of my having already written, explaining my expatriation with even a copy of my CLN, etc.

    All my further investing will be, going forward, in registered deemed compliant accounts such as an ISA or my employer pension plan, as these shouldn’t be reported to IRS.

    However, I’d imagine that it’s actually pretty unlikely that I’ll be hassled, as they’ll be inundated with data from millions of Expats foreign accounts. But I’d imagine that audits of Expats will increase if FATCA goes into full effect.

  14. @monalisa1776, there is no FATCA reporting from the UK to the US for 2013. See this update from HMRC:

    On 12 July 2013 the US announced a delay of 6 months before the commencement of FATCA. The effect of this delay is that there will be no reporting with regard to 2013, and all current deadlines for undertaking due diligence etc will be pushed back by 6 months.

    You renounced in 2013. A W-8BEN to cover 2014 overrides any earlier W-9, so nothing about you should be sent by HMRC to the IRS. Not ever.

  16. @monalisa1776, my understanding of the “Program” for Switzerland, is that banks will report bank data to the US for the years 2008-2012 but not the names of the account holders.

  17. Any experiences of expats getting penalties or owing $ to US and not paying it? Can they do anything if you have no US income and no US investments? I haven’t decided how I am going to proceed with filing taxes but have already made the decision that I am not giving them 1 cent (but with that said, I am terrified of IRS).

  18. Stressed,

    All we have at the moment (for Canada) from the US / Canada Tax Treaty and from the mouth and pen of Canadian Finance Minister Flaherty, variations of saying:

    Please be aware, we have been clear that penalties imposed by the IRS under FBAR will not be collected by the Canada Revenue Agency (CRA) on their behalf. While the Canada-United States Income Tax Convention contains a provision that allows for the collection by a country of taxes imposed by the other country, this does not apply to penalties imposed under laws that impose only a reporting requirement.

    Furthermore, the CRA does not and will not collect the U.S. tax liability of a Canadian citizen if the individual was a Canadian citizen at the time the liability arose (whether or not the individual was also a U.S. citizen at the time).

    You may choose to rely on that stated protection and choose to remain in Canada, never again crossing the US border for whatever reason. If all you have is in Canada, hopefully you will be safe. Guarantee — our own trust of the Canadian Conservative government that is referring to us as “US taxpayers resident in Canada”?

  19. RE final filings
    1. What dates do I write on the top of form 1040 for 2013 – for example January 1, 2103- date of renunciation – or just leave the date info blank?
    2. Do I have to file 1040NR when I have absolutely no US income or investments or any other taxable US connection after renouncingin the summer of 2013?
    3. If I should file the 1040NR what do I do abouyt the taxapyer ID info, since my SS number became invalid after I renounced?
    Thanks for any advice and good luck to all struggling with these issues.
    And just an update – still no CLN received

  20. @Stressed, I think that the stateless individual living in Slovakia is an example of one who probably owes US taxes and is not a US citizen, based upon what I’ve read in the past. The whole purpose of FATCA is to enable the US to tax non-US earnings, but I don’t know if it will force non-US banks to empty non-US accounts in response to US financial demands.

    @allou, As I understand it, 1040NR is only necessary if one has US earnings. However, it is not necessary if US earnings have been subject to the withholding tax. In that case, one files 1040NR to collect what has been withheld. Your SS is not invalid and you would continue to use that if you have US income. I believe that 1040 would only list the days that you were a US citizen.

  21. I renounced in Sept.2013, My accountant only did a 1040NR, for me, is that right?? I don’t have any US source income.

  22. @allou

    File a 1040nr with an attached 1040 as a ‘statement’ of your worldwide income for the part of the year you were still a citizen. The non-resident part can of course be all-zeroes if you have no US source income. Split year returns are a bit fiddly, but are described (very loosely, after all this is the IRS) here and here.

  23. saddened,

    Hopefully, your accountant knows what she is doing, but you do need to be confident that you what you have paid her for is correct. Why don’t you tell her you don’t understand the difference between filing on 1040 and 1040NR and she can probably give you an easy explanation of the why she filed for you as she did. That would be better than someone giving you information on a blog that may or may not be correct.

    This might help you:

    Who Must File

    File Form 1040NR if any of the following four conditions applies to you.

    You were a nonresident alien engaged in a trade or business in the United States during 2013. You must file even if:

    You have no income from a trade or business conducted in the United States,

    You have no U.S. source income, or

    Your income is exempt from U.S. tax under a tax treaty or any section of the Internal Revenue Code.

    However, if you have no gross income for 2013, do not complete the schedules for Form 1040NR. Instead, attach a list of the kinds of exclusions you claim and the amount of each.

    Gross income means all income you received in the form of money, goods, property, and services that is not exempt from tax. In most cases, it includes only income from U.S. sources. Gross income includes gains, but not losses, from asset transactions. Gross income from a business means, for example, the amount on Schedule C (Form 1040), line 7; or Schedule F (Form 1040), line 9. But, in figuring gross income, do not reduce your income by any losses, including any loss on Schedule C (Form 1040), line 7; or Schedule F (Form 1040), line 9.

    You were a nonresident alien not engaged in a trade or business in the United States during 2013 and:

    You received income from U.S. sources that is reportable on Schedule NEC, lines 1 through 12, and

    Not all of the U.S. tax that you owe was withheld from that income.

    You represent a deceased person who would have had to file Form 1040NR.

    You represent an estate or trust that has to file Form 1040NR.

    Exceptions.

    You do not need to file Form 1040NR if:

    Your only U.S. trade or business was the performance of personal services; and

    Your wages were less than $3,900; and

    You have no other need to file a return to claim a refund of overwithheld taxes, to satisfy additional withholding at source, or to claim income exempt or partly exempt by treaty; or

    You were a nonresident alien student, teacher, or trainee who was temporarily present in the United States under an “F,” “J,” “M,” or “Q” visa, and you have no income that is subject to tax under section 871 (that is, the income items listed on page 1 of Form 1040NR, lines 8 through 21, and on page 4, Schedule NEC, lines 1 through 12).

    You were a partner in a U.S. partnership that was not engaged in a trade or business in the United States during 2013 and your Schedule K-1 (Form 1065) includes only income from U.S. sources that you must report on Schedule NEC, lines 1 through 12.

    …and other information re 1040NR.

    Also, look at Watcher’s comment just above, http://isaacbrocksociety.ca/renunciation/comment-page-94/#comment-1237008, to see if that is what you accountant might have done for your return(s).

  24. Thanks for all your advice. As for the question regarding my U.S. tax returns: Yes I have filed 5 years of U.S. tax returns up to the year I renounced. In fact, I have filed 13 years of U.S. tax returns. I am also up to date on my FBARs. (Typical Canadian of doing what I am told to do.) Has anyone heard back from the IRS about how they completed their 8854? How about the 8854 (Part V) which was partially completed by invoking their fifth amendment – how was that handled by the IRS?

  25. Thanks @MedeaFleecestealer. I actually do have a SSN. Are you saying that if my relinquishing act of working for a Crown corporation (CBC) prior to 2004 is accepted and a CLN is issued, I would not have to file five years of U.S. tax returns?

    I can’t thank everyone enough for your valuable input and comments. I haven’t been on the site much this weekend, but will check in more regularly during the week and try to respond to invidivuals then.

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