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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. dt804a — you’re more than welcome. I’m glad that will be a good resource for your use (and others).

  2. @ dt804a –
    Hubby (an Economics Prof who has, himself, renounced) provided this info; he says if he was working for PWC Accounting firm he would have charged $500 to write this up (LOL). Hopefully it will help you and others – – also, he needed to review it b/c I’m renouncing in a couple weeks so we’ll have to revisit the 8854…..

    For the purpose of line 7 on Form 8854 (2013) “pensions from services performed outside the United States” you do not have to include CPP. You do have to compute the present value of the employment pension benefits that you will receive for the rest of your expected life as of the day before you relinquish your US citizenship. Note that if you renounce your US citizenship at a US Consulate that is when you relinquish your US citizenship for IRS purposes.

    The link to find the relevant interest rate to capitalize your annual pension is

    http://apps.irs.gov/app/picklist/list/federalRates.html

    The link to find Table S for Section 1 (for the adjustment factor based on the frequency of your pension payments) and Table K for Section 5 (for the annuity factor for capitalizing your pension benefits based on your age and the capitalization rate) is

    http://www.irs.gov/Retirement-Plans/Actuarial-Tables

    Here is an example to calculate the entry you should make on line 7 of Form 8854 if you renounce your US citizenship on 15 April 2014, your annual pension income on 14 April 2014 in US dollars is $50,000 and you are a 68-year-old person at that time.

    The relevant interest rate comes from Rev. Rul. 2014-12 Table 1. It is 120% of the Applicable Federal Rate for April 2014. This is 2.17%. The appropriate rate to capitalize your annual pension benefit is 2.17%.

    The relevant adjustment factor to use if you receive your pension benefits monthly comes from Table K of Section 5. The interest rate of 2.17% is 85% of the way from an interest rate of 2% and an interest rate of 2.2%. The adjustment factor for 2% is 1.0091. The adjustment factor for 2.2% is 1.0100. Use 1.0099 for the adjustment factor to account for a monthly pension payment.

    The relevant annuity factor to use comes from Table S of Section 1. Go to the sections of Table S applicable for an interest rate of 2.2%. The annuity factor for a person who is 68 is 12.5988. Look at the interest rate of 2.0%. The annuity factor for a person who is 68 is 12.8345. Because the interest rate we are using is 2.17%, we have to interpolate between these two values. To do this we subtract 85% of the difference between 12.5988 and 12.8345 from 12.8345. The annuity factor is 12.6342.

    Now you can calculate the present value of your pension income. Multiply your annual pension income by the adjustment factor to get $50,495.00.

    Now multiply $50,495 by the annuity factor to get $637,963.93.

    Using the IRS rules, a $50,000 a year pension to a 68-year-old pensioner renouncing US citizenship on 14 April 2014 has a current value (what is often called the commuted value of your pension) of $637,963.93.

  3. I renounced in 2013 and am trying to figure out how to file the expatriation year tax forms. My first concern is what is the DUE DATE for this paperwork – it is April 15th or June 15th? I’ve read the instructions for 8854 (no help), 1040, and 1040NR and am still not clear. It seems some people on this forum think that we have until June 15th to file these forms, but if that’s the case I’d like to understand why (and where does it say this)? The 1040 only seems to talk about the automatic extension of time to file till June 15th if you are a U.S. citizen or U.S. resident and are living “out of the country” at filing time. But after you renounce, I don’t think this condition is true?? The 1040NR only seems to talk about a due date of June 15th if you don’t have wages subject to U.S. income tax withholding. So if that condition is not true or if you don’t want/need to file a 1040NR, what is the case?

  5. LM: You have given me a most detailed and precise mode of calculation, for which I am grateful. The example was most helpful, too. I believe that I can now proceed with the calculation on my own, and donate the $500 to charity. I just wonder what people do who are less versed in economics, probabilities and actuaries, esp if they are “US Persons” for no fault of their own… Anyway, thank you.

  6. @ LM
    That makes my head hurt. Thank goodness all my husband has is a tiny CPP which he may not ever claim. He’s even thinking he won’t claim SS either because after he’s free he doesn’t want to reconnect to the USA. If we are in dire straits when he turns 70 (and we could be) he might reconsider but by that time they will probably have figured out a way to not pay SS to “foreigners”. Meanwhile we’ll try not to think about taking the 8854 step until the time comes — 2015. Waiting for his CLN to arrive is our next step and there’s enough anxiety with that one.

  7. CPP and OAS can be ignored. If the present value of My pension ( I actually don’t have one) were to take me over the threshold for covered status, I would be sorely tempted to follow Dan’s excellent advice. Dan said ‘ don’t tell them anything they don’t already know’

  9. Duke,

    And, it easily could. Besides you might get hit by a bus shortly after reporting the full Present Value and never able to be the one to collect.

  12. Not if you haven’t yet retired. Everyone here seems to think we should play by their rules. Ladies&Gents:-The game is fixed!

  13. @Calgary411,

    I did have a look at both the IRS site and Phil Hodgen’s site your referenced and still don’t have the answer to my question. That IRS site refers to “U.S. citizens and residents” which I don’t think is applicable to us after we’ve renounced. Phil’s site mentions both dates April 15 and June 15th without any clarification as to which date applies when. So, I;m still confused.

    @All,
    So does anyone know what the due date is? I would especially be interested to know what people where told who are having a professional file the expatriation tax forms for them. I’m not sure I’ll be ready to file for April 15th so I’m trying to figure out now if I need to ask for an extension to file BEFORE April 15th.
    Anyone have any thoughts???

  14. I cant promise this is 100% fully true but, from what I know, one can file on April 15 if one is ready but, as an “Amerukan” Abroad, one can write to the IRS for April 15 and claim the right (as an “Amerukan” Abroad) to postpone filing until June 15. I also recall hearing that the 8854 can be postponed even further into the year one has to file this, but still you have to let the IRS know (via snail mail I think). I would ask Hubby but he might charge another $500 (LOL).

  15. I believe there is an automatic extension to June 15th for filing from outside the US. I renounced in November of 2012. The accounting firm that did my 1040 and 1040NR applied for an extension to October 15, 2013, per http://www.irs.gov/Individuals/International-Taxpayers/U.S.-Citizens-and-Resident-Aliens-Abroad.

    The 8854 is an attachment to your tax return and a copy also has to be sent as follows:
    http://www.irs.gov/instructions/i8854/ar01.html
    Send your Form 8854 (or a copy of your Form 8854 if you are required to attach the original to a Form 1040NR or a Form 1040) to this address.
    Department of the Treasury
    Internal Revenue Service
    Philadelphia, PA 19255-0049

    You may also find information at a link here: http://www.irs.gov/publications/p519/ch07.html

  16. @LM and Moonstruck:

    Doesn’t the IRS have a phone line and/or email address where one can receive a definitive reply to the time question? Is the IRS so far inferior relative to our CRA?

  17. I believe the June 15 extension is automatic – you do not have to write to the IRS for it. Note that AFAIK you are on the hook for interest on any tax owing.

    The Oct 15 extension does require you to file some paperwork with the IRS, but it is apparently fairly straightforward to get.

    The Dec extension is, I believe, more work (difficult?) to get, and it also requires that you request it from the IRS.

  18. Once again slow typing/thinking let someone else get in before me (and with better information).

  20. @ dt804a
    The extension form (4868) is the shortest form you’ll ever do for the IRS (1/4 page). It will extend your overseas filing date 4 months (to Oct. 15th). Be sure to keep a copy. It’s like all the others — goes into a black hole.

  21. @ dt804a
    Yes, the IRS is FAR INFERIOR to the CRA in terms of customer service.
    They acknowledge that they cannot answer up to 40% of the calls made to them.
    We tried to call them from inside the USA to answer an atypical question; over about 20 minutes we were put into the standard phone-button que for about four or five different “press #1 for X or #2 for Y or #3 for Z” stages and then, in the end, were told that this IRS help-phone line is no longer available to help.
    I sent them a letter in early May 2013 about a mistake they made; got a reply letter (with no reference to the issue, just the date of my letter) in late January 2014!!!!! You never can be sure everything is alright until the 2 year mark passes (after which they can’t come back and audit you). infuriating!!!
    Their staff numbers have been cut and yet Congress expects them to deal not only with FATCA but also ObamaCare tax issues. IT’S CRAZY!!!!!

  22. …and on the chance you do get through, which I did, I was told my question would have to be referred to a US tax professional as it was too complicated (which it should not have been). Mostly, numbers that didn’t work from outside of the US.

  24. People who have renounced/relinquished and live outside the USA are by definition neither U.S. citizens nor resident aliens, therefore the automatic extension will not apply. Whether the IRS/Treasury will actually go by their own rules is a matter of speculation, but personally I’d rather be on the safe side and apply for an official extention if needed.

  25. @NotAmused, under the 8854 form instructions the section on expatriating after 2008 it says:

    “When To File
    If you expatriated after June 16, 2008, attach Form 8854 to your income tax return (Form 1040 or Form 1040NR) for the year that includes your expatriation date, and file your return by the due date of your tax return (including extensions). Also send a copy of your Form 8854 to the address in Where To File, later. If you are not required to file Form 1040NR or Form 1040, send your Form 8854 to the address in Where To File, later, by the date your Form 1040NR (or Form 1040) would have been due (including extensions) if you had been required to file. (See Resident Alien or Nonresident Alien in the Instructions for Form 1040NR.)”
    http://www.irs.gov/pub/irs-pdf/i8854.pdf

    It mentions extensions so I assume that means the June date extension at least. There’s nothing different given in the instructions for those expatriating after 1st Jan 2013 so I, again, assume these filing instructions still apply.

    And iirc it’s often mentioned here that 8854 has to be filed by June 15th of the year following your expatriating act. That’s the date I’m working to and my tax preparer hasn’t told me anything different.

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