Tax Questions
Ask your questions about Tax and FBAR here.
This thread will be focused closely on tax questions and answers. If the conversation starts to ramble, those comments will be moved to another thread.
Related threads:
Tax Discussion Thread. Instead of focusing on specific questions and specific cases, broader ideas can be discussed on the Tax Discussion Thread.
Tax Compliance (or not) Discussion Thread
Sub-threads (more will be added as they occurs):
Previous Tax thread:
US Expat Tax and FBAR discussion thread, part 1
US Expat Tax and FBAR discussion thread, part 2
@Bluesky
You acquired dual US and UK citizenship from birth, the date you got your first UK passport or when you were first resident in the UK is not relevant. Put your birth date.
@Bluesky
If you have decided to complete US tax filing and exit cleanly but may be above the exit tax threshold, there is a special dispensation from any exit tax for dual citizens from birth. That why it is important to establish this.
Regardless of your financial status, you are not a “covered expatriate” if you satisfy all of the following items [see Section 877A(g)(1)(B), Notice 2009-85, Section 2(B)]:
You became a U.S. citizen at birth; and
You also became a citizen of another country at birth; and
On your expatriation date you “continue” to be a citizen of that country; and
On your expatriation date you “continue” to be taxed as a resident of that country; and
On your expatriation date you were not a U.S resident for 10 of the 15 tax years that end with the year that you expatriated.
Note however, you will still have to certify that you are up to date with all U.S. tax requirements. Failure to do so will render you a covered expatriate even if you satisfy all of the dual citizenship requirements.
@pacifica
I think it is important to point out the reason for establishing you are a dual from birth in the case of covered expats. If not for bluesky, it may be relevant to others.
Bluesky Yes you are overthinking. Put ‘from birth’ You will never hear from them again.
@Heidi,
Agree. However, I didn’t say that establishing duality from birth is irrelevant to the 8854, but “If your UK citizenship was acquired automatically at birth, use date of birth, as that’s when you acquired the citizenship,” and that the date of issuance of UK passport and date of arrival in the UK, which s/he asked about, are irrelevant for this question.
@heidi
Yes to all above points:
I was a us and uk citizen at birth- according to a the .gov.uk website i was automatically a uk citizen at birth.
Continue to be a resident and taxed as a uk citizen
Filed all previous 5 years taxes
Expect im not sure what it means by:
On your expatriation date you were not a U.S resident for 10 of the 15 tax years that end with the year that you expatriated
I left the US when i was one and have visited numerous times. As part of my renouncation, i had to give dates of when i visited the US. The dates i visited roughly add up to 8 months total spent there from when i left the US up until i renounced.
Ps if its deemed im a covered expateriate, is just 2019 I would be liable for or all previous 5 tax years as well? The tax is higher in UK
@ Bluesky,
If you’ve resided in the UK 10 of the past 15 years, you meet that prong of the test. Visits to the US (or anywhere) don’t matter. Only residence matters.
I echo Portland and others who’ve written don’t overthink and that you’ll probably never hear from them again. IRS seem to just process these forms without putting a lot of energy into it. Maybe because our readership isn’t exactly wealthy or something, but so far, since starting this site in 2011, no one’s reported being hassled about their 8854.
@pacifica777 i resided in the uk since the late 80s, but only got my uk passport in 2007. Will this be an issue?
Does it matter when i got my uk passport? I think i might be confusing, a uk passport with citizenship, – in that if the irs check with the uk passport office, it’ll say 2007?
@bluesky
The exit tax will NOT apply to you as a dual from birth.
It is applied to those who have a net worth of over $2,000.000 or an average net income of over $168,000 yr for the past 5 yrs. (Not sure if those figures are up to date) It is assessed only on unrealized ( untaxed) gains you may have made at a rate of 15%.
Many renunciants chose to ignore tax filing and if assets are not in the US it is pretty much uncollectible.
@bluesky
The date you get a passport is not the date you were classified a citizen. You were that from birth!
My kids were dual UK/US citizens from birth but they didn’t get their UK passports immediately .
Many people do not get their own countries passports until later in life, they are still citizens even though they don’t have passports.
The US are not the assessors of other citizenships, citizenship laws are made by the granting country
@ bluesky
Most countries give citizenship through Jus
sanguinis ( through blood).
The US is one of the few that give it through both birthplace ( Jus soli) and Jus sanguinis (blood )
@Heidi
Minor correction: the criteria for covered expatriate status is not net income but tax liability, which means a much higher income figure than $168k; the $2 million net worth test is probably easier to hit, but of course it’s up to the person filing to decide which assets to list…
Thanks for all your comments, its put mind at ease. I dont have a net worth of $2 million or my tax liability never reached for $168,000. Will it matter, if i got my uk passport in late teens? For the purposes of the resident in 10 of the last 15 years.
@RH
Ah yes, should be tax liability not income!
Thanks
Also forgot to mention there is a $699, 000 allowance for unrealized gains before the exit tax kicks in for covered expats.
@bluesky
It will not matter when you got your UK passport. You have been a UK citizen from birth through a British parent. A passport is only a document used for identification and travel ie ((passing a port). You dont need to hold one to be a citizen, plenty of people don’t have one.
My son also has Irish citizenship from a birth parent, although he has never applied for an Irish passport. He now intends to do so because of Brexit!
Cont..He has been Irish from birth without yet holding an Irish passport .
@heidi thanks for your reassurance and taking time out to answer. The sooner im free the better.
@heidi ps, will the irs cross reference this information with the renouncation form? On the renouncation form, i put uk citizenship gained through descent through mother…
@bluesky
The IRS are overworked and understaffed and don’t have time or the inclination to chase after minnows. There is no money to be gained from them. No one here on Brock has reported hearing a peep out of them after renunciation, both the filers and the non filers. Don’t overthink it, you will be fine. Enjoy your freedom.
@bluesky
‘By descent through Mother’ is by definition citizenship gained at birth!
Bluesky We are trying to be absolutely clear. You definitely meet the requirements to be exempt from anything to do with the exit tax. You were a dual citizen at birth , you live and pay taxes in the country of your second citizenship and you didn’t live long in the US.. i e you didn’t live there for 10 years.
The only thing you are supposed to do in order to avoid being classified as a ‘covered expatriate is file 5 years worth of returns which you have done.
On the 1054, there is a balance sheet where you are supposed to list your assets in order to arrive at your net worth. Because you meet the dual at birth exception, this is irrelevant and none of their business. It would be tempting to write ‘ Not Applicable- Dual-at-birth’ across the balance sheet and leave it blank. However probably best to fill it in but above all keep it simple. Bank account, investments, perhaps a property. Don’t try to figure out or include the present value of a defined benefit pension or an insurance policy. It’s too complex and not required. Remember, you are dual at birth and they cannot possibly have any further interest in you. I would not even try to figure out capital gains. They are irrelevant. Remember- KISS- keep it simple. You will never even get an acknowledgement from them.
Thanks Portland for the reassurance and info. I only have a student loan and bank account information. I do have a pension which was set up by my employers, but i didnt set these up myself and im not at pension age yet to withdraw them.
Ps, do they count visits as living there? I.e. would they count a citizen coming home to visit as part of living there. I’m thinking not.
Where’s your permanent home? If it’s not in the USA, then I’d consider your trips there as visits.
@birdperson – my permanent home isnt in the usa- thanks for clarifiying