When it comes to compliance there is a lot of confusion as to:
- what day does loss of citizenship occur and
- what roles do f8854 and a
- Certificate of Loss of Nationality play?
The filing requirements are explored in two posts by John Richardson.
BRIEF SYNOPSIS
Before June 3, 2004 (before the creation of the “Tax Citizen”)
The date of your “expatriation”was determined solely by the provisions of the Immigration and Nationality Act.
June 3, 2004 – June 16, 2008 (after the creation of the “Tax Citizen”)
You continued to be treated as a “U.S. person” for tax purposes UNDER THE INTERNAL REVENUE CODE until you gave “notice” of your “relinquishment” to a government agency. For this period part of the “notice” was filing Form 8854 with the Internal Revenue Service. In other words, there was no way to cease to be a “U.S. person” for tax purposes until you had notified the IRS.
After June 16, 2008 –
A.The issuance of a CLN is confirmation that the State Department has agreed that you have relinquished U.S. citizenship. A CLN is a confirmation that you have met the “notice requirement” under the Internal Revenue Code.
B. The CLN is one way (a self-certification is also possible) to satisfy “foreign banks” that you are NOT a U.S. person for tax purposes under the Internal Revenue Code. (In other words, a CLN is a “sufficient” but not a “necessary condition” to prove non-USness.
Read more HERE
*****
1. Is the loss of U.S. citizenship for nationality purposes dependent on having a Certificate of Loss of Nationality (“CLN”)?
The answer is absolutely not.
349(a) of the Immigration and Nationality Act specifies conditions under which one relinquishes U.S citizenship.
2. Is the loss of U.S. citizenship for tax purposes dependent on having a Certificate of Loss of Nationality (“CLN”)?
Prior to June 3, 2004 – NO for either immigration or tax purposes
June 3, 2004 – June 16, 2008 – NO for either immigration or tax purposes.
After June 16, 2008 – No for immigration purposes – It is necessary as a confirmation of having met the “notice requirement” to end U.S. citizenship for tax purposes
3. What is the role of a Certificate of Loss of Nationality (“CLN”)?
For Immigration and Nationality Purposes – no relevance whatsoever
For Tax Purposes – The Internal Revenue Code
The accusation of U.S. citizenship is triggered by various indicia (U.S. place of birth, U.S. residence, U.S. phone number, etc.). The U.S. “place of birth” is the most dangerous indicia. Those with a U.S. place of birth can rebut the accusation of U.S. citizenship with either:
A. The CLN; or
B. A “Self Certification” (that must meet specific requirements) documenting why:
– the person has relinquished U.S. citizenship; and
– does NOT have a CLN.
A denial of U.S. citizenship will generally require proof.
In general, those who have relinquished U.S. citizenship under the Immigration laws of the United States prior to June 3, 2004 are more likely to be able to “self certify” that they are NOT U.S. citizens even though they do NOT have a CLN. This position is consistent with the August 2015
4. Why is the Certificate of Loss of Nationality (“CLN”) of value?
It’s simple. Unless you live in the United States, life as a U.S. citizen abroad, in a FATCA, FBAR and CBT world, will be an endless source of anxiety and difficulty. A Certificate of Loss of U.S. Nationality is becoming one of the most sought after documents in the world today.
5. What is the role of a Certificate of Loss of Nationality (“CLN”) in a FATCA inquisition?
June 16, 2008 – Present
IF (you relinquish U.S. citizenship under the Immigration and Nationality Act) THEN
You continue to be treated as a “U.S. person” for tax purposes UNDER THE INTERNAL REVENUE CODE until you give “notice” of your “relinquishment” to a government agency. The “notice” requirement is NOT to the IRS, but to the State Department. (See S. 877A(g)(3) and S. 877A(g)(4) of the Internal Revenue Code.) Once “appropriate” notice is given to the State Department you cease to be a U.S. taxpayer from the date the notice is given (on a prospective basis).
Read more HERE
Got more rights when you’re dead than when you’re breathing.
No, what am I thinking of – it’s not to protect the deceased from being reported on, it’s to protect the bank from losing its precious “FATCA-compliant status.
Well if those accounts are not reportable that’s even better, it means that if a bank becomes aware of a non-compliant deceased person’s US birthplace, they are not going to start up FATCA reporting after death, which could (in theory, at any rate) expose an executor to the estate’s US tax liability.
I think treating the deceased person’s account as not reportable could just be because this particular subject of the FATCA John Doe summons has ceased to exist.
Right. It woudn’t wipe out the executor’s personal liability for the estate’s US tax obligations, but if the bank won’t report the account even after learning of the deceased’s US personhood, that’s an extra layer of protection for the (wilful or non-wilful) non-compliant executor.
“It woudn’t wipe out the executor’s personal liability for the estate’s US tax obligations, ”
The takeaway from the article I quoted from a little earlier in the thread, seems to me to be that the executor is personally liable only for taxes due in the jurisdiction in which s/he is tax-resident.
“the bank won’t report the account even after learning of the deceased’s US personhood, ”
As I see it, it’s not up to the bank. The account is no longer flagged as a reportable account by the due diligence software.
“that’s an extra layer of protection for the (wilful or non-wilful) non-compliant executor.”
No protection needed. A non-USC executor has no US tax obligation.
All of the above being IMO, of course.
I plan to amend my will to leave my heirs all my worldly goods, after (a) payment of all my debts and (b) payment of all the taxes that may be due to the local tax agency.
‘The definition of naturalization is: “……the legal act or process by which a non-citizen in a country may acquire citizenship or nationality of that country…..”.’
Close. It makes the same mistake as the US Supreme Court did, talking about citizenship and nationality as if they were identical.
The US passed a law to turn citizens of Puerto Rico into citizens of the US. This was a legal act. The people didn’t have to do anything.
The US passed a law to turn most citizens of the Northern Marianas into citizens of the US. This was a legal act. If I understand correctly, people who wanted to remain US non-citizen nationals did have to do something, but people who wanted to become US citizens didn’t have to do anything.
Barry Goldwater Jr., Ted Cruz, and unfortunately Calgary411’s son, didn’t have to do anything either.
‘If an individual is a citizen of a country at birth (i.e. is born a citizen of a country), they are never a non-citizen, therefore it is not only unnecessary, it is impossible for them to naturalize.’
Right. Just like if someone voluntarily naturalizes after birth (or involuntarily gets included in their parent’s voluntary naturalization), it is unnecessary and impossible for them to naturalize after that (unless they renounce and naturalize again). Naturalization at birth and naturalization after birth share this characteristic.
…
I think the US’s Nationality Act of 1940 gave US citizenship to all persons who had been born in Puerto Rico, including persons who had already naturalized in the US, making them double US citizens.
“In a US court, no doubt Calgary’s son and my children would all be held to be USCs.”
Of course. To avoid problems, rely on law of Canada or wherever they’re living, and maybe don’t ask any court but keep relying on the law until someone else asks a court of Canada or wherever they’re living. Sadly I must expect that at least some courts would priotitize foreign laws over their own, so just don’t ask and don’t tell.
‘Thinking about this… if local law holds the executor personally liable for payment of taxes by a dual USC’s estate, it would seem to follow that the executor could only be held liable for payment of taxes to a jurisdiction in which s/he is tax-resident; and perhaps payment of taxes which the deceased person has agreed to pay (by filing US tax forms).’
This seems compatible with the CRA’s intepretation bulletin.
‘The executor couldn’t be held personally liable for payment of taxes which couldn’t have been collected from the deceased person.’
Now you’ve contradicted yourself.
Do you mean to say the executor couldn’t be held personally liable for payment of taxes on the decident’s estate which couldn’t have been collected from the executor on the executor’s own income or assets? This would seem compatible with the CRA’s interpretation bulletin.
ND – yes you’re right.
Nononymous…….”I’m curious, though: if a US person dies and the executor is Canadian only, is the estate still subject to FATCA reporting?”
My take? No, because the estate is not a US person or entity.
The financial accounts that a person owns are subject to FATCA reporting if the bank determines that s/he is a US person. (If a US person were to transfer ownership of an account to someone who is not a US person that account would no longer be subject to FATCA reporting, right? That much we know.)
After death the US person no longer owns the accounts; ownership transfers to the person’s estate. If the tax residence of the executor (as opposed to the tax residence of the deceased) determines the tax residence of the estate, and the executor is Canadian, it is a Canadian estate. Logic tells me that any accounts the estate owns would not be subject to FATCA reporting because Canadian estates are not subject to FATCA reporting.
In other words, in such a situation all US-ness goes away as soon as the US person dies.
I’m not a lawyer.
maz -“In other words, in such a situation all US-ness goes away as soon as the US person dies.”
I agree. The person’s estate seems to be in a kind of limbo, (tax-resident in the same jurisdiction as the executor) until the will is proved and creditors paid.
What’s left after paying creditors belongs to the beneficiaries. Who presumably would have a right to examine the eventual statement of accounts or whatever it may be called, and the executor would be held personally liable for any mistakes or wrongful payments. Payments of tax due to the jurisdiction in which the executor (and therefore the estate) are tax-resident would not be wrongful, but payments of tax to any other jurisdiction would be wrongful.
I think that’s how it must work.
“I’m not a lawyer.”
Me neither. Nor ever been an executor of an estate.
ND said:
“Do you mean to say the executor couldn’t be held personally liable for payment of taxes on the decident’s estate which couldn’t have been collected from the executor on the executor’s own income or assets? ”
Thinking about it further, I suggest that if the deceased USC had filed US tax returns and been assessed by the IRS as owing taxes, the IRS would be a creditor and could be paid from the estate on that basis: a debt that existed when the USC died.
But US tax “debts” which the deceased had not contracted for before death (such as taxes for tax years in which the deceased had not filed a US return) could not be paid from the estate because it’s not an outstanding debt incurred before death and it’s also not taxes due to the jurisdiction in which the executor is tax-resident.
So if the executor paid money to the IRS for tax years for which the deceased hadn’t volunteered to pay US tax (by filing a US tax return), s/he would be personally liable – because it would be a wrongful payment and the estate would have to be re-imbursed.
IMO.
With the caveat that we, the handful of us living in our little bubble here, might be completely divorced from reality, this is a comforting analysis:
Once a US person dies, their estate is no longer subject to FATCA reporting. If the deceased was non-compliant to begin with, there is no risk of exposure via FATCA if a US birthplace is revealed to financial institutions in the process of wrapping up affairs.
If a non-compliant US person dies, there are by definition no debts owing to the US that the executor is personally liable for if not paid by the estate. An executor is therefore not required to bring an estate into retroactive compliance – certainly not under Canadian law.
I suspect that the IRS might take a different view and would happily accept a cheque, though any coercive attempts to collect would be completely unenforceable in Canada. So it’s still important to find an executor who understands the situation and agrees not to undertake any form of US tax compliance.
“I suspect that the IRS might take a different view and would happily accept a cheque, ”
Presumably – they probably wouldn’t have much trouble generating a “substitute return “ to establish that the money was due under US law.
“So it’s still important to find an executor who understands the situation and agrees not to undertake any form of US tax compliance.”
This point seems to me to be as yet unanswered. Would an executor have the power to file a US return, thus wrongfully creating a false liability on the estate of the deceased, and then wrongfully sending the IRS payment for the false liability?
However, I’m not going to spend any more time fretting over it. I think for myself I’ll just revert to my earlier plan – give the heirs their inheritance before I die, thus avoiding probate and avoiding any risk of enquiries into the heirs’ own citizenship status (as they have not renounced, being born outside the US and therefore not needing to).
Interesting though. I now understand more than I did.
Taking the hypothetical a little bit further:
What if the IRS assessed a tax debt on a US person before their death but the person successfully ignored it because the CRA won’t collect on behalf of the IRS if the individual is a Canadian citizen? It may be a US debt but its not a Canadian debt. The IRS knows this and chances are they wouldn’t even bother to ask the CRA. Seems to me that that IRS debt would then be even more uncollectable because after death it would be a Canadian estate administered by a Canadian executor.
If I were a Canadian heir (regardless of what my own personal US-ness might or might not be) I would be mad as hell if the executor decided to settle a previously uncollectable IRS debt and send a goodly part of my inheritance off to a foreign country. That seems to me like it would be a slam dunk wrongful payment action. The first thing the executor would have to do in order to file anything with the IRS would be to apply for and obtain an EIN. I just don’t see it happening.
Also, I don’t believe our Canadian executor would have any obligation to notify the IRS of the death. (Somebody, not necessarily the executor, would need to notify SSA if the deceased happened to be receiving SS benefits, but as far as I can tell there is no connection between SSA and the IRS.) If I’m right on this, the IRS wouldn’t have a clue there was even an estate to tap into. All of this assumes no US assets.
“What if the IRS assessed a tax debt on a US person before their death but the person successfully ignored it because the CRA won’t collect on behalf of the IRS if the individual is a Canadian citizen?”
It seems to me the US tax debt would not be a debt on the estate unless the USC had filed a return; and if the USC had filed a return, s/he most likely would have paid any tax due when s/he filed. So I agree it seems unlikely there would be any outstanding debt to the IRS at the time of death. There might be a refund due, in which case presumably the IRS would send a cheque? Or would the executor have to file a form to claim the refund? That could be messy, as the executor might be required by law to claim the refund, to maximize the beneficiaries’ inheritance.
Not applicable, though, in our hypothetical case of a non-filing USC or former USC.
There’s never been any doubt, to me at least, that the IRS has no mechanism by which it learns of a US person’s death, to discover and go after an estate. The risk is that an executor panics and brings a non-compliant person’s estate into compliance, at great cost, because they are concerned about their own personal liability.
(As with every situation involving dual citizens, compliance is voluntary and punishment is self-inflicted.)
This was the reason I changed executors, to someone briefed on the situation who has no personal or professional connection to the US, in addition to being a Canadian citizen and resident only. But now with this minor discovery of FATCA reporting, they have even less to worry about, because they won’t be as concerned by the risk of the US birthplace being posthumously discovered by a bank.
Though I’d still advise an executor to keep quiet about the deceased’s US personhood, if only to avoid time-consuming hassles and needless back-and-forth with financial institutions.
“There might be a refund due, in which case presumably the IRS would send a cheque? Or would the executor have to file a form to claim the refund? That could be messy, as the executor might be required by law to claim the refund, to maximize the beneficiaries’ inheritance.”
That’s where the executor calls the heirs in for a conference to explain that while the estate has a right to claim that IRS refund, it could potentially cause more problems than it solves because that would make the estate subject to IRS scrutiny. If perchance an IRS refund cheque arrived out of the blue addressed to the decedent, the best thing to do might be to return it to the IRS marked “no such person at this address”. (Which, ironically, would be a true statement!)
Not sure why one wouldn’t simply deposit the cheque. By the time the IRS figures out that the next year’s return is missing, the estate business will be over and done with.
Nononymous – I agree, if the cheque arrives without the executor having to take action.
If a cheque arrived the estate would be the owner and there’s no doubt the executor could deposit it into one of the accounts. If someone at the IRS happened to look at the clearing stamps on the back that’s potentially a way they could become aware of the estate. That’s probably a very low risk, however, because all that stuff is handled by computers these days.
So agreed, I think I’d deposit it too. In fact, depositing would probably cause less of a signal than trying to return it. And once an estate is settled, no further claims are valid to the best of my knowledge.
DETERMINING AND TRANSMITTING US CITIZENSHIP updated March 16, 2018
With my reading of this, I will now use the linked ACA flowchart [instead of prior paid advice from Moodys Gartner (Calgary) and Trow & Rahal (Washington, DC) and previously attempting but failing to get an answer from ACA, as well as the Department of State, *Is there a CLAIM to USC for those, such as my son, born abroad to two USC parents*] — showing in the flowchart that there MAY BE a CLAIM to USC for a child born abroad to two USC parents (before the parents became citizens of their chosen country); i.e. not automatic citizenship. This will allow me peace of mind to update my Will to pass my modest estate on to my two children, one of whom *claimed* USC (to work in the US) and has since renounced that USC
and
I will disregard the definition of *automatically deemed USC* for my Canadian born son
http://isaacbrocksociety.ca/2016/01/16/again-can-the-u-s-deem-somebody-to-be-a-u-s-citizen-or-in-the-fatca-fbar-and-cbt-world-forcibly-impose-u-s-citizenship-on-a-person-born-outside-the-usa/comment-page-1/#comment-7084080 (with reference to Department of Homeland Security U.S. Citizenship and Immigration Services Policy Manual). My adult son does not have the requisite mental capacity to renounce that extraneous, burdensome (prior seemingly) automatically deemed USC, which I view as deemed entrapment into the costs of yearly US tax and reporting compliance for a child born in Canada to two USC parents, never registered as a US Birth Abroad, never lived in the US and never had any benefit from the US, only his country of birth and residence, Canada.
This also supports the legal view of John Richardson, the same as I have held and therefore not acted upon to enter him into the US system.
[I did not care if the door hit me on my (official with a CLN) way out of my USC in 2012. The door will never hit my son on his way out as he was, now more firmly in my mind, never a USC, only a Canadian, morally (and rightly says ACA) his only citizenship.]