Liberty and justice for all United States persons abroad

The Isaac Brock Society

Posted on by Posted in Tax Residency 6 Comments

cross-posted from citizenshipsolutions.ca

Part F – A “U.S. citizen” cannot use a “tax treaty tie breaker” to break U.S. “tax residence”. How then does a “U.S. citizen” cease to be a “U.S. tax resident”?

Q. I am a U.S. citizen. I do not live in the United States. I live in Canada. I am a Canadian citizen. How do I stop being subject to the all of the FBAR and other reporting rules, tax rules (including PFIC), life restrictions and inability to effectively invest and plan for retirement imposed by the Internal Revenue Code?

A. You relinquish U.S. citizenship. Please note that a “renunciation” is one form of “relinquishment”. In general, the date of relinquishment of U.S. citizenship is more important than the form of relinquishment of U.S. citizenship. A Certificate of Loss of Nationality (“CLN”) may or may not (depending on the date of relinquishment) be necessary to cease to be subject to U.S. taxation.

Q. In simple terms, where do I get information about the process of renouncing U.S. citizenship?

A. You can start here.

Q. What are the tax consequences of relinquishing or renouncing U.S. citizenship?

A. The Internal Revenue Code describes the tax consequences of relinquishing/renouncing U.S. citizenship. See Internal Revenue Code S. 877A (the “Exit Tax” rules).

Part G – How a “permanent resident” of the U.S. – AKA “Green Card Holder” – ceases to be a U.S. tax resident

Q. I understand that IF I am a U.S. “tax resident” then I may be able to use a “tax treaty tie breaker” to NOT be treated as a U.S. “tax resident”. But, how do I cease being a U.S. tax resident period?

A. The definition of “residence” for tax purposes is NOT the same as the definition of “residence” for immigration purposes. In fact it is possible to have lost the right to live permanently in the United States, but still be treated as a “resident for tax purposes.” “Residence for tax purposes” is defined in Sec. 7701(b) of the Internal Revenue Code and is discussed in the Topsnik case. Most “lawful permanent residents of the United States” cease to be “tax residents” of the United States by either (1) Filing Form I-407 or (2) Filing a “tax treaty election”. You are advised to seek professional advice on the best way to proceed.

ATTENTION!! A permanent resident of the United Sates AKA “Green Card Holder” does NOT cease to be a U.S. “tax resident” by simply moving from the United States to another country. One must take specific steps to sever “tax residency” with the United States.

Part H – Are you, or have you ever been a U.S. citizen or Green card holder? Sometimes it’s not what it seems.

Q. Are you a “U.S. Person” for FATCA purposes?

A. See the articles referenced in the following two tweets.

Conclusion …

The receipt of a FATCA or “CRS” letter is a frightening thing. Take a deep breath. Deal with it rationally and logically. If you are NOT a U.S. citizen you are probably NOT a “tax resident” of more than one country. On the other hand, if you are a “U.S. citizen” …

How would you go about “Solving this problem of U.S. citizenship”?

or maybe this

(For an interesting article on the “Possible Meghan Markle U.S. Tax Chronicles” by Helen Burggraf read here).

I am available on a “consultation basis” to help you sort out your “Tax Residency” in a FATCA and CRS world.

John Richardson

6 thoughts on “So, you have received bank letter asking about your tax residence for CRS or FATCA – A @taxresidency primer – Part 4 – Conclusion”

  1. Okay, I’m posting this here, as well as the AU forum headed by Karen.

    My two, US-born children & I came to AU in 2007. We became AU citizens in 2012.

    My son has now secured employment and is now facing the implications of FATCA. He is a software engineer with a debt to AU for his schooling but no other debt.

    His previous employer & current obviously pay into his super. He will earn about $65,000AUD in his first year, but I assume, will increase.

    His father in the USA is concerned what will happen if he renounces re: inheritance from the USA, should there be any? Also, how does the USA $10k gift per year go? Or does it not?

    My question: the downsides, via tax only, his/her renouncing?

  2. Jane. Inheritance is not an issue if they renounce. I ‘m not a US estate lawyer but as faf as I know, a US person can gift 15k per year to as many people as he likes with no tax . I have no idea if a gift tax return is required but clearly most don’t bother.

    Estate taxes are paid by the estate not the recipient. The first 5.6 million ( less prior gifts) is exempt. Legal advice normally required. About 17 individual states levy estate taxes with,apparently, different exemptions.
    https://www.irs.gov/newsroom/inflation-adjustments-under-recently-enacted-tax-law

  3. Just to clarify; starting with the 2018 tax year, a US taxpayer can gift up to 15k per year to as many people as he wants without the need to file a gift tax return or have the amount subtracted from the lifetime exemption. (This is up from 14k for prior years and the increase was part of the tax reform package passed last December.) The taxpayer is allowed to gift larger amounts but must file a gift tax return and the amount will then be subtracted from the lifetime exemption. The lifetime exemption doubled from 5.6 million to 11.2 million in the same tax reform package.

    The only issue for expats comes later if or when they themselves wish to bequeath to someone who is a US taxpayer and they happen to be a covered expat. An inheritance from a covered expat to a US taxpayer is taxed at a 40% rate. So don’t be covered or don’t have US heirs.

  4. “Welcome to Expatland, the new Duchess of Sussex!”

    She was already in Expatland before she became Duchess. Her non-resident alien husband is the one getting the welcome.

  5. To relinquish United States citizenship, sign up to work at the polls on election day. You have just relinquished USA citizenship by accepting employment with a foreign government, and it is only for one day. Wait until the statute of limitations passes and then file for a CLN if you want. Just remember to intend to relinquish USA citizenship. If you accept the employment without that intent, it does not work.

    https://travel.state.gov/content/travel/en/legal/travel-legal-considerations/Advice-about-Possible-Loss-of-US-Nationality-Dual-Nationality.html

    accepting employment with a foreign government after the age of 18 if (a) one has the nationality of that foreign state or (b) an oath or declaration of allegiance is required in accepting the position (Sec. 349 (a) (4) INA);

    Administrative Presumption of Intent to Retain U.S. Citizenship

    As already noted, the actions listed above will result in the loss of U.S. nationality if performed voluntarily and with the intention of relinquishing U.S. nationality. The Department has adopted an administrative presumption that U.S. nationals intend to retain United States nationality when they: obtain naturalization in a foreign state (INA 349 (a)(1)); declare their allegiance to a foreign state (INA 349(a)(2)); serve as an officer in the armed forces of a foreign state not engaged in hostilities with the United States (INA 349(a)(3)); or accept non-policy level employment with a foreign government (INA 349(a)(4)). In accordance with the administrative presumption, when an individual commits one of the foregoing acts, that person will retain U.S. nationality unless he or she affirmatively, explicitly, and unequivocally asserts an intention to relinquish such nationality.

  6. That gains you nothing over renouncing. It still costs $2350 to document relinquishment and receive your CLN. If the relinquishment happens now, as opposed to pre-2004, you still (in theory) are obliged to go through the whole exit tax business.

Leave a comment

Your email address will not be published.

%d bloggers like this: