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
@Oh Dear, do what you feel most comfortable with. If doing the final filing works for you then do it. If not filing works for you then do that. There’s no poiint in renouncing/relinquishing if you’re then going to worry yourself endlessly about what you did or didn’t do tax filing-wise.
When I investigated I found I only needed to file FBARs as I had no income, but even so I did the filing with the help of a US tax accountant. It cost me several thousand Swiss francs to do it, but it meant I would have no problems with my Swiss bank down the line because not only did I have my CLN, but could if necessary show that I’d become compliant. So far they’re happy enough with the CLN and I’m happy that I made a complete break with the US/IRS. For me the expense was worth it. You have to decide what it’s worth for you.
Good decision, Oh Dear! Hope your wait’s not too long.
I don’t know where to turn, certainly not to a compliance condor, so let me ask my friends here.
Background: hubby and I live in country where we are unable to naturalize for various reasons. As encouraging as some of the anti-FATCA crusade movements are lately, we are pessimistic, period. FATCA might be repealed or mitigated. But the chance of RBT or TBT seems remote at best. The Republicans can’t seem to get it together, and at the end of the day we may end up with something even worse: in the desperate quest to “simplify the tax code”, the “unfair loophole” (in Homelander minds, in Chuck Shumer and other’s verkakte brains, and thus possibly in Trump’s dinosaur brain) of 2555 abolished, which will sink us completely.
We want badly to renounce. We tried to about a year and a half ago, and we were cheered for it here by all you good people. But we failed to find a way to secure another citizenship. Our one and only option is to purchase an off-the-shelf citizenship from some sunny island nation. We can finally, possibly, afford to do so. Here’s the conundrum:
We own one rental property. As far as Uncle Sam is concerned, it’s the only real estate we’ve ever owned. We file our US taxes and FBARs every year, and have declared the rental income, as well as the account where the mortgage is financed from.
The plan is: sell the rental property. It’s sales value has risen enough that it almost exactly matches how much we’d need to buy the required investment property in the passport haven country, plus the fees. BUT…if we declare the sale to the IRS, they will want their 15% capital gains chunk, which then makes it impossible for us to go through with the whole thing.
We could simply not declare it. And this is where FATCA comes in, to catch major international thieves like us. First, our local account will suddenly bloom with an unexplained $300,000. Then a bank account in the other jurisdiction will be opened in our names with a sudden influx of that same $300,000. Declare those on FBARs and we are f–cked. Don’t declare them and we are possibly f–cked even more (50% penalties against both accounts equals 100% of our entire net worth).
If we have to pay something to the IRS for our liberation, so be it, as long as it isn’t enough to kill the whole deal, as full capital gains tax would.
Is there any special loophole/deduction I’m not aware of, for someone selling their first-time home or property?
Anyone have any advice? I’ve cried so much over this situation in the past two years since my OMG moment, and the futility of this whole plan brings renewed blubbering.
@Barbara, are you sure neither of you can claim another citizenship by descent? Irish for example?
Barbara – is there a way to turn the property into your principal residence by moving into it (for whatever the required period of time is)? Alternatively, do you have enough equity to borrow the cost of the new citizenship so you can sell the property AFTER renouncing?
@Barbara: it almost exactly matches how much we’d need to buy the required investment property in the passport haven country, plus the fees
Can this qualify for Section 1031 “like kind exchange” (at least the amount that goes towards buying the property as opposed to paying the fees)?
http://nomadcapitalist.com/2014/06/24/foreign-real-estate-qualify-1031-exchange/
Other, much less practical suggestion (just want to throw it out there to make sure you’re covering all the bases already): make the rental property your primary residence. You’d have to forgo the rental income and actually live there for two years.
https://www.kitces.com/blog/limits-to-converting-rental-property-into-a-primary-residence-to-plan-for-irc-section-121-capital-gains-exclusion/
@Barbara
Does the proposed sale of your rental property have to first go into your bank account? Can it go through a lawyer or Forex company directly to St Kitts or wherever directly to the property company?
Thanks for advice so far. To answer a couple things:
First, naturally we’ve searched all citizenship-by-descent options, and pursued one for a while with a lawyer’s help, but it didn’t work.
We want to renounce NOW, which makes turning our rental property into a principal residence for two years somewhat out of the question.
We did look into refinancing to come up with the cash for the passport haven property, but at our age we wouldn’t be able to refinance for anywhere close to the required amount. If at all.
The Section 1031 “like kind exchange”, seems to offer some hope, and at the same time appears completely difficult to understand. On the surface it meets the criteria. We wouldn’t touch a penny of the proceeds, using it to buy the other property. Where to find a genuinely knowledgeable tax advisor who is 1) Not a condor; 2) Not going to cost us more than we’d spend on capital gains tax in the first place?
@Barbara – correct me if I’ve misunderstood but if all goes to plan won’t you be NRAs by the time the FBARs are due? And the cash will have been spent?
So far, there seem to be no reported cases of the IRS pursuing someone for not doing the final filings.
@Barbara
How about haggling with that island country for the price of a passport? I mean- it is free money for them. Ask them how it would be to get a passport for whatever is left of the 300000 after taxes. That should still be a lot.
@Iota: Interesting point about being NRAs. Seems likely, but the trouble is, I can’t guarantee the timeline.
@Polly: As for haggling, I don’t see any possibility. The rules are there: invest X amount in property (or other businesses) and qualify for residency leading to citizenship.
As for a 1031 “like kind exchange”, I just read the IRS’s own documentation. Arbitrarily, it seems, I can’t just sell a place here, receive the money and instantly buy the equivalent place there. It must be done through an intermediary, all as part of a single package deal. And neither my estate agent nor my solicitor can be that intermediary. So where does one find such an intermediary who’s not going to run away with our life’s savings the moment it’s in their account?
Where to even begin looking for such advice? I want to tear my greying hair out.
@Barbara
Can the solicitor who sells your property hold the money in an escrow account for you and before sending it on to buy the citizenship property?
Or what about renouncing first and becoming stateless before buying you other property/citizenship?
Or can you borrow the 15% from family?
I think Iota’s right, why worry about those last FBARS, you will no longer be a US citizen.
@Heidi:
I did talk to hubby about renouncing first. He won’t go for being stateless. What if the other citizenship falls through, is delayed, etc.? He still holds out hope for both FATCA and CBT repeal this year. The eternal optimist (or fool).
Here’s what the IRS says on its 1031 exchange information page:
“You can not act as your own facilitator. In addition, your agent (including your real estate agent or broker, investment banker or broker, accountant, attorney, employee or anyone who has worked for you in those capacities within the previous two years) can not act as your facilitator.”
Don’t really get it why this restriction, unless it was written for the IRS by tax condors. From the sound of it, it sounds a bit like having to set up a temporary trust, and all the complications and fees (and risk of being taken for a ride) that entails.
I’ve been checking out various “specialist 1031 exchange advisors” online, and the hairs are going up on the back of my neck. It reminds me of those awful six months after I had my OMG awakening and had not yet discovered IBS, and was swimming in a pool full of tax condor-sharks.
This method seems like the right solution for us, in theory. How to find someone to expertly advise us without screwing us? All of the specialists in this area I’ve seen so far are US-based, catering for US clients.
Anyway, I shall continue looking. Thanks to Eric for putting me onto this, and for everyone else with their excellent and warm-hearted suggestions.
@Barbara
This link explains 1031 quite well
https://www.realwealthnetwork.com/learn/1031-exchange/how-to-do-a-1031-exchange-rules-definitions/
BUT it says
**It’s important to note that the original and replacement properties must be within the U.S. to qualify under section 1031.
This is wrong. I’m guessing the source has mangled and oversimplified this rule:
https://www.law.cornell.edu/uscode/text/26/1031#h
Which says only that US property and foreign property are not like-kind (i.e. foreign property can 1031 exchange for foreign property, and US-for-US. But US-for-foreign and foreign-for-US exchanges are not allowed and trigger CGT)
Eric
That’s good news for Barbara.
I guess that means we should not rely on simplified sources and always try to decipher the IRS gobbledygook!
@Barbara
Talk to somebody in their government. You never know. You might get that passport for less. No harm in trying!
Having looked into 1031 exchanges, in theory it’s what I’m looking for. As Eric says, it’s clear that one can sell a foreign investment property in order to buy another foreign investment property, no problem. Or buy/sell US properties. What isn’t allowed is to sell a US property and then buy an overseas property, or vice versa.
What is a problem is that the 1031 is apparently one of those “unfair tax deductions that benefit ‘the rich'” which is under threat in tax reform talks. Unless the new tax code also eliminates capital gains tax (very unlikely), I could find myself stuck again in a hard place. This might also be one of the reasons that the law firm which claims to be “the leading company handling overseas 1031 exchanges” told me by e-mail that they stopped offering the service.
The 1031 exchange in principle seems like a fair deal: enabling you to trade one business asset for another, while deferring any capital gains tax. Leave it to the IRS to make it so enormously complicated that one needs to spend US$6500 on lawyers to establish escrow accounts and fill out a mountain of forms.
All the more reason that it will be a huge relief to be liberated from all this US tax nonsense.
Not sure if this might be of help to some who would like to relinquish/renounce their US citizenship.
http://www.wbur.org/news/2017/04/27/german-citizenship-restoration
Ihttp://www.germany.info/Vertretung/usa/en/05__Legal/02__Directory__Services/02__Citizenship/__Restored.html
Some UK Jews are doing the same due to Brexit uncertainties. Interesting documentary about it on the BBC the other night.
Hi all! At this point in my journey to receive my CLN, I’ve filled out the questionnaire along with forms DS4080 and DS4081 forms. (Luckily I don’t have to fill out form DS4079). According to this I don’t have to return DS4080 and DS4081 because they are easy to fill out and would make sense since I should sign in front of an officer.
But the directions I received in my automated email make me think I have to return all three forms along with scanned copies of my Canadian Passport and form proving I have US citizenship.
So my question is do I have to send via email my DS4080 & DS4081 forms or do just I print them out and bring those forms to the consulate when I have an appointment? Even if I did have to send back the 4080 and 4081 forms they couldn’t be complete since they need to be signed by an officer.
Thanks so much!
Opps! Sorry for that super long link in my last comment! I wish there was a feature where I could review my comment before posting or at least edit my comment! I was trying to be fancy with making an html link but I failed. 🙂
Hi all! At this point in my journey to receive my CLN, I’ve filled out the questionnaire along with forms DS4080 and DS4081 forms. (Luckily I don’t have to fill out form DS4079). According to this web page I don’t have to return DS4080 and DS4081 because they are easy to fill out and would make sense since I should sign in front of an officer.
But the directions I received in my automated email make me think I have to return all three forms along with scanned copies of my Canadian Passport and form proving I have US citizenship.
So my question is do I have to send via email my DS4080 & DS4081 forms or do I just print them out and bring those forms to the consulate when I have an appointment? Even if I did have to send back the 4080 and 4081 forms they couldn’t be complete since they need to be signed by an officer.
Thanks so much!
@valentina
Why would you want to set yourself up for a chance of delay just because you haven’t returned all the required documents with your request for the CLN appointment? Like you said, the forms are easy to fill out (took me just a few minutes), but they are in the list of the required docs in your automated email. And you would still have to bring the printed forms to the appointment. I’m no expert and have sent my docs only last week, haven’t heard back yet, other than another auto-response email. Good luck!
valentina You are meant to fill them in and send them back (unsigned). They are fillable forms. You save them as a special format (.far) and these are then attached to your e-mail. .far documents cannot be opened on your computer after you save them. The questionnaire, if I remember correctly, was a word document where you detail your last residence in the US (if any) and your preference for which consulate to attend.