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
My good friend renounced early last year. Because she has grandchildren who are US citizens, she arranged her affairs to avoid being a covered expat. The children and grandchildren can inherit without further taxes.
That was a 5 year process. Luckily she discovered Brock and Hodgen and others in time. She recently filed the 8854 but not 1040 or 1040NR because she was below the filing thresholds for income tax returns. 4 of the required 5 years were backfiled as were the fbars. (so called quiet disclosure) So far not a peep.
Lioness I like your attitude. I agree that the Canadian gov, will not help the IRS collect against a Can citizen. The new law is a mess. Individuals living ex the US are collateral damage. Not much the IRS can do unless aidedand abetted by accountants and lawyers.
@Portland thanks for your comments and for your inspiration. so much appreciated!
I am new here and hope that some of you would be kind enough to help.
I sent the CLN appointment email (for Canada) three weeks ago. What is typically the time to receive an email with an appointment date? (assuming that I filled out the forms correctly)
My only remaining attachments to the US are a checking account, a US visa card, and an IRA. Should I close the account and terminate the visa card before the appointment? I was planning on leaving the IRA alone for the moment.
Thanks
@ Trebor,
I don’t know how long they’re taking to respond to appointment requests here in Canada when you send in your forms, as I got my CLN several years ago. I know they can be pretty slow, so I’d probably give it a month from date of sending and then follow up.
Regarding your other question, having a US bank account, credit card and/or IRA won’t affect your renunciation. They don’t ask about it as it’s not relevant.
In fact, even in the case of a relinquishment-based CLN, for which the person has to fill out the DS-4079 questionnaire, there are no questions about “Do you have a bank account/credit card/IRA in the US?”
Only thing I can think of about the IRA – would there be any problem (or hassles) with keeping an IRA once you are not a citizen? I know very little about IRAs, just wondering.
@Trebor
There should be no problem keeping your IRA.
Once you have your CLN you should send a copy to your IRA fund manager with a W-8BEN.
You should reveive your IRA tax free on distribution depending if your country has a tax treaty with the US.
@trebor
it can take months ,even a year to get an appointment for renuciation in some places.
i’d advise you to try other venues less crowded.i tried 4 and got the appointment 4 weeks later.
The 1st venue,i’m still waiting 6 months after they told me i was on the waiting list….
trebor. Give it six weeks. Then e mail again to the same address.. I know someone who never received the reply because of e mail snafus until he wrote to Washington with an e mail copy to Vancouver That got an instant reply by phone. That all took 5 months. The apointment was a month later.
I can’t speak to the time frame for getting a response from a US Consulate, but there are others here who are more up to date on such things and will probably be able to post some current info.
I did manage to find this discussion what happens to an IRA when renouncing:
https://hodgen.com/resource/chapter-6-taxation-of-specified-tax-deferred-accounts/
It looks as though you can “leave the IRA alone for the moment” although as Phil explains, there will be a tax consequence when you renounce. It probably depends somewhat on the value and type of investments held within the IRA. Hopefully you are not a “covered expatriate”. It may be possible to “roll over” the IRA into a Canadian RRSP.
I’d be inclined to go ahead and close the checking account and cancel the Visa card; there are perfectly good equivalents here on the Canadian side which work fine and make things simpler. Its not necessary to close the accounts before the appointment but doing so might make the post renunciation IRS filings a bit simpler.
Sorry, I hit the post button before I pasted this link:
http://pacificapartners.com/wp-content/uploads/2016/11/Pacifica-Partners-Inc-Transferring-Your-US-401k-or-IRA-to-an-RRSP-in-Canada.pdf
Looks to be a decent discussion of how to go about transferring or rolling over your IRA to an RRSP. I don’t think you can escape the US tax consequence of expatriating, but after taking the tax hit at least you are not starting from scratch time wise with Canadian retirement savings.
@Trebor
There are no tax consequences to your IRA as long as you are not a covered expat, you can leave it in place or if you can roll it over (if possible.)
Here is a table outlining the countries with whom the IRS has tax treaties. (Table 1)
https://www.irs.gov/pub/irs-utl/Tax_Treaty_Table_1.pdf
If your bank checking accounts and visa are useful to you, there is no need to close them. The visa will need a US address , some people use a relative.
@Portland
When you were discussing a friend’s renouncing, you mentioned that she was below the filing threshold. While the IRS publishes the minimum filing requirements for an entire year, how does one determine the threshold for a dual status 1040/1040NR return? Is it just prorated for the 1040 part of the filing? Without filing a tax return does 8854 form still have to sent to IRS in addition to the treasury dept?
Of course, one would still need to file the FUBAR, but that it a lot better than the whole thing.
It looks like Heidi is right if you are not covered, but of course, US tax will be withheld on withdrawals. Not sure what the rate would be. It looks like an additional complication of leaving the IRA in place would be whether or not the custodian is licensed to do business in both countries. If not, the account would have to be transferred to one that is before your expatriation date.
I have heard of people who gave a US mailing address to avoid problems with their US investment accounts, only to have the firm later discover that they were actually a non-resident. The company got very cranky because the situation was outside of their terms of operation and put their license in serious jeopardy. Perhaps a frank discussion with your investment firm about options and procedures would be a good idea? They should be able to give you a definitive answer on all of these questions.
Personally, I’d be inclined to get everything into Canada just to simplify things, but that’s just me. I’ve been totally happy with my Canadian big-5 bank’s US dollar credit card and US dollar saving/chequeing account. They allow me to travel and transact business (private only) with no hassle while in the US. Before that arrangement I tried getting signing up at several US banks but they all told me they wouldn’t open an account unless I was a US resident. But who knows, they may allow an existing account to be “grandfathered”. Again, asking may be the best way to get the final word.
Thank you for all the most helpful comments about my questions. Happily I will not be a covered expat so this should not be too bad.
If I am reading the Canada/US tax treaty correctly, IRA withdrawls are taxed at a flat rate of 15% in the US for Canadians. There is also an additional 10% tax in the US if one is less than 59.5. I have yet to explore a conversion to an RRSP, but should try to find a knowledgeable accountant who can point me in the right direction as @maz57 said.
With regard to the US visa card, I been out of the US for over 11 years, and the US bank has no problem with my Canadian address. Not sure if it will make any difference after I renounce. I also have a Canadian address on the IRA without issue.
Trebor. My understanding is that the 1040 for the first part of the year is not a tax return. It is a statement attached to the 1040NR. My friend was fortunate in that she renounced early in the year. The only income to that point was CPP and OAS. Neither of these are taxable income for US purposes. So her income was nil. Her US source income for the balance of the year was nil. Most won’t be in such a clear position. She could have filed both with a sea of zeros.
I think the threshold for the year would be equal to the standard personal exemption- not prorated.
The 8854 is supposed to be filed in any case. The address is the IRS in Philadelphia. She didn’t send a copy to Austin. perhaps it was a mistake. Time will tell.
@Trebor
I was assuming you meant visa credit card as mine needed a US address.Most existing US bank accounts have no problem with a non US address whatever your citizenship. I had only one US credit union close me down.
Haven’t checked the tax treaty chart for Canada but if it’s as you say you should receive a tax credit for the tax paid to the US from Canada tax authority.
I receive my US RRSP tax free as per my countries treaty but my Social Security is taxed.
After a long hassle and directing my local tax authority to the treaty they agreed to give me the required tax credit for SS.
I suggest you do as Maz suggested and speak to your IRA investment company as to your choices.
PS
Perhaps US credit card companies make an exception for a Canadian address?
I live in Europe and was not permitted to keep a US dollar Credit card unless I had a US address. Many expats use a US relative’s address to keep a US credit card.
Hi. wondering if anyone can recommend a lawyer for the renunciation process, preferably west coast. I understand they can’t fill out hte forms or accompany one, but I need information around an adoptee renouncing. What does one do about prior name (whether known or unknown), for instance?
R A Zisman.
However I wouldn’t think it’s worth the cost. The process is quite straightforward.
“What does one do about prior name (whether known or unknown), for instance?”
If known, give the name; if not known, say that and explain why.
@Newbie
You could Email the Embassy and ask your questions re Adoptee.
Renunciation process is simple, there is no need for a lawyer/tax attorney unless perhaps you will be a covered expatriate and need advice to avoid/reduce the exit tax.
Robert E Ward (Vancouver)
@Newbie
One of the bizarre things (I know, its all bizarre) about renouncing US citizenship is that you will not be allowed to renounce until you first prove that you are a US citizen. If that’s a problem for the adoptee, the renunciation process might be impossible and unnecessary. It depends entirely on the facts of the case and what supporting documents are available. If you can’t prove you are a US citizen, no one else can either.
First question; do you have a US passport?
“One of the bizarre things (I know, its all bizarre) about renouncing US citizenship is that you will not be allowed to renounce until you first prove that you are a US citizen.”
I wonder about that. As far as I can tell, the law allows all US nationals to renounce US nationality. Even though a US non-citizen national such as a citizen of American Samoa doesn’t have to worry about FBAR and FATCA, they might want to take Australian citizenship renounce US nationality. But the renunciation forms require them to have US citizenship as you say. Do they really have to naturalize in the US in order to renounce?
“If that’s a problem for the adoptee, the renunciation process might be impossible and unnecessary. It depends entirely on the facts of the case and what supporting documents are available. If you can’t prove you are a US citizen, no one else can either.”
I bet the US government could prove it if they want. Though of course they could also avoid proving it when they want. They can leave the adoptee in limbo for as long as their little heartlessness desires.
“First question; do you have a US passport?”
That is neither necessary nor sufficient. Though if they have a US passport which doesn’t have an endorsement calling the person a non-citizen national then it would be strong evidence of US citizenship.
Is any legal action being taken to challenge the $2,350 renunciation fee on constitutional or other grounds?
My hesitation to renounce has mostly to do with reduction of social security retirement payments. I’m receiving SS now and SS would cut my monthly benefit by 25.5% if I renounce and become a non-resident alien.
Maybe I can live with that to be free of the US-person ball and chain. What worries me is that they will change the rules in the future.
US Govt have long used various tricks to lower people’s benefits (stealing from the SS trust fund to fund their wars, ridiculously inadequate COLAs based on fake CPI figures, no inflation adjustment of the $25,000 threshold at which point SS becomes taxable for 35 years). So it wouldn’t surprise me if, in the future, as the US increasingly drowns in debt, they decide to reduce SS payments to non-US citizens even more drastically, or even eliminate them entirely.
I think it would be politically much easier for them to reduce payments to disloyal renunciants than to US citizens. Or at least reduce them more severely than they do to loyal US sheeple.
Does anyone have any thoughts about this? Are there any international laws/conventions/treaties that would prevent them from doing this? My situation is that I am not a resident of a tax treaty country.
Thanks for your opinions.