Like many others, my US born spouse who has lived in Canada since 1969 was appalled and concerned about recent stories about having to do US tax filing and financial account reporting. I did some browsing and it seems there is an IRS code 877A under which you can fill in a form 8854 if you renounce your citizenship. If I understand it correctly, if you are unable to swear on the form that you have filed your last 5 years US taxes you then have to pay something called a mark-to- market tax on your current total assets. However, this is only on more than $600,000. and we don't come close. My question: Does renouncing citizenship and filling in the 8854 mean that we can then forget about the filing of the the previous 5 years and get the IRS off our backs for ever?
Would really appreciate any feedback. Has anyone else done a 8854?
Gordon Head
Renouncing US citizenship good for our circumstances?
Moderator: Mark T Serbinski CA CPA
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Gordon Head
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- Joined: Thu Aug 25, 2011 7:46 pm
Gordon Head
- If you cannot certify that you are in full compliance with all US tax reporting requirements for the previous 5 years, then you are automatically subject to the Exit Tax upon renunciation, even if you happen to qualify for the one of the exemptions that gets you out of the Exit Tax. However, in your case, your income/assets do meet the thresholds anyway, so it doesn't really matter with respect to the Exit Tax.
- But (and this is a BIG but), even after you expatriate, you are still liable for all taxes and filing requirements up to the date of renunciation. Renouncing stops you from being responsible for any future tax obligations, but it doesn't get you off the hook for your prior obligations. So you will basically be sending up a red flag directly to the IRS when you tell them on the 8854 that you are not up-to-date with your tax obligations for the previous 5 years. In that case, they may single you out for an audit because they will know that you haven't been keeping up with your reporting requirements.
- If you have no plans on ever working or living in the US again, then renunciation may make sense for you, and it will certainly stop any future tax obligations to the US, but whether you renounce or not, you are still required to file your taxes for the previous several years.
416
- The expatriation rules were changed in 2008. The 8854 form has been around since 2004.
- If you expatriated between June 3, 2004 - June 17, 2008 then there is a 10-year reporting requirement where you would file 8854 every year for 10 years after renunciation.
- But if you expatriated after June 17, 2008 then it is just a one-time thing. You file 8854 with your final tax filing for your final year of citizenship, and then you are all done. Nothing else to worry about.
- If you cannot certify that you are in full compliance with all US tax reporting requirements for the previous 5 years, then you are automatically subject to the Exit Tax upon renunciation, even if you happen to qualify for the one of the exemptions that gets you out of the Exit Tax. However, in your case, your income/assets do meet the thresholds anyway, so it doesn't really matter with respect to the Exit Tax.
- But (and this is a BIG but), even after you expatriate, you are still liable for all taxes and filing requirements up to the date of renunciation. Renouncing stops you from being responsible for any future tax obligations, but it doesn't get you off the hook for your prior obligations. So you will basically be sending up a red flag directly to the IRS when you tell them on the 8854 that you are not up-to-date with your tax obligations for the previous 5 years. In that case, they may single you out for an audit because they will know that you haven't been keeping up with your reporting requirements.
- If you have no plans on ever working or living in the US again, then renunciation may make sense for you, and it will certainly stop any future tax obligations to the US, but whether you renounce or not, you are still required to file your taxes for the previous several years.
416
- The expatriation rules were changed in 2008. The 8854 form has been around since 2004.
- If you expatriated between June 3, 2004 - June 17, 2008 then there is a 10-year reporting requirement where you would file 8854 every year for 10 years after renunciation.
- But if you expatriated after June 17, 2008 then it is just a one-time thing. You file 8854 with your final tax filing for your final year of citizenship, and then you are all done. Nothing else to worry about.
small correction to add a word to my first point to Gordon
Gordon Head
- If you cannot certify that you are in full compliance with all US tax reporting requirements for the previous 5 years, then you are automatically subject to the Exit Tax upon renunciation, even if you happen to qualify for the one of the exemptions that gets you out of the Exit Tax. However, in your case, your income/assets do NOT meet the thresholds anyway, so it doesn't really matter with respect to the Exit Tax.
Gordon Head
- If you cannot certify that you are in full compliance with all US tax reporting requirements for the previous 5 years, then you are automatically subject to the Exit Tax upon renunciation, even if you happen to qualify for the one of the exemptions that gets you out of the Exit Tax. However, in your case, your income/assets do NOT meet the thresholds anyway, so it doesn't really matter with respect to the Exit Tax.
416
Yeah, they can still assess penalties for previous FBAR non-compliance. But that is the case whether you renounce or not. Renunciation itself won't have anything to do with it.
If you want to be 100% safe and secure, go with OVDI. But as nelsona has pointed out in other threads, there really haven't been any notable examples of Canadians getting dinged for choosing quiet disclosure. But quiet disclosure will carry the same risks with or without renunciation.
Yeah, they can still assess penalties for previous FBAR non-compliance. But that is the case whether you renounce or not. Renunciation itself won't have anything to do with it.
If you want to be 100% safe and secure, go with OVDI. But as nelsona has pointed out in other threads, there really haven't been any notable examples of Canadians getting dinged for choosing quiet disclosure. But quiet disclosure will carry the same risks with or without renunciation.
The statute of limitations is 6 year since the due date of an unfiled FBAR. [ Sending in a late FBAR has no impact either way on the statute of limitations]
But I doubt very much the IRS would have any interest in pursuing an expat who has few US assets and is not a big time tax evader. [ I will say that though that until fairly recently, even US residents who likely were hiding money abroad could get away with quietly filing. That has definitely changed, but I would still say that when it comes to people who give up citizenship, the IRS's main interest would be in willful tax evaders. ]
But I doubt very much the IRS would have any interest in pursuing an expat who has few US assets and is not a big time tax evader. [ I will say that though that until fairly recently, even US residents who likely were hiding money abroad could get away with quietly filing. That has definitely changed, but I would still say that when it comes to people who give up citizenship, the IRS's main interest would be in willful tax evaders. ]
416
There are a few websites out there by people who have gone through the renunciation process, and who have been in touch with many other people. They've dealt with hundreds of ex-pats, and there isn't any evidence at all that suggests that ex-pats have been treated any differently than anyone else by the IRS.
Renunciation is a perfectly legal process, and the IRS has its own rules and forms and taxes spelled out for ex-pats, just as they have their own rules and taxes for all other groups of people.
The only case where I would suspect that renouncing would make things worse for you would be if you fail to certify on 8854 that you are up-to-date with your past 5 years of tax-filings. In that case, you are flat out telling them that you have not made any effort to bring yourself into compliance with the tax laws.
The only other thing is if you have been "out of the system" for a decade or more. In that case, you are probably off the IRS radar completely, and filing papers to renounce would bring you back on their radar again. But that would happen with any other tax filing, or anything to do with your passport, or SSN, or whatever.
And as it stands now, Canadian banks will be required to check if you are a US citizen anyway starting in 2013. The banks are currently fighting to get this requirement changed, but there is a good chance that this policy won't be changed, and Canadian banks will be reporting US citizen account information to the IRS. So that would put you right back on the IRS radar again anyway.
Honestly, renunciation is a very personal decision that should not be taken lightly. But if you are sure about it, then file your past 5 years of returns (including FBARs - and the additional new form that is supposed to start in 2011) either through OVDI (if you want to feel 100% safe), or through quiet disclosure. Then go ahead and apply for renunciation. Once you have renounced, you will officially be out of the US tax system for all future years.
There are a few websites out there by people who have gone through the renunciation process, and who have been in touch with many other people. They've dealt with hundreds of ex-pats, and there isn't any evidence at all that suggests that ex-pats have been treated any differently than anyone else by the IRS.
Renunciation is a perfectly legal process, and the IRS has its own rules and forms and taxes spelled out for ex-pats, just as they have their own rules and taxes for all other groups of people.
The only case where I would suspect that renouncing would make things worse for you would be if you fail to certify on 8854 that you are up-to-date with your past 5 years of tax-filings. In that case, you are flat out telling them that you have not made any effort to bring yourself into compliance with the tax laws.
The only other thing is if you have been "out of the system" for a decade or more. In that case, you are probably off the IRS radar completely, and filing papers to renounce would bring you back on their radar again. But that would happen with any other tax filing, or anything to do with your passport, or SSN, or whatever.
And as it stands now, Canadian banks will be required to check if you are a US citizen anyway starting in 2013. The banks are currently fighting to get this requirement changed, but there is a good chance that this policy won't be changed, and Canadian banks will be reporting US citizen account information to the IRS. So that would put you right back on the IRS radar again anyway.
Honestly, renunciation is a very personal decision that should not be taken lightly. But if you are sure about it, then file your past 5 years of returns (including FBARs - and the additional new form that is supposed to start in 2011) either through OVDI (if you want to feel 100% safe), or through quiet disclosure. Then go ahead and apply for renunciation. Once you have renounced, you will officially be out of the US tax system for all future years.
Thanks for your helpful advice, Dalthien.
My approach at this point is to file five years of back returns and make a choice about renunciation (as the State Department points out, a final and irrevocable decision) in a calmer atmosphere. That way the way is paved for whatever choice ends up being made.
The way it looks from here, though, is that maintaining my dormant US citizenship is going to end up as a major household expense like gas or electricity, and the question is whether it's worth it is bound to come up. My wife has a strong sense of Yorkshire thrift, and her UK/EU citizenship costs her nothing at all. On the other hand, I have 22 years of working life left, and US citizenship might be useful in the future - I just wish they hadn't forced a choice like this.
My approach at this point is to file five years of back returns and make a choice about renunciation (as the State Department points out, a final and irrevocable decision) in a calmer atmosphere. That way the way is paved for whatever choice ends up being made.
The way it looks from here, though, is that maintaining my dormant US citizenship is going to end up as a major household expense like gas or electricity, and the question is whether it's worth it is bound to come up. My wife has a strong sense of Yorkshire thrift, and her UK/EU citizenship costs her nothing at all. On the other hand, I have 22 years of working life left, and US citizenship might be useful in the future - I just wish they hadn't forced a choice like this.
my wife wants to renounce her u.s. citizenship as soon as we send off her 6 years of taxes and fbar (she owes no money to the irs.).... our thoughts are once we file we can check the box that asks if you have filed for the last 5 years honestly...any thoughts on this please... my wife was a born Canadian and from what we read this exempts her from the exit tax...there has been some discussion on a cover letter...we are not sending in a cover letter with her taxes... but the fbar instruction sheet says to send in a explanation on why the filing was late....any thoughts on this???