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Tax Forms After You Renounce Your US Citizenship? Yep!

Article Summary:

If you are an expat who has officially renounced your U.S. citizenship you may have to file IRS Form 8854 each year after you completed the renunciation process.

Original Article Text From Greenback Tax Services:

If You Renounced Your Citizenship, You Need This Expatriate Tax Info

If you are an expat who has officially renounced your US citizenship you may have to file IRS Form 8854 each year after you completed the renunciation process. Before following specific US expatriate tax rules it is important to determine which rules apply to you.

As you read on you will understand why this is especially important for “true” expatriates. For the purpose of this article, “expatriate” refers only to those who have officially renounced their US citizenship and terminated long-term residency.

Form 8854
IRS Form 8854 is called the Initial and Annual Expatriation Statement. There are two reasons you have to file Form 8854: 1) to establish your expatriation for tax purposes (for the initial year of expatriation) and 2) to make an annual statement in compliance with information reporting requirements if you expatriated after June 3, 2004 and are under Internal Revenue Code section 877 or section 877A.

If you expatriated prior to June 4, 2004 the only time you should file Form 8854 is to report your initial year of expatriation. More information can be found in IRS Notice 97-19 at www.irs.gov/pub/irs-irbs/irb97-10.pdf beginning at page 40.

New Expatriate Tax Laws
On June 17, 2008 the US passed a law that changed the taxation rules that apply to some expatriates by adopting section 877A. This is where it gets a little confusing. If you renounced your citizenship after June 16, 2008 you may have to file Form 8854 as a “covered expatriate” under section 877A. If you expatriated before June 17, 2008 and after June 3, 2004 you may have to file Form 8854 under the rules of section 877. Let’s explore this a bit more.

Expatriates who renounced citizenship after June 16, 2008

If you meet one of the following criteria you are come under section 877A and are considered a “covered expatriate.”

Your average annual net income tax liability for the 5 tax years ending before your expatriation date is more than a threshold amount for your expatriation year. For 2008 the threshold is $139,000 and for 2011 it is $147,000; it is adjusted each year for inflation.

Your net worth was $2 million or more on the date of your expatriation.

On your initial form 8854 you fail to certify that you complied with all your federal tax obligations for the 5 years preceding your expatriation date.

If you are a covered expat you may have elected to defer payment of tax on the gain from any of your deemed property sales until the year you actually sell the property. If you made such a deferral election on your initial Form 8854 then you have to file Form 8854 annually each year up to and including the year of the sale.

If you are a covered expat and had eligible deferred compensation or an interest in a nongrantor trust when you expatriated you have to file Form 8854 each year and indicate whether or not you received any distributions from the deferred compensation plan or trust that year. You can expect the payor of these distributions to withhold 30% tax. Generally any part of the distribution that is allocable to compensation for service performed outside the US should not be subject to the 30% withholding tax.

Expatriates who renounced citizenship after June 3, 2004 and before June 17, 2008

If you are subject to section 877 you are taxed by the US as a nonresident and you must file Form 8854 and a 1040NR every year. You are subject to section 877 if any of the following applies to you:

Your average annual net income tax liability for the 5 tax years ending before your expatriation date is more than a set threshold amount for your expatriation year. For 2004 the threshold is $124,000 and for 2008 it is $139,000; it is adjusted each year for inflation.

Your net worth was $2 million or more on the date of your expatriation.

On your initial form 8854 you fail to certify that you complied with all your federal tax obligations for the 5 years preceding your expatriation date.

If you are under section 877 and are in the US for more than 30 days in any year during the ten year period that section 877 applies to you, you may have to file as a US resident and could be subject to US tax on your worldwide income. Some exceptions apply

Link to Original Article:

From Greenback Tax Services

  • Robert in Vancouver

    This is a new way for the IRS to continue taking money from ex-citizens who they can’t tax anymore.

    I’ll bet this will work for the IRS. I mean, very few ex-citizens living in another country will know they have to file this form, so penalties plus interest (for not filing) will pile up.

    When the ex-citizen dies and their estate is settled, the IRS will take their money out of the estate settlement.

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