A recent post from Phil Hodgen discussing relinquishing U.S. citizenship and expatriation ends with:
People care about this because they are angling for an earlier expatriation date than “now”, whatever “now” is. It won’t work. If you are a U.S. citizen, you will not have an expatriation date earlier than an objective event involving paperwork. Invoking the time traveler exception again, this is impossible to do unless you have that special ability. Determine your expatriation date for tax purposes as of right now (whenever “now” is for you), and compute the tax consequences accordingly.
As one commenter wrote:
As someone born ‘dual’, and unable to acquire the magical, ‘back-dated’ CLN, I am personally unaffected. However, I think this article just caused a lot of people more sleepless nights. The nightmare never ends.
In my respectful submission the 877A rules:
– apply to those expatriating after the 877A provisions took effect in 2008; and
– do NOT apply to those expatriating prior to the 877A provisions becoming law.
The 877A rules should NOT be read to operate retrospectively.
The 877A rules should be understood to apply when both the expatriating act and the “objective event confirming the paperwork” took place after the 877A rules took effect.
The reasons for my thinking …
My recent post discussed the importance of renouncing U.S. citizenship before becoming a covered expat. For those who need a reminder (and this is not a substitute for careful legal advice) a “covered expatriate” is one who meets any of the following tests:
1. The Income Test – Has the composition of income hat has resulted in a U.S. tax bill of approximately 140,000 for each of the last three years (this is a paraphrase, look it up yourself);
2. The Asset Test – Has a net worth of two million dollars or more
3. The Compliance Test – Is unable to certify compliance with U.S. tax laws for each of the five years prior to expatriation. Note that this is intended to include having filed all relevant information returns. (I would argue that since FBAR is a Title 31 requirement it is irrelevant to Title 26 compliance). Interestingly, if you do not meet either the asset test or the income test, you have a huge incentive to ensure that you have five years of tax compliance.
When it comes to U.S. tax compliance:
The only thing worse than the fear of non-compliance is the certainty of compliance. Why?
For those who do not want to read this post. Here is the bottom line:
If you are a tax compliant U.S. citizen abroad, with a net worth of less than two million U.S. dollars, with investments (including mutual funds, pensions, and a principal residence in your country of residence), you should renounce your U.S. citizenship at the earliest possible moment. To the extent that your investments are in non-U.S. mutual funds, other kinds of PFICs or your principal residence, the U.S will confiscate large amounts of the proceeds of sale. (And you thought you were solving your problems be being tax compliant.)
Many Canadians are using their principal residence as their retirement plan. Their plan is to sell, downsize and live of the balance of the proceeds. This is NOT possible if you are a tax compliant U.S. citizen! You must NOT be a U.S. citizen at the time the investments are sold.
If you want to preserve your investments you must relinquish your U.S. citizenship to protect your access to your investments!
For those who want to understand why, read on …