# Three citizenships and just found out about US tax law and FATCA - Advice please!



## leim (May 5, 2016)

Hi all,
Firstly would like to say what a great forum! I have been a visitor for a few weeks and have found lots of really useful information. Now I'm hoping to get a bit more advice...

I have the dubious honour of holding three citizenships - born in US to English parents but only lived there until I was 2 years old (had a passport as a child and visited twice and have an SSN), had dual UK citizenship from birth and then emigrated from the UK to Australia aged 25, becoming Australian citizen in 2010.

Now in my mid-thirties with partner, mortgage etc. I looked into doing some planning for the future and on researching investment accounts found out about the FATCA and the US citizenship based tax system. This is something I had no idea about and after a few days of blind panic I've been actively researching what to do next. At this point I have had no issues with banks, mortgage providers etc. so I'm pretty sure I'm off the IRS radar for now.

Renouncing my US citizenship had been something that I had been considering for a while and my recent discovery has sealed the deal! I believe that I need to file 6 years FBAR and 5 years of tax returns to be able to complete form 8854 and be off the US system for good. My question is - can I renounce citizenship first then deal with the tax issue or do I have to sort the tax and then renounce (although that way seems to me to create a cyclical problem).

Also I have read horror stories about the spouses of US citizens being dragged into this mess too. My partner and I are not married but have been living together for over 7 years so I'm guessing we would be considered "married". Can anyone clarify? We are planning to get married this September but if we're not considered married at the moment we might hold off until I get this mess sorted. The reason this concerns me is that last year my partner's parents gave us (into a joint bank account) a very substantial amount of money to help us pay for our house and I would hate to think that my US-ness would impact on my partner or his parents. Without this gift I wouldn't be over the US tax threshold so I don't think I would owe anything, but with it I would. 

I still have assets in the UK which I report to the Australian Tax Office every year as I don't file or report in the UK. I have not had any problems with this but I'm feeling that my situation is getting very complicated very quickly. 

I guess I'd basically like to know what you guys think is the best way to get started with dealing with all of this. I've downloaded and had a read of publication 54 and a bunch of other forms but I'm not sure if I'm capable of completing the process without expert (and probably very expensive) help. Do others have experience going it alone?

Thanks very much and sorry for such a long post.


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## iota2014 (Jul 30, 2015)

Hi leim. 



> Renouncing my US citizenship had been something that I had been considering for a while and my recent discovery has sealed the deal! I believe that I need to file 6 years FBAR and 5 years of tax returns to be able to complete form 8854 and be off the US system for good. My question is - can I renounce citizenship first then deal with the tax issue or do I have to sort the tax and then renounce (although that way seems to me to create a cyclical problem).


Yes you can renounce first. I did (October 2015), and then did the back-filing (FBARs only as I was under threshold). Then, this year, I filed for the part of 2015 up to R-day, and then filed the 8854.

Hope that helps.


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## leim (May 5, 2016)

Thank you iota2014, renouncing first seemed to me to be the logical way to go. I actually think that will be the easy part of the whole process!


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## iota2014 (Jul 30, 2015)

I found it very enjoyable.


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## Pacifica (Oct 19, 2011)

leim said:


> Renouncing my US citizenship had been something that I had been considering for a while and my recent discovery has sealed the deal! I believe that I need to file 6 years FBAR and 5 years of tax returns to be able to complete form 8854 and be off the US system for good. My question is - can I renounce citizenship first then deal with the tax issue or do I have to sort the tax and then renounce (although that way seems to me to create a cyclical problem).


Hi Leim,

You can renounce before being tax compliant. It seems that people do that a lot – basically want to stop the clock on their US citizenship as soon as possible. 

To avoid covered expatriate status, one has to file 8854 and the previous 5 years, but they’re not required until the June 15th of the year after the renunciation. 

(1) *Dept of State*

Dept of State basically doesn’t care about one’s tax status as the citizenship itself (and the issuance of the CLN) is not dependent on one being tax compliant. 

DoS’s involvement/connection with tax is the following:

(a) At the consulate the person signs DS-4081, Statement of Understanding of Consequences; one of the 12 items on it is Item 10, that renouncing “… may not exempt me from US tax income taxation [etc] …”

(b) The questionnaire, DS-4079, at q. 13 (e) asks “Do you file US income or other tax returns?” The tax question on the DS-4079 is there as an indicator of your ties and connections to the US, which is important if you’re claiming to have relinquished some years ago (in which case you’re trying to illustrate your lack of ties/connections/citizenship behaviour). For renunciations, it’s irrelevant if you have ties/connections/citizenship behaviour or not. (Note: Not all consulates require the DS-4079 for renunciations.) 

(c) Dept of State is to provide IRS with a copy of each CLN they issue as per DoS Interagency Coordination and Reporting Requirements, 7 FAM 1243(a). 

(2) *IRS*

To log out of IRS and avoid covered expatriate status, IRS requires that the person file their exit tax form (8854), their final year form, and the five-years-previous-to-final-year forms, by June 15th of the year following the renunciation (or, for relinquishment, the signing of the 4079 at the consulate).

FWIW, if a person chooses not to file, the citizenship itself remains terminated and the CLN remains valid.


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## leim (May 5, 2016)

I can only imagine, iota2014. I'm looking forward to it already!


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## leim (May 5, 2016)

Thank you Pacifica, that's very helpful.


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## Bevdeforges (Nov 16, 2007)

> My partner and I are not married but have been living together for over 7 years so I'm guessing we would be considered "married". Can anyone clarify? We are planning to get married this September but if we're not considered married at the moment we might hold off until I get this mess sorted.


Not to worry. In the US "married" means married. "De facto" partnerships don't count (certainly not for taxes in any event). 

I'd also just add to what you have been told so far that you shouldn't sweat the details. Until and unless you're talking at least a couple million in income and/or assets, you make a "good faith" effort in filing those five back years of returns. Chances are you won't owe them a cent - and the back filings are mostly just to prove this point. Any earned income can be "excluded" away using the Foreign Earned Income Exclusion, and any "passive" income (interest or investment income) will either fall under the personal exemption plus standard deduction and be obliterated - or will most likely be covered by any income taxes you paid on the interest to either the UK or NZ.

The FBARs are nothing but a listing of bank accounts over which you have signature authority. If you don't have the back records to sort out the "high balance" for each year, make an educated guess, round up by a couple thousand $$ and report that. As long as it all roughly hangs together with what your tax returns indicate (mainly, the banks you report interest from are included somewhere on your FBAR) they'll file everything away and you're done. As the old line goes, Keep It Simple, Stupid. (Not directed at you, obviously.)
Cheers,
Bev


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## leim (May 5, 2016)

Thank you Bev for your advice and for making me feel a bit better about all of this. It seems like a huge hurdle at the moment and I'm just blown away by how ridiculous the system is (in my mind anyway!) But I should thank my lucky stars I keep records of everything so sorting it out should be ok - I hope.
Cheers


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## iota2014 (Jul 30, 2015)

leim said:


> ...last year my partner's parents gave us (into a joint bank account) a very substantial amount of money to help us pay for our house... Without this gift I wouldn't be over the US tax threshold so I don't think I would owe anything, but with it I would.


Presumably it's your share of the interest the money has earned since you received it that is putting you over the filing threshold for 2015? Bear in mind that if Australia is taxing the income, you can claim foreign tax credits on your IRS return up to the amount of tax you paid to Australia. You'd still have to file, in order to claim the FTCs, but it should reduce any tax due.


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## Booth44 (Apr 23, 2016)

I think you shouldn't lose sleep in your situation and I definitely don't see any reason to postpone your wedding. Do you and your partner operate a business together? I think those situations are the ones which generate the most angst. If your income situation is relatively straightforward as a wage-earner with maybe a bit of investment income the tax filings will be simple.


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## BBCWatcher (Dec 28, 2012)

Note that it costs $2350 plus (usually) a pair of personal appearances at your nearest U.S. consulate to renounce U.S. citizenship. That might be an odd expenditure if you owe zero U.S. tax.


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## iota2014 (Jul 30, 2015)

BBCWatcher said:


> Note that it costs $2350 plus (usually) a pair of personal appearances at your nearest U.S. consulate to renounce U.S. citizenship.


Only one attendance at a Consulate is required, generally. It doesn't have to be your nearest Consulate - I renounced in Amsterdam, though I live in London.


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## Pacifica (Oct 19, 2011)

Yes, it’s generally only one visit required for renunciation, although there remain some consulates that require two.

Some consulates had a one visit policy at the time I started tracking this stuff in 2011. With consulates that required two visits at that time, I noticed a real swing towards an one visit policy beginning in 2012. I suspect because they were getting swamped with so many renunciations to handle.

The information I have is primarily from people who report their experiences to the Isaac Brock Society and we just about never (in recent years) get a report of a two-visit experience. 

There’s a lot of presumably low-volume consulates for which we’ve got no feedback yet, so don’t know anything about them. But I’ll bet there’s getting to be fewer and fewer low-volume consulates all the time.


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## leim (May 5, 2016)

Thank you for your reassurances folks. 

My partner has just started his own business but I have nothing to do with it from a financial point of view. I help him with the bookwork but have no financial input or gain from it (he's running at a loss) so I think it would not be relevant to my situation.

With regards to the gift - most of it went on the house and the rest is offsetting some of the mortgage so there is no interest earned on it at all. I had read somewhere that gifts over a certain amount were taxed to the giver of the gift or something like that - although I may have misunderstood.

I think my plan of action will be to get the ball rolling with the renunciation and while that's happening get all the information together to sort out the tax reporting. If I manage to renounce this year am I correct in thinking that form 8854 submission would then need to be June 2017?

I can understand what you're saying BBCwatcher that the fee for renunciation is odd expenditure if I owe no tax, but I am a worrier(!) and for me, I think I'll be much better off out of the system. In any case it's been years since I've been to Melbourne so I could make a holiday of it 

Cheers


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## Pacifica (Oct 19, 2011)

leim said:


> I think my plan of action will be to get the ball rolling with the renunciation and while that's happening get all the information together to sort out the tax reporting. If I manage to renounce this year am I correct in thinking that form 8854 submission would then need to be June 2017?
> ... In any case it's been years since I've been to Melbourne so I could make a holiday of it


Yes, for 2016 renunciations, the 8854 deadline is June 15th, 2017.

I think Melbourne is still two-visits. Haven’t got any reports from there recently, but their webpage indicates two visits. Bummer. But you’ll know for sure once you contact them if that’s current or not – it’s probably current, but I hope it’s not, especially if you’re travelling a distance. 

If it is two visits and you're travelling a distance, by pointing that out to them, you may be able to have them schedule the two visits for two days in a row -- I know two people who did that at other consulates -- or maybe, due to distance, they'd let you do it in one. Can't hurt to ask.

BTW, I’d like to take a holiday in Melbourne too – love the trams


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