# Question regarding renunciation options



## mrukk

Hi there,

Due to the issues regarding taxation, I am considering renouncing my US citizenship. I am a citizen of New Zealand, received US citizenship about 10 years ago, and now have lived in Australia for several years. I am looking into the ways of going about this. The straightforward process seems to be to apply to the embassy for renunciation and pay the 3 grand fee (Australian).

The other option is the expatriating acts, and this is where I wonder if anyone has any advice. The first act is "1.obtaining naturalization in a foreign state upon one's own application after the age of 18 (Sec. 349 (a) (1) INA)". In a year or so I will be able to gain Australian citizenship, and I am wondering if I could do that while stating or putting in writing that I am doing it with the intention of relinquishing my US citizenship. The benefit of this is obviously avoiding the process and the 3 thousand fee.

From what I have read, it seems this latter method may work, but I'd be interested to know if anyone had any first-hand experience or good advice regarding it. 

Thanks very much for your time.


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## JustLurking

mrukk said:


> ...In a year or so I will be able to gain Australian citizenship, and I am wondering if I could do that while stating or putting in writing that I am doing it with the intention of relinquishing my US citizenship. The benefit of this is obviously avoiding the process and the 3 thousand fee.


That doesn't work any more. From Sept last year the US has applied the US $2,350 CLN documentation fee to _both_ renunciation _and_ relinquishment.


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## mrukk

JustLurking said:


> That doesn't work any more. From Sept last year[/URL] the US has applied the US $2,350 CLN documentation fee to _both_ renunciation _and_ relinquishment.


Thanks very much for that information. I guess it is to be expected, and even more reason just to get out before they make it even harder.


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## maz57

If you take on Australian citizenship with the intent of relinquishing US citizenship, according to US citizenship law you will no longer be one of their citizens. It all hinges on your intent and only you can know what is in your mind. However, if you wish to obtain a CLN to officially document that relinquishment, that's where the US government will hit you for the $2350. In the case of a relinquishment it amounts to a documentation fee; the loss of citizenship has already occurred before you set foot in the Consulate. In any case its a moot point; it now costs $2350 to get a CLN.

In a relinquishment situation, even though at that point you are no longer a US citizen, without applying for a CLN and filing IRS Form 8854 (which certifies you are up to date on your US taxes and subjects you to the exit tax regime) in the eyes of the US government you will continue to be a "US taxable person". Whether such a state of limbo makes any difference depends entirely on your personal circumstances. (For instance, if your bank asks you if you are a US citizen, you can now honestly answer "no", but if they ask for proof that could be a problem.) If you have no US assets and don't plan to ever live in the US, it may well not make a difference.

It sounds like you have a year to research all the details. Hope this helps.


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## diharv

If you're a New Zealander by birth what are you worried about ? Who's going to know about your US "indicia" if you don't say anything ? Think hard before poking the hornets nest . Lots of good advice on here though. I'd think that if you were born anywhere but "there" that you could go your whole life and never be asked are you or have you ever been blah blah blah.


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## iota2014

maz57 said:


> It sounds like you have a year to research all the details.


Presumably the OP could renounce immediately, since he's a citizen of NZ so would not be rendered stateless by renouncing US citizenship.


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## mrukk

iota2014 said:


> Presumably the OP could renounce immediately, since he's a citizen of NZ so would not be rendered stateless by renouncing US citizenship.


That's right. The delay would only have been waiting for Australian Citizenship to become available IF there was a financial benefit to doing so. As there isn't, I'll likely go ahead.


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## mrukk

maz57 said:


> In a relinquishment situation, even though at that point you are no longer a US citizen, without applying for a CLN and filing IRS Form 8854 (which certifies you are up to date on your US taxes and subjects you to the exit tax regime) in the eyes of the US government you will continue to be a "US taxable person". Whether such a state of limbo makes any difference depends entirely on your personal circumstances. (For instance, if your bank asks you if you are a US citizen, you can now honestly answer "no", but if they ask for proof that could be a problem.) If you have no US assets and don't plan to ever live in the US, it may well not make a difference.


Thanks for those details!


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## mrukk

diharv said:


> If you're a New Zealander by birth what are you worried about ? Who's going to know about your US "indicia" if you don't say anything ? Think hard before poking the hornets nest . Lots of good advice on here though. I'd think that if you were born anywhere but "there" that you could go your whole life and never be asked are you or have you ever been blah blah blah.


Well, the US knows, and expects tax returns and FBARs. The banks are more likely to find out these days. I've noticed application forms for credit cards now sometimes ask specifically if you are a US citizen. As I am in Australia and am taxed at a higher rate than the US, presumably I'll be unlikely to have to pay anything in addition. The worry is that these rules can be changed at any time, and while I have a fairly straightforward money situation at the moment, I don't want to find out later in life that I owe the US money for issues with superannuation, inheritances, capital gains taxes, or lottery winnings (not expecting this as I never play) etc.

As much as I like having my US citizenship, the reality is that I get no benefit from it, and am probably unlikely to in future. There is only potential risk and the hassle involved in filing taxes and bank statements etc.


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## BBCWatcher

Do you expect to have any children, including adopted children? U.S. citizens often wait until they're well clear of their child bearing/adopting years, including for reasons discussed in another thread (summary: U.S. citizen children are potent engines for obtaining free money from the IRS).


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## mrukk

BBCWatcher said:


> Do you expect to have any children, including adopted children? U.S. citizens often wait until they're well clear of their child bearing/adopting years, including for reasons discussed in another thread (summary: U.S. citizen children are potent engines for obtaining free money from the IRS).


Thanks. I appreciate the ongoing thoughts on the matter. I have one child and one on the way. Both will be born in Australia.

I've just been having a quick look now. It appears as though my children may be automatically US citizens, which is something I didn't expect. This child tax credit idea is interesting, and I'll have to look into it further. I'll look for the thread you mentioned, but is there a link?

It looks as though I would need to register my children with SSN's (?) in order to try and claim refunds on an ongoing basis. If they are automatically citizens, even though they are born overseas, would I have to go through a process of renunciation for them as well, if I decided to go ahead? It all gets very confusing!

Thanks again for everyone's help!


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## BBCWatcher

mrukk said:


> It appears as though my children may be automatically US citizens, which is something I didn't expect.


If you are a U.S. citizen at the birth of a child, and provided you met the residency requirement -- undoubtedly if you're a naturalized U.S. citizen -- yes, as a matter of legal fact they are born U.S. citizens.



> This child tax credit idea is interesting, and I'll have to look into it further.


Yes, it's worth researching even if only to pay for your $2350 if that's what you decide. The Additional Child Tax Credit and the American Opportunity Tax Credit are the two key ones.



> If they are automatically citizens, even though they are born overseas, would I have to go through a process of renunciation for them as well, if I decided to go ahead?


No. Only they can do so, on their own. If they are born U.S. citizens, they are for as long as they decide to remain so, when they are deemed adults competent to act for these purposes -- almost always on or after their 18th birthdays.

Since you already have one U.S. citizen child as a legal fact, in my view I would be _particularly_ cautious about renouncing too early since you can cause some family tension if you end up with different children with different citizenship opportunities. That can foster some extreme bitterness between siblings...as one runs off to the U.S. as a 19 year old (or whenever) and the other cannot.


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## mrukk

So, from a brief read, it seems that my children will automatically be US citizens. There also is clearly a state of limbo, where if they are not registered with the US, no one will know about it. At a later date they may be able to claim citizenship, or not. 

I've been reading on Wikipedia about accidental Americans... "When clients who have lived abroad for years come in, concerned about whether they have an obligation under FATCA, they sometimes react to the suggestion that their kids might be American the way one might react to a horrible medical diagnosis."

I guess the question is, do I protect them from potential difficulties with taxes etc down the track, or do we try to claim some child tax credits in the meantime and hope things don't get much worse. I don't have any significant assets currently, but do have an income of US 130,000 this year, and likely to get just over 200k in the next 10 years. I have currently been filing individually as my wife is a non-US citizen, so I'm not quite sure how much this income would potentially reduce any possible child tax credit, making it less worthwhile to pursue?


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## iota2014

mrukk said:


> Thanks. I appreciate the ongoing thoughts on the matter. I have one child and one on the way. Both will be born in Australia.
> 
> I've just been having a quick look now. It appears as though my children may be automatically US citizens, which is something I didn't expect. This child tax credit idea is interesting, and I'll have to look into it further. I'll look for the thread you mentioned, but is there a link?
> 
> It looks as though I would need to register my children with SSN's (?) in order to try and claim refunds on an ongoing basis. If they are automatically citizens, even though they are born overseas, would I have to go through a process of renunciation for them as well, if I decided to go ahead? It all gets very confusing!
> 
> Thanks again for everyone's help!


The US will regard them as US citizens if you meet the residency requirements at the time of their birth, regardless of whether you register them at a Consulate. So they will have dual (or triple?) nationality, and will be subject to all the rights (such as US passport, US tax breaks, etc) and all the obligations (taxation, form filling, etc) unless/until they renounce.

Your options (which determine your children's options) are: 

- forget about it and don't claim any of the rights on their behalf but wait until they're adults, when they can decide for themselves if they want to accept the taxation and make use of their US citizenship, or renounce (paying whatever fee is then chargeable), or just ignore the whole business and live their lives as non-Americans

or

- document their US citizenship now, by registering them at a Consulate, getting them US passports, or claiming what BBCWatcher likes to call "free money" (actually very expensive money in my view). If you do this, their cheap option (ignoring the whole business) disappears and they'll need to decide as adults whether to accept the taxation and make use of the citizenship, or pay the fee and renounce.


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## Bevdeforges

mrukk said:


> I guess the question is, do I protect them from potential difficulties with taxes etc down the track, or do we try to claim some child tax credits in the meantime and hope things don't get much worse. I don't have any significant assets currently, but do have an income of US 130,000 this year, and likely to get just over 200k in the next 10 years. I have currently been filing individually as my wife is a non-US citizen, so I'm not quite sure how much this income would potentially reduce any possible child tax credit, making it less worthwhile to pursue?


Take a look here https://www.irs.gov/publications/p972/ar02.html#en_US_2015_publink100012085 to see if you qualify. At your income level, it may not be worthwhile at all to file just to "get free money".
Cheers,
Bev


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## BBCWatcher

It's unlikely at that income level that you would qualify for the Additional Child Tax Credit. But it's also unlikely you would owe any U.S. tax as a resident of Australia. If you genuinely owe zero U.S. tax then you have the option to file only required financial disclosures (FinCEN Form 114 and/or IRS Form 3520/3520-A, as applicable), skip filing U.S. tax returns, and have zero legal issues associated with U.S. tax and financial reporting.

It's quite likely your children would qualify for the American Opportunity Tax Credit assuming current tax law continues in similar fashion and assuming they are documented U.S. citizens. It costs $100 to document the U.S. citizenship of a child born overseas.

To reiterate, given that you already have a child who is a U.S. citizen in legal fact -- that bell cannot be un-rung even if you wanted to -- I recommend postponing your own renunciation decision until you're well clear of the births of future children. Otherwise you'll end up with children with very different citizenship-related rights and privileges, and that difference alone could ignite significant and permanent sibling tension. Such tension is entirely avoidable with a postponement.

At your income level it's possible you're approach or have past the U.S. Expatriation Tax threshold of $2 million. Take a look at that, but also bear in mind there are ways to manage that if you end up renouncing U.S. citizenship. One way, for example, is to spend some time as a resident of New Zealand since that lines up with the citizenship you have possessed since birth.


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## Bevdeforges

I've always thought it was a bad idea to "hang in there" simply to collect this so-called "free money" from the various tax credits. But do take a look at the Wikipedia explanation of the American Opportunity Tax Credit:



> Provisions are specific to tax years 2009 and 2010 (since extended through 2017) for the first 4 years of post-secondary education.
> 
> Increases the Hope Scholarship Credit to 100 percent qualified tuition, fees and course materials paid by the taxpayer during the taxable year not to exceed $2,000, plus 25 percent of the next $2000 in qualified tuition, fees and course materials. The total credit does not exceed $2500.
> 
> 40% of the credit is refundable.
> 
> This tax credit is subject to a phase-out for taxpayers with adjusted gross income in excess of $80,000 ($160,000 for married couples filing jointly)
> .


There's no guarantee this will be extended beyond 2017. And I'd definitely look into how quickly that "phase-out" thing kicks in.



> Otherwise you'll end up with children with very different citizenship-related rights and privileges, and that difference alone could ignite significant and permanent sibling tension.


Seems a bit of a stretch. I know of a few families where the kids in the family have "very different citizenship-related rights" and there aren't any particular sibling tensions on the issue. Citizenship is pretty much an accident of birth and you deal with what you have to deal with.
Cheers,
Bev


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## iota2014

> American Opportunity Tax Credit
> Update May 31, 2013 — This page has been updated to reflect the fact that the American Opportunity Tax Credit, which was to expire at the end of 2012, was extended through December 2017 by the American Taxpayer Relief Act of 2012.
> 
> Update November 9, 2011 — This page has been updated to reflect the fact that the American Opportunity Tax Credit, which was to expire at the end of 2010, was extended for an additional two years through December 2012 by the Tax Relief and Job Creation Act of 2010.
> 
> Under the American Recovery and Reinvestment Act (ARRA), more parents and students will qualify for the American Opportunity Tax Credit to help pay for college expenses.
> 
> The American Opportunity Tax Credit modifies the existing Hope Credit. The AOTC makes the Hope Credit available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. It also adds required course materials to the list of qualifying expenses and allows the credit to be claimed for four post-secondary education years instead of two. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.
> 
> The full credit is available to individuals whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above these levels. These income limits are higher than under the existing Hope and Lifetime Learning Credits.
> 
> The AOTC applied to tax years 2009 and 2010 under ARRA. The credit was extended to apply for tax years 2011 and 2012 by the Tax Relief and Job Creation Act of 2010. The American Taxpayer Relief Act of 2012 extended the AOTC for five years through December 2017.


https://www.irs.gov/pub/irs-pdf/p901.pdf

But, correct me if I'm wrong, the school/college has to be on the list of eligible institutions, which doesn't include any outside America.



> Please note, the Secretary of Education's recognition of accrediting agencies is limited by statute to accreditation activities within the United States. Although many recognized agencies carry out accrediting activities outside the United States, these actions are not within the legal authority of the Department of Education to recognize, are not reviewed by the Department, and the Department does not exercise any oversight over them. (Consequently, institutions and programs outside the United States that are accredited by recognized agencies are not included in this database.)


U.S. Department of Education Database of Accredited Postsecondary Institutions and Programs


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## BBCWatcher

Bevdeforges said:


> And I'd definitely look into how quickly that "phase-out" thing kicks in.


The AOTC's income phase outs are not too interesting. Most college attending young adults are not receiving $80K+ of income. Yes, they can file their own tax returns to claim the AOTC as long as they follow the few rules involved. We recently heard from one recipient of the AOTC in this very forum, a young U.S. citizen adult who received his free money from the IRS when he filed his tax return.

The AOTC has been extended multiple times. I'm always careful to say "under current tax laws" since we don't know the future. We don't know if Australia will suffer a massive drought for the next three decades, for that matter. Renunciation of U.S. citizenship is permanent and irreversible, however, so we do know that particular future.



> I know of a few families where the kids in the family have "very different citizenship-related rights" and there aren't any particular sibling tensions on the issue.


Sibling tensions are not _guaranteed_. I didn't say that. That said, if a parent does something (renunciation) that excludes the next born from the same rights and privileges that the previous born has, that certainly could be a problem. It's not _only_ that the children have different citizen-related rights and privileges but, more than that, that the parent made an active decision that impacts their child. It's very, very easy to understand how a young (or older!) adult could be quite upset with that turn of events. Likely even more upset if the first child takes advantage of his/her citizenship-related rights and privileges.

I don't think it's a stretch at all. I think it's perfectly predictable that this _could_ be a problem and could cause a lot of resentment. Child #1 can move to Hollywood, and child #2 cannot, all because mommy or daddy renounced (and paid $2350 for the privilege). That might be really, really tough to explain years from now when child #1 really does move to Hollywood, Manhattan, or Montana (as examples) if he/she chooses.


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## Nononymous

iota2014 said:


> The US will regard them as US citizens if you meet the residency requirements at the time of their birth, regardless of whether you register them at a Consulate. So they will have dual (or triple?) nationality, and will be subject to all the rights (such as US passport, US tax breaks, etc) and all the obligations (taxation, form filling, etc) unless/until they renounce.
> 
> Your options (which determine your children's options) are:
> 
> - forget about it and don't claim any of the rights on their behalf but wait until they're adults, when they can decide for themselves if they want to accept the taxation and make use of their US citizenship, or renounce (paying whatever fee is then chargeable), or just ignore the whole business and live their lives as non-Americans
> 
> or
> 
> - document their US citizenship now, by registering them at a Consulate, getting them US passports, or claiming what BBCWatcher likes to call "free money" (actually very expensive money in my view). If you do this, their cheap option (ignoring the whole business) disappears and they'll need to decide as adults whether to accept the taxation and make use of the citizenship, or pay the fee and renounce.


I agree with everything written above, and since I wrote at length in the other thread, won't repeat myself. 

It sounds like the OP wouldn't qualify for much if any "free money", and since both the OP and children will have non-US birthplaces, it should be easier for the children to avoid unpleasantness due to their US citizenship. In that case, I personally would not register them.

But then if I was the OP, born in New Zealand and living Australia, I'd also ignore my US citizenship.


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## Bevdeforges

In many other countries, the universities are part of the national public education system, so tuition fees are nominal or (at least) reasonable. It makes sense that they would limit this credit to students attending US universities. But the $1000 that is refundable doesn't go far with tuition fees of $10,000 or more a year in the US.
Cheers,
Bev


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## Nononymous

Bevdeforges said:


> In many other countries, the universities are part of the national public education system, so tuition fees are nominal or (at least) reasonable. It makes sense that they would limit this credit to students attending US universities. But the $1000 that is refundable doesn't go far with tuition fees of $10,000 or more a year in the US.
> Cheers,
> Bev


$10,000? You found a bargain. That's community college. 

Out-of-state tuition at "public" universities isn't far behind private now - well beyond $30k for the decent ones.

Presumably any expats sending their kids to school in the US wouldn't qualify for in-state tuition (typically around $10-15k).


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## mrukk

I'm very grateful for all the replies. Thanks everyone; all very interesting information. I guess I am leaning towards renouncing, mainly to save the trouble of a lifetime of having to file taxes or forms, and worry or wonder whether the US will come after me for any larger financial events that might occur, or anything else they decide on at the time. The "free money" issue is interesting, but it looks like being of probable minimal benefit on my income, especially compared to the risk of having myself and 2 kids exposed to whatever the US wants to impose on us over our lifetimes. 

I will likely do this in the next few months, after my second child is born, and suspect the best option is to forego reporting their births. I suppose my renouncing and using a foreign passport on any trips to the US might save there being any questions asked about my children's citizenships, as long as they remain 'unannounced'. When they are older, they can decide on the current information as to what is of best benefit to them.


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## BBCWatcher

Again, you've raised the "free or low tuition" argument before, but the AOTC is not limited to tuition expenses. The AOTC is available even in zero tuition cases, as long as you have qualified higher educational expenses at a U.S. Department of Education listed institution in the United States or overseas. The AOTC can even cover things like a laptop computer purchased for your college education -- there are a lot of eligible qualified education expenses.

There are an awful lot of college attending U.S. citizens that qualify for the AOTC. Not _everybody_, but a rather high percentage. This isn't esoteric at all -- it's a rather generous refundable tax credit.


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## BBCWatcher

Renunciation after the vasectomy or menopause is rather what I had in mind, as the case may be.  "Well clear of childbearing years." I have a sibling who wasn't expected. A lot families do. All siblings in our family have identical citizenship-related rights and privileges except those they later acquired via marriage.

If you do leave your children undocumented, then I recommend making sure you assemble all the paperwork they would need to become documented, to keep that paperwork safe and secure, and to monitor developments in U.S. citizenship law and practices that might impact their ability to get documented. It's much easier to document them before they turn 18, so by the time they're old enough to have conversations -- no later than age 16, I would say -- it'd be prudent to have those conversations in an entirely factual way. They are U.S. citizens, and they may or may not feel as you do. It's part of their identities, and everyone is entitled to his/her own identity in my view. You should not _assume_ that they want to live undocumented, "in the shadows" as it were.


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## JustLurking

BBCWatcher said:


> ...At your income level it's possible you're approach or have past the U.S. Expatriation Tax threshold of $2 million. Take a look at that, but also bear in mind there are ways to manage that if you end up renouncing U.S. citizenship. One way, for example, is to spend some time as a resident of New Zealand since that lines up with the citizenship you have possessed since birth.


By which I presume you mean to "benefit" from the exception for dual citizens at birth who are resident in their other country of citizenship?

I don't think that will work for the OP. From the look of things he wasn't dual from birth, but naturalized as US a decade or so ago. There is no exit tax exception that I can find for anyone who has naturalized to US citizenship.


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## mrukk

BBCWatcher said:


> If you do leave your children undocumented, then I recommend making sure you assemble all the paperwork they would need to become documented, to keep that paperwork safe and secure, and to monitor developments in U.S. citizenship law and practices that might impact their ability to get documented.


Thanks again. I appreciate the advice, and will certainly continue to monitor the situation. 

As the for "identity" and "in the shadows" part, I agree, but to be fair any identity with the US in this situation is really just technical/legal, as they were born to a parent who was only there for 6 years. They will be well served with their NZ and Australian passports, but it is nice to know they will have that extra string to their bow down the track. 

Argh, I really hate the thought of a renunciation for myself. I'm really appreciating all this discussion though, as it's a difficult decision to make.


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## mrukk

JustLurking said:


> From the look of things he wasn't dual from birth, but naturalized as US a decade or so ago.


That is correct. A decade and 1 month ago! 

In any case, I am a long way from owing any exit tax currently, though it might be a consideration for the distant future.


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## maz57

BBCWatcher said:


> You should not _assume_ that they want to live undocumented, "in the shadows" as it were.


That's ridiculous. To suggest they are somehow tax evaders or guilty of some sort of subterfuge is a gross exaggeration.

A child born in another country who is a citizen from birth of that other country will most certainly not be living "in the shadows" if they have a possible claim to US citizenship but choose not to exercise it. Its only the bizarre US taxation laws that even make this an issue. Many "potential" US citizens happily live out their entire lives with no interference by the US government because the US government doesn't even know of their existence.

Its obvious the massively greater risk is "outing" them to the US government whether done by the parents or the individuals themselves.


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## mrukk

More basically, I'd just be really interested... does anyone think I should not renounce my citizenship? Do you think the risks are so small, that I'd probably just be fine submitting a few forms every year and not running into trouble?

I suspect my life will be fairly typical, with maybe a house or two, probably some small inheritances at some stage, and likely Australian superannuation payouts way down the track. I work in the medical field. It's possible I could own or enter a partnership in a private practice at some stage in my career, though that may also never happen. Are any of the above things reasons to worry, or are they such standard things that I'd likely never get hit with the US holding out it's hand for a cut?


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## iota2014

BBCWatcher said:


> It's much easier to document them before they turn 18...


How's that? The facts don't change, so as long as the evidence is preserved, it should be just as easy for an 18-year-old person to apply for a passport as it would be for the parent to apply for a passport for a minor child.


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## iota2014

mrukk said:


> That is correct. A decade and 1 month ago!
> 
> In any case, I am a long way from owing any exit tax currently, though it might be a consideration for the distant future.


Worth bearing in mind if you decide to renounce: assets that wouldn't be subject to the Gift Tax, if you gave everything away the day before renouncing, don't count towards your net worth on Form 8854. Basically, if you can't give it away, don't count it.


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## jbr439

mrukk said:


> More basically, I'd just be really interested... does anyone think I should not renounce my citizenship? Do you think the risks are so small, that I'd probably just be fine submitting a few forms every year and not running into trouble?
> 
> I suspect my life will be fairly typical, with maybe a house or two, probably some small inheritances at some stage, and likely Australian superannuation payouts way down the track. I work in the medical field. It's possible I could own or enter a partnership in a private practice at some stage in my career, though that may also never happen. Are any of the above things reasons to worry, or are they such standard things that I'd likely never get hit with the US holding out it's hand for a cut?


For all intents and purposes you won't be able to invest in non-US listed mutual funds and ETFs (they're considered PFICs). And, I do believe that there are potential issues if you enter into a partnership or have your own business - sorry, I don't recall the details but this is something you undoubtedly need to look at. The US will expect to tax you on the gain on your principal residence that exceeds $250,000 USD - that may or may not be a potential issue (this is a big issue in Canada, where there is no capital gains tax on your principal residence). If Australia has the equivalent of the US 529 plan (Canada's is the RESP), that would be considered a foreign trust and result in the filing of relevant forms (3520 and 3520A), under threat of significant penalty (and it goes without saying that the US does not recognize the tax advantaged nature of it).

Bottom line is that if you are aware of the issues *before* stepping in the crap, and don't mind working around them, and don't mind keeping up on US tax changes (or paying someone to do that for you), then it's manageable, although not necessarily time and/or money efficient.

OTOH, [bias alert] if you want to feel like a giant weight has been lifted off your shoulders, well, you know what to do


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## maz57

There's a lot of discussion on the web about US tax problems with the Aussy Superannuation accounts. My impression is that they are similar to a Canadian RRSP, except that they are mandatory and may include an employer contribution??? I have no first hand experience with them because I don't live there but to the best of my knowledge the Canadian RRSP is the only non-US tax deferred retirement savings account that is recognized by the IRS. All others are taxed annually on the gain by the IRS even if there is no distribution. This pretty much renders them useless for their intended purpose if you are a US taxable person. As jbr439 said, do the research before you step in the do-do.

As far as renunciation is concerned I wouldn't presume to offer advice except to say that I too, voted with my feet


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## mrukk

Thanks again for the opinions guys. It's very much appreciated.

And yes maz57, it is standard for employers to contribute 9% of the value of your income to superannuation, on top on your income, and some people will contribute more themselves. As far as capital gains, I'd hate to find I had a bill from the US govt 20 years down the track, so probably best to get out now just to avoid any later complications.


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## mrukk

Just out of interest, I have one more question. In regards to my children being automatically US citizens at birth, I understand the rule is that I should have spent 5 years in the US after the age of 14, and prior to the birth of my children. I certainly meet this requirement, but it isn't specified anywhere whether this should be 5 years as a citizen, or if any old 5 years is enough. I was there for 5 and a half years, with 5 years as a permanent resident, and left a week after becoming a citizen. I'm not sure if anyone knows if this would meet the requirement, or whether I should ask them for further clarification?

Just as a fun story, I remember calling immigration while in the US to ask if I could do my green card interview in New Zealand, or whether it had to be in the US. I was told they could only tell me this answer in person, and I spent 8 hours in the hot Texas sun with a queue of at least 500 people who had lined up in a queue winding around a carpark from about 3am in the morning just to spend 30 seconds with a lady behind the counter who said "yes". The joys of bureaucracy!


----------



## iota2014

If it was me, I wouldn't ask the US to clarify, I would just assume that the five years has to be spent as a citizen, and therefore the children are not US citizens from birth. Then when they are adults, they can find out for themselves whether they're entitled to claim citizenship on the basis of the time their parent spent in the US as a non-citizen, if they want to take up US citizenship.


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## Nononymous

The State Department site is annoyingly vague:



> The U.S. citizen parent had been physically present in the U.S. or its territories for a period of at least five years at some time in his or her life prior to the birth, of which at least two years were after his or her 14th birthday.


No mention of whether the parent needs to have been a citizen for that period, or could have naturalized a week prior to departing. Oddly difficult to find a straight answer, even Wikipedia's no help.


----------



## Nononymous

Nononymous said:


> No mention of whether the parent needs to have been a citizen for that period, or could have naturalized a week prior to departing. Oddly difficult to find a straight answer, even Wikipedia's no help.


Had to dig a bit, but actually time in the US as a non-citizen does count:



> A child’s ​U.S.​ citizen parent must meet the following physical presence requirements:​
> 
> • The parent has been physically present in the ​United States​ or its outlying possessions for at least five years; and​
> 
> ​• The parent met such physical presence for at least 2 years after he or she reached 14 years of age.​
> 
> ​A parent’s physical presence is calculated in the aggregate and includes time accrued in the United States during periods when the parent was not a U.S. citizen.​


Ergo, the OP's kids are citizens.


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## Bevdeforges

Nononymous, thank you for finding that! It's one of those questions that comes up now and then that can be tricky to check quickly online.
Cheers,
Bev


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## BBCWatcher

maz57 said:


> That's ridiculous.


No, it really isn't. One should not assume that a parent's views will be shared by a future young adult child. I certainly cannot predict how my child might feel about living as an undocumented U.S. citizen if that were to be the case.


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## BBCWatcher

iota2014 said:


> How's that? The facts don't change, so as long as the evidence is preserved, it should be just as easy for an 18-year-old person to apply for a passport as it would be for the parent to apply for a passport for a minor child.


There is some risk with time in the "evidence is preserved" part, because it may not be. But, to elaborate, it's quite a bit harder for an 18+ year old to obtain an SSN, and an SSN is quite important to _operate_ as a documented U.S. citizen and enjoy the rights and privileges associated with that citizenship.


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## Nononymous

BBCWatcher said:


> I certainly cannot predict how my child might feel about living as an undocumented U.S. citizen if that were to be the case.


I'm sure that he or she will find better things to resent you for. I'm certain that mine will.


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## Bevdeforges

BBCWatcher said:


> No, it really isn't. One should not assume that a parent's views will be shared by a future young adult child. I certainly cannot predict how my child might feel about living as an undocumented U.S. citizen if that were to be the case.


And I know of a few cases where the child in question resents the parent precisely because of the US citizenship and resultant obligations. So net-net, you can't win - you might as well let the kids choose for themselves.
Cheers,
Bev


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## BBCWatcher

Bevdeforges said:


> And I know of a few cases where the child in question resents the parent precisely because of the US citizenship and resultant obligations.


Well OK, but that's called fatherhood (or motherhood). And there's a tidy solution: $2350.


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## Bevdeforges

BBCWatcher said:


> Well OK, but that's called fatherhood (or motherhood). And there's a tidy solution: $2350.


As likely to happen in one direction as in the other. And not all parents have a handy $2350 lying around to appease one or each of their offspring. Personally, I'd prefer to give the kids the opportunity to choose when they come of age.
Cheers,
Bev


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## Nononymous

The nice thing about letting the kids choose is not only saving $2350 if they don't want it, but not having to make the decision at 18. Assuming things are properly documented, they can sail along unmolested until they're 30 or 40, then claim the citizenship. Yes, it won't be instantaneous, but that I think is a small price to pay.

(The other point is that for kids without a US birthplace, I'm not sure that having registered the birth and obtained a baby passport is really going to matter all that much. They won't be identified as a US in their countries of a residence, so no FATCA, and if that's the extent of the paper trail then I doubt the IRS is going to track them down. At least that's what I tell myself, as far as my daughter is concerned.)


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## Bevdeforges

Nononymous said:


> (The other point is that for kids without a US birthplace, I'm not sure that having registered the birth and obtained a baby passport is really going to matter all that much. They won't be identified as a US in their countries of a residence, so no FATCA, and if that's the extent of the paper trail then I doubt the IRS is going to track them down. At least that's what I tell myself, as far as my daughter is concerned.)


The kids without a US birthplace also won't be "outed" on their local country passports, so shouldn't have problems on visits to the US for the most part.
Cheers,
Bev


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## Nononymous

> The kids without a US birthplace also won't be "outed" on their local country passports, so shouldn't have problems on visits to the US for the most part.


No, but if the US border ever gets a decent database, I'm pretty sure my daughter named X X X born on XX/XX/XX in X, X is going to be a unique match for the birth registered as X X X born on XX/XX/XX in X, X. So I'm not 100 percent confident in her future ability to enter the US without questions being asked. But it hasn't happened yet.


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## Bevdeforges

Nononymous said:


> No, but if the US border ever gets a decent database,


A big if, by all accounts. Evidently, the US government has some of the most cobbled together, patchwork systems in the world. Suppose we can thank the obfuscation and budget cutting that has been going on in Congress for the last few decades. 
Cheers,
Bev


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## Nononymous

Bevdeforges said:


> A big if, by all accounts. Evidently, the US government has some of the most cobbled together, patchwork systems in the world. Suppose we can thank the obfuscation and budget cutting that has been going on in Congress for the last few decades.


President Trump will fix that. Easy!! And he'll make the Canadian government pay for it too!

(Actually that's not so different from how FATCA works - it's costing foreign banks and governments a pile.)


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## BBCWatcher

Bevdeforges said:


> The kids without a US birthplace also won't be "outed" on their local country passports, so shouldn't have problems on visits to the US for the most part.


Which would be illegal. Are you encouraging somebody to break the law?


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## Bevdeforges

BBCWatcher said:


> Which would be illegal. Are you encouraging somebody to break the law?


No. But only answer the question(s) you're actually asked. That's how you deal with all interactions with government types.
Cheers,
Bev


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## BBCWatcher

Bevdeforges said:


> No. But only answer the question(s) you're actually asked. That's how you deal with all interactions with government types.


It is illegal for a U.S. citizen to present themselves at the U.S. border with anything except a U.S. passport or U.S. passport card. No words need be spoken -- the act itself is illegal under U.S. law.

So, are you recommending that somebody commits an illegal act?


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## iota2014

BBCWatcher said:


> It is illegal for a U.S. citizen to present themselves at the U.S. border with anything except a U.S. passport or U.S. passport card. No words need be spoken -- the act itself is illegal under U.S. law.


Didn't I read somewhere that it leads to loss of U.S. nationality?


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## Bevdeforges

iota2014 said:


> Didn't I read somewhere that it leads to loss of U.S. nationality?


Nah, just a big fine. It's getting really really difficult to lose your nationality these days. 
Cheers,
Bev


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## Nononymous

iota2014 said:


> Didn't I read somewhere that it leads to loss of U.S. nationality?


Would that it were so simple.

To the earlier question, why yes, I heartily recommend breaking federal law by entering the US with a foreign passport. (I expect a drone will begin flying towards me the moment I post this comment.) I do it quite frequently, have continued doing it even after being warned once, and my daughter does it as well. So far so good.


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## maz57

BBCWatcher said:


> So, are you recommending that somebody commits an illegal act?


Nope, they are merely pointing out that there is no downside if someone does break that particular law. Geez, the US has so many laws we're all probably breaking other US laws all the time as well. Give it a rest, BBC. Nobody cares, not even the US government.

I broke US laws I didn't even know about for 40 years because I didn't file tax returns or FBARS. Nothing bad happened to me. Nothing bad has happened to anybody I know, even those who became Canadians without renouncing their US citizenship and who now travel to the US only on their Canadian passport.


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## iota2014

Bevdeforges said:


> Nah, just a big fine. It's getting really really difficult to lose your nationality these days.
> Cheers,
> Bev


Renunciations seem to be bringing in more revenue than FATCA, for far less overhead. I wonder when the penny will drop.


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## mrukk

Nononymous said:


> Had to dig a bit, but actually time in the US as a non-citizen does count:
> 
> Ergo, the OP's kids are citizens.


Sorry for the late reply. I've been a bit out of action. Thanks very much for finding that information. Now that I know they definitely are citizens, I'll have to do a bit more thinking about what to do about that. Presumably if I renounce, it would be very reasonable having 3 NZ passports (me and the kids) when entering the US, but if I didn't, it might seem odd that I would have a US passport, while my children didn't, to the immigration officials. No idea whether this would matter too much or not.

Anyway, I've really appreciated all the replies here. Thanks again all!


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## BBCWatcher

mrukk said:


> Presumably if I renounce, it would be very reasonable having 3 NZ passports (me and the kids) when entering the US....


It would be illegal, in fact. "Reasonable" is an odd word for that.


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## Nononymous

BBCWatcher said:


> It would be illegal, in fact. "Reasonable" is an odd word for that.


"Reasonable" is an odd word for just about anything to do with the US these days...


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## Bevdeforges

mrukk said:


> Sorry for the late reply. I've been a bit out of action. Thanks very much for finding that information. Now that I know they definitely are citizens, I'll have to do a bit more thinking about what to do about that. Presumably if I renounce, it would be very reasonable having 3 NZ passports (me and the kids) when entering the US, but if I didn't, it might seem odd that I would have a US passport, while my children didn't, to the immigration officials. No idea whether this would matter too much or not.
> 
> Anyway, I've really appreciated all the replies here. Thanks again all!


Actually there are LOTS of cases of families with one US parent and all the kids are not US citizens. (I know of several just within my acquaintances.) I have to believe that the Immigration folks at the airports see this all the time. Whether they question it or not is kind of up to them, I guess.
Cheers,
Bev


----------



## Nononymous

Illegal yes, reasonable yes. 

I do this regularly. Travel to the US with my daughter, both on Canadian passports, both US citizens, I with a US birthplace, her without. Never a question. 

I expect that if you had questions about your NZ passport with US birthplace and you produced a copy of your CLN, it would be a seriously annoying customs officer who then asked about the status of your NZ-passport-without-US-birthplace children.

The only time I've been hassled was going solo on a short business trip, when I got some line about needing a visa - I expressed disgust and in the ensuing conversation he noticed a US birthplace, asked some questions, then let me in on the basis of the expired US passport I magically produced. He gave me a lecture about renewing it, which I eventually did, though I continued travelling on the Canadian.


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## BBCWatcher

It's also illegal to lie to U.S. CBP (if one does that). Declining to answer a question is not.

Most foreign passport holders with visa waiver privileges have to use ESTA (and pay for it). If you lie on an ESTA application, that's illegal too.


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## Lulu78

mrukk said:


> I'm very grateful for all the replies. Thanks everyone; all very interesting information. I guess I am leaning towards renouncing, mainly to save the trouble of a lifetime of having to file taxes or forms, and worry or wonder whether the US will come after me for any larger financial events that might occur, or anything else they decide on at the time. The "free money" issue is interesting, but it looks like being of probable minimal benefit on my income, especially compared to the risk of having myself and 2 kids exposed to whatever the US wants to impose on us over our lifetimes.
> 
> I will likely do this in the next few months, after my second child is born, and suspect the best option is to forego reporting their births. I suppose my renouncing and using a foreign passport on any trips to the US might save there being any questions asked about my children's citizenships, as long as they remain 'unannounced'. When they are older, they can decide on the current information as to what is of best benefit to them.


Kia Ora Mrukk;
I thought I'd respond because I am in a similar situation to you, and I am also leaning towards renunciation. unfortunately, I am behind on my taxes (by behind, I mean never filed for the past 13 years as I wasn't aware that you actually needed to! and to be honest, I still can't get my head around the fact that I need to and I keep wishing that I will wake up from this awful nightmare!)
I have been doing a lot of reading and thinking about this, I have decided to come up to date with my taxes first, then give myself a year to think about renunciation (perhaps I will feel differently about my US citizenship once I am up to date with my taxes? and less anxious!).

I am also in the medical profession and probably from the sound of things maybe in a similar financial situation to you ( the potential to be a covered expat in the future, not hard really, if you own a house here and pay it off and say you inherit a family home!) 
Form my research this is the disadvantages/ restrictions that I found:
1. The whole issue with our superannuation and later distribution maybe taxed, also the account is in no doubt over 10K if you have been working for a few years, so it will tip your aggregates and you will have to file FBARs for all your accounts

2. The issue with our primary residence (we do not pay CGT for it in Oz), think about if you want to upgrade your home or move to a different suburb in a few years, this will certainly be harder for us as we will have to pay CGT to the US (and you know how it is with house prices in Oz)

3. If you have a mortgage with an offset mortgage account, from what I've worked out that this will have to be reported on the FBAR, although ultimately you are thousands of dollars in debt overall.

4. I am not sure about your situation but in my case, my husband is not a US citizen, and therefore moving assets between us is not that easy and may incur tax, this makes trying to organise our financial affairs really hard (not to mention he's really peeved about me having to report all our joint accounts on the FBARs to the IRS!) 

5. If you become a covered expat then the there is the whole exit tax to think about! 

6. The ongoing compliance cost of US taxes and risk of getting it wrong 

Anyhow! Like I said, I gave myself a year to think about it once I caught up with my US taxes! But at this stage the disadvantages and risks are too many for me. I must admit that in my situation, I don't have any particular strong ties to the US, have spent very little time there. I do have to travel there for work conferences/meetings, but if I get denied entry, then work are paying for my airfares (I would definitely not risk it for a holiday and if I was paying my own airfairs!)

I would be keen to here about your experience in the future, if you do go ahead with the renunciation/ or not!


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## BBCWatcher

_Technically_ it's possible to renounce (or document relinquishment of) U.S. citizenship without having your U.S. tax and financial reporting affairs in order. However, in practice you have to put those affairs in order because getting a Certificate of Loss of Nationality (CLN) triggers a notice to the Internal Revenue Service. Renunciation is a very "loud" act in bureaucratic terms.

A couple more points:

1. Getting a CLN doesn't necessarily mean you can avoid U.S. tax filing. It depends on whether you have U.S. source income and/or assets. If you do have U.S. source income, it's even possible to flip into a less attractive tax position as an ex-U.S. citizen.

2. Once you've cleaned up your tax and financial reporting obligations up to the present it tends to get a lot easier going forward to stay compliant. For most people the once-a-year ritual isn't a big deal. My first tax return was a bit awkward and scary, but my 5th? Or 20th? Not so much.


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## Lulu78

I think renouncing without getting ones Tax affairs inorder is an extremely foolish move, as my understanding this is one of the ways to automatically become a "covered expat" ! 

Now, if you haven't got much in the way of assets, then it's probably not a biggie but even so, why antagonise the IRS if you don't have to!


----------



## maz57

Lulu78 said:


> I think renouncing without getting ones Tax affairs in order is an extremely foolish move, as my understanding this is one of the ways to automatically become a "covered expat" !


But it is certainly reasonable to do both concurrently. In view of the fact that the renunciation process (from first contact to actually receiving a CLN) may take a year or longer, there is plenty of time to get the tax end of things in order. In fact, given that the final tax filing (Form 8854) can't be done until a CLN is issued, technically the renunciation must be done first. 

Many have gone ahead and renounced and then filed Streamlined while State Dept. is grinding away on the CLN. Many others have renounced without filing anything. That makes you a "covered expat" but depending on individual circumstances (i.e. no financial connection to the US) that may make no difference whatsoever. I have heard no reports of people who simply said "adios" to the US being hounded by the IRS.


----------



## iota2014

maz57 said:


> But it is certainly reasonable to do both concurrently. In view of the fact that the renunciation process (from first contact to actually receiving a CLN) may take a year or longer, there is plenty of time to get the tax end of things in order. In fact, given that the final tax filing (Form 8854) can't be done until a CLN is issued, technically the renunciation must be done first.
> 
> Many have gone ahead and renounced and then filed Streamlined while State Dept. is grinding away on the CLN. Many others have renounced without filing anything. That makes you a "covered expat" but depending on individual circumstances (i.e. no financial connection to the US) that may make no difference whatsoever. I have heard no reports of people who simply said "adios" to the US being hounded by the IRS.


Filing those final forms brings a very satisfying sense of finality though, or did for me.

Three occasions for celebrating: renunciation day, 8854 delivery day, and CLN arrival day.


----------



## Nononymous

BBCWatcher said:


> 2. Once you've cleaned up your tax and financial reporting obligations up to the present it tends to get a lot easier going forward to stay compliant. For most people the once-a-year ritual isn't a big deal. My first tax return was a bit awkward and scary, but my 5th? Or 20th? Not so much.


Paperwork may not be the issue, going forward, but rather the possibility of being taxed on otherwise non-taxable retirement savings vehicles or, per Boris Johnson, owing capital gains on the sale of a primary residence, should one be honest/foolish enough to report them to the US. The capital gains issue is a big one for people living in places like Vancouver or Australia where real estate values have skyrocketed.


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## BBCWatcher

Maybe, maybe not. "It depends." Moreover, the tax hit can actually flip against a renunciant, e.g. in certain U.S. Social Security benefit scenarios.


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## Nononymous

BBCWatcher said:


> Maybe, maybe not. "It depends." Moreover, the tax hit can actually flip against a renunciant, e.g. in certain U.S. Social Security benefit scenarios.


Indeed, if one spent significant time working in the US, there might be reason not to renounce. 

But there are lots of people in Vancouver with seven-figure gains on their homes, and then some. A dual citizen in a similar situation to my parents would be looking at a tax bill north of a million after selling the house (were they silly enough to comply). Which means there's a pretty good ROI on renouncing.


----------



## BBCWatcher

Nononymous said:


> A dual citizen in a similar situation to my parents would be looking at a tax bill north of a million after selling the house (were they silly enough to comply).


Let's not engage in hyperbole if we can avoid it, OK? Here's how the math actually works using an example.

The top _marginal_ U.S. capital gains tax rate is 23.8% inclusive of the Net Investment Income Tax. The net effective tax rate will be lower than that for at least three reasons: (1) half the gain is attributable to the non-resident alien spouse (and if the co-owner weren't a NRA, then we're into Covered Expatriate territory); (2) the $250,000 exemption; (3) the gains are calculated less allowable costs, of which there are many. It's not the simple difference between buying and selling prices.

So let's suppose the couple bought a home for $1 million and sold it for $6 million, all figures in U.S. dollars. (That's pretty impressive, obviously! Well done.) That's a mid-7 figure "headline" gain. We'll assume $400,000 in allowable costs (transfer taxes, stamp duties, home repairs, renovations, etc.), a NRA spouse co-owner, a zero foreign tax rate on this gain, owner occupation for at least 2 of the last 5 tax years, and no other capital gains or losses in that sale year. We'll also assume no pre-1997 purchase (since that uses a different calculation). So the total net gain is $4.6 million, and half of that is attributable to the U.S. spouse ($2.3 million). Deduct the exemption (now $2.05 million), and calculate the tax on that (approximately 20% effective rate). The total U.S. tax owed is then about $410,000. Not "north of a million" in this example. Not half of north of a million.

In order to generate a tax bill "north of a million" you're at least darn close to running afoul of lifetime estate/gift limits if you were to transfer your home ownership share to a NRA spouse, and the overage is taxable at a whopping 40%. You could well be much better off just taking the Covered Expatriate route in that event, and paying the Expatriation Tax, given the Expatriation Tax's lower rate and exemption. (Your mileage may vary, but that's the point.) Or, better yet, use some international tax loss harvesting techniques if the foreign tax code allows and if you're in a situation to do that.

By the way, this is a _very_ first world problem to have, to have a 7 figure U.S. dollar gain on a home. VERY few people are so fortunate, and there are certainly reasonable arguments that U.S. personhood should tax those who are so fortunate and who choose to maintain their U.S. personhoods. People like me. If the U.S. isn't going to tax somebody with a 7 figure gain and a zero foreign tax, who is it going to tax? Somebody making $20K/year working at Pizza Hut in Topeka? I mean, I'm sympathetic and all, but I'm more sympathetic for that Pizza Hut employee.


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## BBCWatcher

Oh, by the way, there's a great opportunity for the new Liberal Canadian Parliament here!

Instead of having tax revenues on real estate gains flowing south across the border, why doesn't Parliament adopt its own Canadian capital gains tax on real estate? Set the exemption to C$300,000 per spouse, and levy ordinary Canadian capital gains taxes above that (which are very, very similar to U.S. rates). Phase this tax in over, say, 5 years (20% of the tax owed in Year 1, 40% in Year 2, etc.) to avoid disrupting real estate markets too much, too suddenly. And then return every dollar of additional revenue in the form of refundable tax credits to every Canadian, rich and poor alike. The Canadian government thus "steals back" tax revenues from the IRS since U.S. persons can fully credit their Canadian income taxes via the Foreign Tax Credit.

The fact 7-figure real estate gains are Canadian tax free is very arguably a straight up defect in Canada's current tax code. Why should the cashier at a Tim Hortons in Halifax be paying higher Canadian taxes in order to make sure that somebody with a 7-figure (or 8-figure!) real estate gain is paying zero tax on that gain? That makes no sense in any reasonable, sensible, logical value system. So fix that...and steal back some tax revenues from the U.S. Treasury, a nice side benefit. Problem well solved.


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## Lulu78

BBCWatcher said:


> and there are certainly reasonable arguments that U.S. personhood should tax those who are so fortunate and who choose to maintain their U.S. personhoods. People like me. If the U.S. isn't going to tax somebody with a 7 figure gain and a zero foreign tax, who is it going to tax? Somebody making $20K/year working at Pizza Hut in Topeka? I mean, I'm sympathetic and all, but I'm more sympathetic for that Pizza Hut employee.


The US is free to tax a person who is making a 7 figure gain, if they are residing in the US (and theoretically benefiting from whatever the US government offers their citizens)! Or if that money was made or earned in the US somehow! 



BBCWatcher said:


> who choose to maintain their U.S. personhoods .


What choice? in fact, if you can't afford to pay the 3$AusK cost of renunciation (not to mention the time to jump through the paper hoops), that's being forced to maintain the U.S personhoods!


----------



## Nononymous

BBCWatcher said:


> Instead of having tax revenues on real estate gains flowing south across the border, why doesn't Parliament adopt its own Canadian capital gains tax on real estate?


Among other reasons, because most of those people earning those gains are plowing the money into subsidizing their childrens' purchases of otherwise unaffordable homes in the same cities. (Note that unlike the US, Canada doesn't offer a tax deduction for mortgage interest.)

I wasn't that far off if you factor in my failure to account for one half of a couple being NRA (and I know of couples in this demographic who are both US citizens). In any case, let's just say there would be plenty of potential six-figure tax bills out there, ranging from low to mid to high six figures.

Frankly I'd be very surprised if much tax revenue did flow south of the border - anyone in this situation should be either staying off the radar or renouncing. If you had no connection the US - either because you were only born there, or you moved up decades ago and made your entire career in Canada - and no desire to return, then you'd be a right idiot to voluntarily write the IRS a six-figure cheque.


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## BBCWatcher

Nononymous said:


> Among other reasons, because most of those people earning those gains are plowing the money into subsidizing their childrens' purchases of otherwise unaffordable homes in the same cities.


Well then, taxing real estate gains at ordinary tax rates, less a reasonable exemption (e.g. C$300,000), would tend to make more homes more affordable, wouldn't it? It'd also tend to encourage renovation and rehabilitation of real estate since those costs are subtracted from gains. And refundable tax credits to all Canadians, including those children who cannot presently afford such homes, would help to make it financially easier to live. So would allowing more and higher density housing in Vancouver, Toronto, and in any other overheated real estate markets. All of these policies are entirely within the government's control.

You're making my argument for me, Nononymous.  I suggest writing your MP with that idea. No credit is required -- it's my gift to you.


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## maz57

Huh? The last thing the Canadian government should do is to start copying the messed up US tax code. Canadian politicians aren't that stupid. (Plus they'd like to get re-elected.)


----------



## jbr439

BBCWatcher said:


> Oh, by the way, there's a great opportunity for the new Liberal Canadian Parliament here!
> 
> Instead of having tax revenues on real estate gains flowing south across the border, why doesn't Parliament adopt its own Canadian capital gains tax on real estate? Set the exemption to C$300,000 per spouse, and levy ordinary Canadian capital gains taxes above that (which are very, very similar to U.S. rates). Phase this tax in over, say, 5 years (20% of the tax owed in Year 1, 40% in Year 2, etc.) to avoid disrupting real estate markets too much, too suddenly. And then return every dollar of additional revenue in the form of refundable tax credits to every Canadian, rich and poor alike. The Canadian government thus "steals back" tax revenues from the IRS since U.S. persons can fully credit their Canadian income taxes via the Foreign Tax Credit.
> 
> ...


Well, mortgage interest is not tax deductible in Canada as it is in the US and some other countries. This results in a significantly higher ongoing tax bill for home owning Canadians vs Americans. Since mortgage interest is not tax deductible, we instead get a break on the sale of the principal residence. So, what you're suggesting is close to no break on home ownership - no mortgage interest deduction break, only limited CGT break - and this would go over like a lead balloon.


----------



## iota2014

maz57 said:


> Huh? The last thing the Canadian government should do is to start copying the messed up US tax code.


Indeed.

James Madison saw this mess coming.



> It will be of little avail to the people, that the laws are made by men of their own choice, if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood; if they be repealed or revised before they are promulgated, or undergo such incessant changes that no man, who knows what the law is to-day, can guess what it will be to-morrow. Law is defined to be a rule of action; but how can that be a rule, which is little known, and less fixed?


Federalist #62


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## maz57

Wow, what a great quote! I have read that the "founding fathers" were so distrustful of all government, even the brand new one that they were then creating, that they purposely built in a system of checks and balances between the various branches so as to make it very difficult for the new government to pass any legislation. 

So while people like to complain about Washington gridlock it has been baked into the cake right from the beginning! The complainers need to be careful what they wish for. Imagine what it would be like if they could actually pass everything they talk about.


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## BBCWatcher

I don't think the U.S. tax code should have a mortgage interest deduction, or at least it should be curtailed. So how about President Obama and Prime Minister Trudeau get together and agree to that trade?

Why should tax codes subsidize mortgages _or_ real estate appreciation? Is there some inalienable right to real estate-related tax subsidies? Of course not, and they've caused massive distortions in real estate markets on both sides of the border. And in the U.K. as well.


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## Bevdeforges

I think the US causes quite enough trouble around the world trying to tell other countries what to do or not to do. You don't like the mortgage deduction, while some of us around here don't like the taxation by citizenship thing and there are plenty of folks around who think the US should raise taxes on the rich.

Most countries take no interest in how other countries (even their neighbors) handle taxation. They're all mostly concerned with getting their share from the folks under their jurisdiction.
Cheers,
Bev


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## maz57

BBCWatcher said:


> I don't think the U.S. tax code should have a mortgage interest deduction, or at least it should be curtailed. So how about President Obama and Prime Minister Trudeau get together and agree to that trade?
> 
> Why should tax codes subsidize mortgages _or_ real estate appreciation? Is there some inalienable right to real estate-related tax subsidies? Of course not, and they've caused massive distortions in real estate markets on both sides of the border. And in the U.K. as well.


I agree that the mortgage interest deduction needlessly distorts/subsidizes the residential real estate market. However, I'm not so keen on taxing the cap gain if an owner is lucky enough to be in that position. For one thing, the gain is often merely the price increase over time due to inflation. There is a big difference between selling a house for double a week after purchase and selling it for double 20 years later. Besides, the government is is already continually taxing that gain in the form of increased property taxes year after year. Owning a house is not like buying a stock where your only involvement is punching the buy or sell button. It involves ongoing expense just to keep it from biodegrading!

For Canada it would be very difficult to start taxing the gain on a principal residence (not to mention political suicide) because for most Canadian homeowners it forms an integral part of their overall retirement strategy. Tax some of that capital away and many older people would find their retirement plans substantially impoverished. For those who merely want to move, a 10 or 15% cap gains "bite" would make it impossible to buy back into the same market at a different address.

Besides, buying a house involves risk. The price could easily go down or simply fail to keep up with inflation. If people are willing to assume that risk, then there should be some potential reward at the end of the line, not the government standing there with its hand out. Its not the government which assumes any risk. If you want to tax "windfall" gains, better to go after something like lottery winnings which are also not taxed in Canada. (That would also be political suicide, however, because Canadians seem to love their minuscule chance at winning big.)

In the end, I think our discussion is probably moot because the US is locked into its mortgage deduction/tax the gain system and Canada is locked into its no deduction/but don't tax the gain system. I don't think any politician on either side of the border wants to step into the minefield.


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## BBCWatcher

I'm OK with taxing real gains and have said so previously. Some countries already do that.


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## Nononymous

We can debate this all day but realistically, how much revenue is going to flow into the US from capital gains on primary residence? If you're Canadian and planning to remain in Canada, you'd be out of your mind to voluntarily write the IRS a six-figure cheque. I'd think that anyone facing that prospect would either renounce prior to sale or play dumb. Most are probably non-compliant anyway. What possible reason would you have to hand that much money over to the US government? (Boris Johnson obviously had his reasons, but most non-celebrities won't be in the same position.)


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## BBCWatcher

*The Panama Papers: How the World's Rich and Famous Hide Their Money Offshore*

There's a really interesting story just breaking.


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## Nononymous

BBCWatcher said:


> There's a really interesting story just breaking.


I'm more interested in how the not-rich and not-famous hide their money from the government of a country that they neither live nor work in.


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## BBCWatcher

They don't. They renounce or document relinquishment of the citizenship that they feel is not providing them value-for-money. The same as the citizens (and sometimes residents) of ~40 odd countries do with compulsory military service that they don't like.


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## Nononymous

BBCWatcher said:


> They don't. They renounce or document relinquishment of the citizenship that they feel is not providing them value-for-money. The same as the citizens (and sometimes residents) of ~40 odd countries do with compulsory military service that they don't like.


Oh I think plenty of them do hide, rather than drag themselves through the paperwork and expense of renunciation. Currently I don't respect the US enough to play by its rules.

And I think there's going to be a great deal of wink-wink-nudge-nudge with Canadian financial institutions. When I offered to (quite obviously perjuriously) sign a W-8 for my investment firm, they backed right down and stopped asking citizenship questions.


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## BBCWatcher

Nononymous said:


> Currently I don't respect the US enough to play by its rules.


Oh? I thought you still hold a valid U.S. passport, meaning you don't play by _some_ of its rules. But feel free to correct me if I'm mistaken.


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## Nononymous

You have me there. I did renew my passport few years ago, using a non-Canadian address. It's in the bag for insurance when I enter the US, but they don't seem to complain about the Canadian passport so I've not had to use it.


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## mrukk

Lulu78 said:


> Kia Ora Mrukk;
> I thought I'd respond because I am in a similar situation to you, and I am also leaning towards renunciation.
> 
> I am also in the medical profession and probably from the sound of things maybe in a similar financial situation to you ( the potential to be a covered expat in the future, not hard really, if you own a house here and pay it off and say you inherit a family home!)


Hi Lulu. Thanks so much for the reply, and apologies it has taken so long to get back to you. I got tied up with my clinical exams and rural rotation moves and a new baby etc, and forgot about this post for a while.

You do sound in a very similar situation to me in many ways. I hadn't really done a lot of thinking about the 'covered expatriate' idea. I'm probably still quite some years away from qualifying for that, but you are right that once you pay a house off and potentially inherit something you could head in that direction. Currently the income requirements of about AU $210,000 net (not gross as far as I can tell) should keep me safe for a few more years, but it's definitely something to be concerned about.



Lulu78 said:


> From my research this is the disadvantages/ restrictions that I found:
> 1. The whole issue with our superannuation and later distribution maybe taxed, also the account is in no doubt over 10K if you have been working for a few years, so it will tip your aggregates and you will have to file FBARs for all your accounts


2. The issue with our primary residence (we do not pay CGT for it in Oz), think about if you want to upgrade your home or move to a different suburb in a few years, this will certainly be harder for us as we will have to pay CGT to the US (and you know how it is with house prices in Oz)[/quote]

It gets complicated doesn't it. Certainly it seems as if everything is tightening up regarding financial institution reporting to the US, and the potential reach of the US is lengthening. I still wonder how much we should really be worrying about house moves and capital gains tax and superannuation difficulties with later distribution... has any normal person really been caught out in this regard to date? Have we heard stories to date of normal expat US citizens having to pay hundreds of thousands of dollars to the US in taxes based off CGT or super? Even with their increased reach, are we still worrying about something that is unlikely to ever actually be enforced?



Lulu78 said:


> 3. If you have a mortgage with an offset mortgage account, from what I've worked out that this will have to be reported on the FBAR, although ultimately you are thousands of dollars in debt overall.


I guess that's true. We haven't got a mortgage yet, but likely to in the next 6 months to a year. 



Lulu78 said:


> 4. I am not sure about your situation but in my case, my husband is not a US citizen, and therefore moving assets between us is not that easy and may incur tax, this makes trying to organise our financial affairs really hard (not to mention he's really peeved about me having to report all our joint accounts on the FBARs to the IRS!)





Lulu78 said:


> 5. If you become a covered expat then the there is the whole exit tax to think about!


Ugh, yes, this must be avoided! 



Lulu78 said:


> 6. The ongoing compliance cost of US taxes and risk of getting it wrong


At the moment I have a relatively uncomplicated situation and can do my US taxes fairly easily (after spending hundreds of hours trying to figure it out initially). That might change though as financial affairs get more complicated.



Lulu78 said:


> Anyhow! Like I said, I gave myself a year to think about it once I caught up with my US taxes! But at this stage the disadvantages and risks are too many for me. I must admit that in my situation, I don't have any particular strong ties to the US, have spent very little time there. I do have to travel there for work conferences/meetings, but if I get denied entry, then work are paying for my airfares (I would definitely not risk it for a holiday and if I was paying my own airfairs!)


Same with me. I don't have any especially strong ties. I lived there for 6 years and have some really good friends there, but the chances of going to live there again are essentially zero. Why do I keep the citizenship? I don't know really. I think I feel slightly like it was a little bit of an achievement at the time, and it is a point of difference for me (people always seem a little impressed on the rare occasion I mention it). Really though, there isn't any particularly great reason to hold on to the citizenship, and for the sake of a few thousand dollars I'd probably save thousands of hours of worry and form-filling over the next few decades. 



Lulu78 said:


> I would be keen to here about your experience in the future, if you do go ahead with the renunciation/ or not!


I'd be keen to hear about your plans as well. For some stupid reason I think I still want to hold onto the citizenship, and hold on to this hope that if I carry on a few more years (before becoming 'covered') then maybe things will change in some way for the better. More likely for the worse, of course.

Thanks again for the reply!


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