# Form 8854 Schedule A and B



## sw2b

Hi!
I have a question in regards to filing Form 8854. Explaining my background may help you to convey my question clearly (?): long term residency (10+), non-covered expatriate, Japanese residence now, and left USA in 2012 (but filing tax until now as residence).

Questions
1.	Form 8854 Schedule A 
a.	What is the US adjusted basis (Column b)? Can I just ignore it and write 0 for all Column b? (Applicable assets for me are Line 1 Cash, Line 6 US Pensions, and Line 16 Foreign Real Estate).

Example: Line 1. Cash, 100 USD (Column a: FMV) – 0 USD (Column b: adjusted) = 100 USD (Column c: gain or loss).

2.	Form 8854 Schedule B
a.	Line 1: As Part IV filers (the part of the tax year that ends with the day before your expatriation date; but enter -0- for lines 5 through 7), should all numbers in all Line 1 be same as ones in 1040 (not 1040 NR)? 

Thank you for your time and knowledge in advance.


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## Bevdeforges

From what I can tell, you're referring to Part V, Schedules A and B. These are just a standard balance sheet and income statement concerning your personal finances.

For Schedule A, "adjusted basis" means (put simply) "how much did it cost you?" Those columns represent FMV (fair market value), which means what is it worth today? Adjusted basis is how much have you paid for it? (and adjusted refers to an asset like a house - where you perhaps paid $100,000, but redid the kitchen, paying $25,000, so the adjusted basis is now $125,000). Column c is for your gain or loss. If said house is now worth $200,000 (with the new kitchen), then you would have a gain of $75,000.

Cash pretty much always has the same basis as current FMV, so the 0 belongs in column c. The exception to this would be if you have a bank account with foreign cash in it - yen, in your case. Technically, the gain or loss would be the change in the exchange rate between when you put the cash in the account and today. (But that's really oversimplified.)

So for your cash example, you should put 100 USD in column a, 100 USD in column b, and 0 in column c.

For US pensions, it depends if you have a state pension (US social security, for example) or a pension fund where the balance depends on how much you put in and how you invest it. There can also be considerations based on the tax treaty between the country where you are now resident and the US.

Foreign real estate is where you are most likely to run into the gain or loss question - the adjusted basis is figured like I mentioned above with the house example. The gain or loss is how much more or less the property is worth at your expatriation date than it was when you bought it, adjusted for any improvements you have made and paid for in the interim and changes in the exchange rates.

On Schedule B, yes, it should be pretty much what you're reporting on a regular 1040 - but be careful of those lines that are marked "see instructions" because I think on this form you need to recognize certain theoretical gains and losses, even if you didn't sell the property. "When all else fails, read the instructions."
Cheers,
Bev


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## JustLurking

Bev has nicely outlined how this intrusive and unpleasant form works. I'll just add a couple of extra details that might help.

Firstly, assuming that you *do not* meet the IRS's definition of 'covered expatriate' -- that is, not over either the asset or income tax liability tests -- then to a large extent what you write on this form is fairly irrelevant. Certainly not worth spending any real effort or time in getting it spot-on. Like the FBAR, for _non-covered expatriates_ the only real function of this form is to provide the US with an ability to levy penalties if you don't file it. An 8854 filed by a non-covered expatriate is largely worthless to the IRS.

Now, details. As Bev notes your 'cost basis' for cash will be the same as your cash balance.

For your home, enter its current value at today's USD exchange rate in column a, the amount you paid for it at the USD exchange rate in effect on the day you bought it (or some rough guess of that!) in column b, the difference in column c, and if you held it before becoming a 'US person' the value of your home on the date you became a US resident in column d.

For pensions, if you hold an ordinary pre-tax 401k or similar and/or taxable IRA that contain pure pre-tax money then your cost basis seems like it could be either what you contributed (if you can even dig up that number at this point), zero, or something else. I have never seen any definition of 'cost basis' for pensions, so I have used N/A here on my 8854 consistently for a decade now and without complaint from the IRS; you could probably do the same. If you hold Roth variants of these, your cost basis in them is your contributions and/or conversion amounts -- that is, balance excluding investment gains over the years.

As for any US social security or other country state pensions, ignore these for form 8854. They have no current value/balance. Strictly, the 8854 requires valuations using US 'gift tax' rules, and you cannot 'give away' your US social security entitlements or any other state pension.

Again though, since it bears repeating, if you are *not* a covered expatriate then there is no tax to pay on the numbers you enter here, so you can (over?)estimate them to your heart's content within reason and not worry about it.

All just ridiculous, isn't it? Essentially just an epic waste of time for both you and the IRS. The process here is the punishment.


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## Nononymous

And feel free to lowball the estimates for things the IRS cannot know, if doing so saves you having to pay them any money.


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## sw2b

Hi again!

First, I want to say thank you for all your help!!

I just want to make sure of that I understand your explanation fully.

Form 8854 Section V Schedule A 

*For bank,*
US Bank: 100 USD (a), 100 USD (b), 0 USD (c)
JP Bank: 50 USD (a), 50 USD (b), 2 USD(c), (d)?

Column (a), the total fund stated from the bank monthly statement when I relinquished the green card (convert Yen to USD using exchange rate). 
Column (b), same as (a). 

Column (c), 50 USD (a) – the fund from the column (a) adjusted with the exchange rate when I become a green card holder first year? = 2 USD (whatever it is).

Column (d), do I need to show this if I had the account before I become a US residency? If it needs to be shown then, shall it be the fund from the column (a) adjusted with the exchange rate when I become a green card holder first year?

*For US Pension (401 K, Roth and Traditional IRA, even including traditional IRA correct?)*
Pension: 100 USD (a), 100 USD (b), 0 USD (c)

Column (a), the total fund stated from the pension providers’ monthly statements when I relinquished the green card.

Column (b), the total amount that I contributed over the years

Column (c), the difference between (a)-(b)? including company contribution as well?

*For real estate asset (house),*
House: 100 USD (a), 10 USD (b), 20 USD (c)

Column (a), FMV on the house when I relinquished the green card.
Column (b), fix, anything that I have done to the house after purchase.
Column (c), the difference between (a) – (the purchase price + (b))

Thank you very much!


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## JustLurking

sw2b said:


> *For bank,*
> ...
> Column (a), the total fund stated from the bank monthly statement when I relinquished the green card (convert Yen to USD using exchange rate).
> Column (b), same as (a).
> Column (c), 50 USD (a) – the fund from the column (a) adjusted with the exchange rate when I become a green card holder first year? = 2 USD (whatever it is).


Not quite. (c) is (a) - (b) and should be zero. If you want to adjust (b) for the exchange rate when you got the green card then you can put its adjusted value in (d) if you like, but see below for why it is probably not worth the bother.



sw2b said:


> Column (d), do I need to show this if I had the account before I become a US residency? If it needs to be shown then, shall it be the fund from the column (a) adjusted with the exchange rate when I become a green card holder first year?


Uniquely, covered expatriate green card holders get a step-up basis for the 'exit tax' for assets held before becoming 'US persons'. However, it's only relevant if you have an 'exit tax' liability that you would want to offset; that is, only if you are a covered expatriate.

Assuming you are *not* a covered expatriate then entering a value here would have no effect. It's certainly not 'required', and you can leave it out with no consequences either way. I like to put something here on my 8854s for my main home, but really only because I happen to know it offhand.



sw2b said:


> *For US Pension (401 K, Roth and Traditional IRA, even including traditional IRA correct?)*
> ...
> Column (a), the total fund stated from the pension providers’ monthly statements when I relinquished the green card.
> Column (b), the total amount that I contributed over the years
> Column (c), the difference between (a)-(b)? including company contribution as well?


Again, not quite. (b) would be the sum of your and your employer contributions. In other words, the amount that went in to the pension.

And it seems unlikely that (c) here would be zero for a defined contribution pension. Unless you hold only no-interest cash funds everywhere there should have been some increase in their values, and that column is where this increase should show.

The IRS has never indicated exactly how to record pensions on this form, so you should feel free to just do whatever seems sensible. Again, if *not* a covered expatriate the numbers don't matter at all. Personally I just put the total from the pension providers in (a) and write N/A in (b) and (c) because I hold only pure pre-tax retirement savings which don't really have a 'basis' (except perhaps for zero).



sw2b said:


> *For real estate asset (house),*
> ...
> Column (a), FMV on the house when I relinquished the green card.
> Column (b), fix, anything that I have done to the house after purchase.
> Column (c), the difference between (a) – (the purchase price + (b))


No, simpler. Add the purchase price and the costs of any fixes or other money spent improving it all together and put in (b). Then (c) is the difference between what you 'paid' for the asset in the past and what it is 'worth' on ditching the green card. If you owned the home before you got the green card you can also put its FMV when you became a 'US person' in (d).

On schedule A, (c) is _always_ simply (a) - (b), but contains no _new_ information. The IRS is apparently not sufficiently organised to do that piece of simple maths, so they insist that you do it for them.

Finally, again, if you are well under the thresholds for covered expatriate status then all you really need to make sure of here is that all the numbers you put on this form look believable and add up properly across the lines and down to the totals you put at the bottom of the columns. How 'right' these numbers actually are is completely unimportant.


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## cdymek

I'm in my 70s, in receipt of a defined benefit occupational pension, so it has no cash equivalent transfer value. However, I've been advised that the fair market value of the pension on form 8854 should be about 20 times the annual amount I receive. Can that be right?


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## Bevdeforges

Back when I was an accountant in the US, we were taught that a defined benefit pension has no cash value for reporting purposes. It's normally treated like a standard benefit - they pay you every month until the time you die and no further. It's only if you have a sum that will be paid out to a survivor or something similar that you would need to report the cash value.


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## cdymek

Bevdeforges said:


> Back when I was an accountant in the US, we were taught that a defined benefit pension has no cash value for reporting purposes. It's normally treated like a standard benefit - they pay you every month until the time you die and no further. It's only if you have a sum that will be paid out to a survivor or something similar that you would need to report the cash value.


 Many thanks. That's what I thought, but both my tax preparer and John Richardson said I have to figure out what it's worth rather than report the annual value. Does the 8854 come under simple 'reporting purposes' rules, or does the request for 'fair market value' indicate something else? Would be grateful to hear from anyone else in receipt of a defined bnefit pension who has filed form 8854. Seems bizarre that someone can potentially be taxed on an enirely theoretical asset.


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## JustLurking

cdymek said:


> That's what I thought, but both my tax preparer and John Richardson said I have to figure out what it's worth rather than report the annual value. Does the 8854 come under simple 'reporting purposes' rules, or does the request for 'fair market value' indicate something else? Would be grateful to hear from anyone else in receipt of a defined bnefit pension who has filed form 8854.


The IRS's "guidance" on how to comply with their uber-convoluted rules and regulations is in places scandalously threadbare. This is one such place. The good news, if there is any, is that as long as the value you come up with here doesn't push you into being a "covered expatriate" -- and I _very strongly_ suggest that you arrange things that way, so that you are not "covered" -- then what you put here doesn't really matter at all. All that matters is that you report that your assets are below the magic $2mm (not indexed for inflation, of course) threshold for US's execrable exit tax.

The ever-reliable Phil Hodgen published a blog post some years ago covering this topic. As far as I can tell, it remains accurate:

Pension Valuation for the Net Worth Test - Phil Hodgen

For what it's worth, 20 times is how a UK defined benefits pension is valued for the pension lifetime allowance (LTA) tests, so this is probably where that number is coming from. By comparison, if you were to "commute" a pension from defined benefits to defined contributions (via a Cash Equivalent Transfer Value; CETV), you might see closer to 30-35 times or even more. Schemes have a complicated behind-the-scenes actuarial calculation (no doubt modulated by considerable guesswork!). That's probably your range of numbers.

On a scheme not yet in payment, a scheme can usually provide a CETV value if you ask them. I'm not sure they can create that once you've started payments, though. If you can get one, then getting that doesn't commit you to actually commuting the pension at all; it's just an indicator. If a CETV, or some other scheme-provided value, is possible, and doesn't tip you over into "covered" status, it'd be a decent number to use. Entirely defensible since it comes from a third party and is (literally, in the case of a CETV) how much cash your scheme would give you in exchange for you giving up benefits. Otherwise, 20 times is probably fine too. As is, probably, almost anything, given the IRS's obviously half-assed treatment of this area.



cdymek said:


> Seems bizarre that someone can potentially be taxed on an enirely theoretical asset.


The exit tax is very much a tax on _imaginary future _income that may never be received, but which must be paid _now_ and with _real_ money. You should have no truck with it. Bizarreness is one of the primary constituents of US tax law.


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## cdymek

JustLurking said:


> The IRS's "guidance" on how to comply with their uber-convoluted rules and regulations is in places scandalously threadbare. This is one such place. The good news, if there is any, is that as long as the value you come up with here doesn't push you into being a "covered expatriate" -- and I _very strongly_ suggest that you arrange things that way, so that you are not "covered" -- then what you put here doesn't really matter at all. All that matters is that you report that your assets are below the magic $2mm (not indexed for inflation, of course) threshold for US's execrable exit tax.
> 
> The ever-reliable Phil Hodgen published a blog post some years ago covering this topic. As far as I can tell, it remains accurate:
> 
> Pension Valuation for the Net Worth Test - Phil Hodgen
> 
> For what it's worth, 20 times is how a UK defined benefits pension is valued for the pension lifetime allowance (LTA) tests, so this is probably where that number is coming from. By comparison, if you were to "commute" a pension from defined benefits to defined contributions (via a Cash Equivalent Transfer Value; CETV), you might see closer to 30-35 times or even more. Schemes have a complicated behind-the-scenes actuarial calculation (no doubt modulated by considerable guesswork!). That's probably your range of numbers.
> 
> On a scheme not yet in payment, a scheme can usually provide a CETV value if you ask them. I'm not sure they can create that once you've started payments, though. If you can get one, then getting that doesn't commit you to actually commuting the pension at all; it's just an indicator. If a CETV, or some other scheme-provided value, is possible, and doesn't tip you over into "covered" status, it'd be a decent number to use. Entirely defensible since it comes from a third party and is (literally, in the case of a CETV) how much cash your scheme would give you in exchange for you giving up benefits. Otherwise, 20 times is probably fine too. As is, probably, almost anything, given the IRS's obviously half-assed treatment of this area.
> 
> 
> The exit tax is very much a tax on _imaginary future _income that may never be received, but which must be paid _now_ and with _real_ money. You should have no truck with it. Bizarreness is one of the primary constituents of US tax law.


Many thanks for your very helpful reply. I had read the Phil Hodgen blog post some time ago and had hoped to find an answer there, but I'm afraid the different calculations are beyond my understanding.

Someone on another forum suggested it's legitimate to use the IRS single life calculator to find a multiplier for my annual pension amount - in my case, it would be 17.2 rather than 20. Do you know whether that would be considered valid?

Ideally, I'd do what you suggest and come up with a completely different number, but my tax preparer indicated she would be uncommfortable not using the 20x multiplier, implying that the IRS would find it fishy. Anyone know how closely the IRS examines these forms? I guess it doesn't matter, as I won't be a covered expatriate unless the exchange rate takes off stratospherically, but it annoys me that I might have to put down a totally theoretical asset worth about 35-40% of the $2,000,000.


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## Bevdeforges

This is one of the reasons why doing your own taxes is the preferred alternative. Your tax preparer is just covering their ass-ets. Honestly, it doesn't appear that the IRS does much more than file these forms - unless of course you fall well within the levels where you would be considered a "covered expatriate."


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## cdymek

That's reassuring - thank you! I've had a look at the 8854 and I'm sure I can complete that myself, with a little help calculating the US adjusted basis.


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## JustLurking

cdymek said:


> Anyone know how closely the IRS examines these forms?


On this point, TIGTA knows, and has published its findings:

More Enforcement and a Centralized Compliance Effort Are Required for Expatriation Provisions



> ... Overall, we found that:
> • The Philadelphia Campus does not perform tax compliance activities related to expatriates.
> • Many expatriates are not filing Form 8854 with the Philadelphia Campus.
> • The expatriate database is not sufficient to enforce the exit tax.
> • Some expatriates with high net worth appear to not be paying their exit tax.
> • The examination rate of expatriate last tax returns is low.


So, very low compliance, and an even lower rate of examination. Heartwarming, isn't it?

Just one note on the 8854, if doing it yourself. Because the IRS requires you to do their internal communication for them, you may need to file this form _twice_, once with your final US 1040-NR, and then again to the IRS in Austin (used to be copied to Philadelphia, mentioned by TIGTA, but I guess the IRS relocated the function to bury its history).

It is a fairly easy form to complete. Doubly so once you realise that you can guesstimate a lot of the numbers, your aim is simply to come in comfortably below $2mm, and knowing that there's virtually no chance the IRS will even look at it anyway, never mind question it. Also, depending on what you have left in the US, secure in the knowledge that even in the highly unlikely event of an audit that finds something they don't like, the IRS can assess penalties all it wants, but it cannot collect them from your UK or other non-US accounts.


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## cdymek

JustLurking said:


> On this point, TIGTA knows, and has published its findings:
> 
> More Enforcement and a Centralized Compliance Effort Are Required for Expatriation Provisions
> 
> 
> So, very low compliance, and an even lower rate of examination. Heartwarming, isn't it?
> 
> Just one note on the 8854, if doing it yourself. Because the IRS requires you to do their internal communication for them, you may need to file this form _twice_, once with your final US 1040-NR, and then again to the IRS in Austin (used to be copied to Philadelphia, mentioned by TIGTA, but I guess the IRS relocated the function to bury its history).
> 
> It is a fairly easy form to complete. Doubly so once you realise that you can guesstimate a lot of the numbers, your aim is simply to come in comfortably below $2mm, and knowing that there's virtually no chance the IRS will even look at it anyway, never mind question it. Also, depending on what you have left in the US, secure in the knowledge that even in the highly unlikely event of an audit that finds something they don't like, the IRS can assess penalties all it wants, but it cannot collect them from your UK or other non-US accounts.


Many thanks again for another very helpful reply - it was kind of you not just to send the link but also to excerpt the relevant information. As a result, I'm feeling much calmer about the whole process.


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## Harry Moles

The best strategy is not file the thing at all, but if you have US assets that might not be an option. In which case the best strategy is to file a Form 8854 that leaves you owing no exit tax, however you can make that happen.


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## cdymek

I've always been tax-compliant, so I need to file to exit the system cleanly.


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## cdymek

Harry Moles said:


> The best strategy is not file the thing at all, but if you have US assets that might not be an option. In which case the best strategy is to file a Form 8854 that leaves you owing no exit tax, however you can make that happen.


I've always been tax-compliant, so need to file to exit the system cleanly.


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## Harry Moles

cdymek said:


> I've always been tax-compliant, so need to file to exit the system cleanly.


You don't _need_ to as such, but it possibly makes sense to so.


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## pochi.shum

Hi, I do have a question. After I file Form 407 and 8854 in Oct 2022, I still need to file 1040 next year for income tax in 2022. In that case, do I file 1040 or 1040 NR if I have voluntarily abandon my PR status in 2022? Many thanks!


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## Moulard

Yes, your last year of US residency requires a tax return. How that last return looks will depend a bit on your circumstances. 

It could be either of a standard 1040, a 1040-NR or a Dual Status Return.

Take a look at pub 519 - last year of residency.



https://www.irs.gov/pub/irs-pdf/p519.pdf



If you have US sourced income in 2022 then you will want to try to avoid a dual status return as you will not be able to take advantage of the standard deduction.


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## JustLurking

Adding to the above ... for more on 'dual-status' returns, see Taxation of Dual-Status Aliens (IRS):


> *Nonresident at End of Year*
> You must file Form 1040-NR, U.S. Nonresident Alien Income Tax Return if you are a dual-status taxpayer who gives up residence in the United States during the year and who is not a U.S. resident on the last day of the tax year. Write "Dual-Status Return" across the top of the return. Attach a statement to your return to show the income for the part of the year you are a resident. You can use Form 1040, U.S. Individual Income Tax Return as the statement, but be sure to write "Dual-Status Statement" across the top.


You file the 8854 with your final tax return, so not in Oct 2022 but rather around April 2023. Also, pay close attention to the need to file a separate copy of the 8854 with IRS Austin.


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## pochi.shum

JustLurking said:


> Adding to the above ... for more on 'dual-status' returns, see Taxation of Dual-Status Aliens (IRS):
> 
> You file the 8854 with your final tax return, so not in Oct 2022 but rather around April 2023. Also, pay close attention to the need to file a separate copy of the 8854 with IRS Austin.


Thank you so much for your help. No wonder there is only form 8854 for 2021 available right now. It makes more senses. You mean 1040-NR+8854 and a copy of 8854 to IRS Austin will be required in 2023. Thanks again


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## pochi.shum

Moulard said:


> Yes, your last year of US residency requires a tax return. How that last return looks will depend a bit on your circumstances.
> 
> It could be either of a standard 1040, a 1040-NR or a Dual Status Return.
> 
> Take a look at pub 519 - last year of residency.
> 
> 
> 
> https://www.irs.gov/pub/irs-pdf/p519.pdf
> 
> 
> 
> If you have US sourced income in 2022 then you will want to try to avoid a dual status return as you will not be able to take advantage of the standard deduction.


Thanks for your reply. This is very useful.


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## pochi.shum

Moulard said:


> Yes, your last year of US residency requires a tax return. How that last return looks will depend a bit on your circumstances.
> 
> It could be either of a standard 1040, a 1040-NR or a Dual Status Return.
> 
> Take a look at pub 519 - last year of residency.
> 
> 
> 
> https://www.irs.gov/pub/irs-pdf/p519.pdf
> 
> 
> 
> If you have US sourced income in 2022 then you will want to try to avoid a dual status return as you will not be able to take advantage of the standard deduction.





Moulard said:


> Yes, your last year of US residency requires a tax return. How that last return looks will depend a bit on your circumstances.
> 
> It could be either of a standard 1040, a 1040-NR or a Dual Status Return.
> 
> Take a look at pub 519 - last year of residency.
> 
> 
> 
> https://www.irs.gov/pub/irs-pdf/p519.pdf
> 
> 
> 
> If you have US sourced income in 2022 then you will want to try to avoid a dual status return as you will not be able to take advantage of the standard deduction.


I don't have any US sourced income, but not sure how I can avoid to file the dual status return. If I file I-407 in Dec, will I be considered Alien for the whole year, so i can just just file 1040 for my final tax return? Thanks!


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