# Dual citizen: Become compliant, stay non-compliant, renounce?



## horten

I believe that compared to others my situation is a relatively simple one. Apologies therefore if it has been discussed before. But I have searched the forum and many other resources online regarding this, and not found much information. Most of the advice I have found is about more complicated and niche cases.

I was born in the U.S. but my family moved to Australia when I was about five years old. Now I'm in my mid-twenties, a dual citizen, and have been working and earning money in Australia for a few years.

Recently I learned of my obligation to file tax returns, FBARs, etc. in the US. I've been doing a lot of research and from what I can tell, if I want to become compliant, the solution is relatively clear: I file tax returns and FBARs according to the Streamlined Filing Procedure.

Figuring out how to do this exactly has been a nightmare however (e.g. Superannuation), and I'm not so sure what the best course of action is for me. What I find particularly difficult is knowing which information and advice to trust.


Professional tax firms are more than happy to help, but charge extortionate fees. Furthermore their focus is obviously on becoming compliant and following everything the IRS wants.
Other sources however discuss that the decision to become compliant should not be taken lightly, as it puts you on the radar, which can have negative consequences further down the line.
Finally, I'm seriously considering renouncing my citizenship. It is unclear to me whether I need to become compliant first, or not, if I want to do this.

My overall tax situation is not too complicated. I have been earning money for a few years and I have had savings exceeding 10.000 USD for a few years now. There are no other sources of income or assets. 

I would greatly appreciate some level-headed advice and opinions on how to weigh my options and possible paths to take. If anyone has been in a smiliar position and can share their story, that would be great as well. Thank you!


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## Bevdeforges

Your basic premises are all correct. Just remember to factor in one additional thing: renouncing your US citizenship cost $2350 and requires at least one, if not two visits to the consulate. If you're at any great distance from the Consulate in Oz, add transportation costs to that $2350 figure. 

The decision regarding "to comply or not" requires an evaluation of your specific situation and a certain acknowledgment of some level of risk. 

The main thing is your level of "exposure" financially back in the US - do you have financial accounts in the US that would be subject to seizure if the IRS should have reason to believe you were in flagrant violation of tax laws? (I.e. if you potentially owed big bucks in back taxes)

Also, are you eligible for US based "entitlements" like US social security or a fat inheritance from a rich family member back in the States? That could also trigger problems (though for a fat enough inheritance you could probably buy your way out <g>).

Then, consider whether you may or may not have the need or desire to relocate back to the US at some point in the future. (Though in that case, you could do Streamlined Compliance sometime just before your intended move.)

If you are still interested in renouncing, no, you don't actually have to be compliant, particularly if you reasonably believe that you wouldn't owe any back US taxes anyhow. Friend of mine renounced last year. She probably "should" have been filing, but because she didn't owe anything anyhow, simply hadn't bothered. There's a question asking if you're up to date on your filings, so she answered "yes" - the paperwork all went through and she's now an ex-US citizen, no questions asked.


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## underation

horten said:


> Recently I learned of my obligation to file tax returns, FBARs, etc. in the US. I've been doing a lot of research and from what I can tell, if I want to become compliant, the solution is relatively clear: I file tax returns and FBARs according to the Streamlined Filing Procedure.
> 
> Figuring out how to do this exactly has been a nightmare however (e.g. Superannuation), and I'm not so sure what the best course of action is for me. What I find particularly difficult is knowing which information and advice to trust.


You don’t need to file US tax returns if you don’t owe US taxes. If you do file, you can claim foreign-tax credits for the AUS taxes you’ve paid, and in any case, if your income is all Australian, it’s Australia that has the taxing rights, not the US.

If you do choose to file US tax returns, you don’t need to go through any “disclosure” procedure, since from what you say, you don’t owe any back taxes. You can just start filing.



> I'm seriously considering renouncing my citizenship. It is unclear to me whether I need to become compliant first, or not, if I want to do this.


Renouncing is a good option if you don’t need or want the citizenship. It means you are no longer affected by FATCA.

You can renounce immediately. Contact the US Embassy and ask for an appointment to renounce, and they’ll tell you what documentation you need to bring (birth certificate, passports, etc) and which forms you need to fill in. You pay up front on the day you renounce. You’re a US citizen when you go in and you’re not a US citizen when you come out. You don’t need to file any US tax forms, unless you choose to. When I renounced, I opted to file the Expatriation form, just to notify the IRS that I was no longer tax-resident in the US. It’s not necessary, if you have no US income or assets.


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## Moulard

I think that I am the resident Aussie on the list. Like you, I am a Seppo who moved here as a child - although some 30 years before you. But fundamentally I have been through your exact same thought processes fears and concerns. 

Point one.. no need to rush anything, take your time with decision making. The IRS is not going to come knocking on your door. You won't be on any ones radar. State and Treasury do not share information in any meaningful way. Entering the US is not going to trigger a tax question. Renewing a US passport is not going to trigger awkward conversations.

Point two. Given your age, it is quite possible that you have never had enough income to have to have been required to file. Its quite conceivable that you have been at Uni, living at home and earning a bit on the side... So filing for the first time is not going to trigger any "why haven't you been filing" type questions. So if you do choose to start filing, don't worry about any prior years. Again, its not going to result in awkward questions. 

Upshot of points 1 and 3... don't get scared into filing, don't get scared into renouncing. If you decide to file, then remember you close to12 months or so before the end of the next US filing season to get up to speed and make a well considered opinion on how you want to approach it all. 

Point thee. Yes, super is complicated, but most of the information on the internet on the treatment of super has been published by the compliance industry. They have a vested interest in scare tactics. 

The realities on Super is that there has been no formal guidance from the US Treasury Department on the treatment of superannuation, and the few private letter rulings that are out there ignore the employee perspective. All we have to go on is a Freedom of Information request that clearly indicated that internally, IRS counsel was confused. So the trick is to come up with a reasoned approach that is not at odds with US tax law and more importantly does not result in you owing US tax.

Yes, in future, the punitive tax treatment by the US of anything foreign can be problematic. But unless you are already considering investing in mutual funds etc, then it is probably something you can kick down the road.

I am not going to say you should or should not renounce. That is an entirely personal choice. My only counsel is to take your time making the choice that is right for you and don't let that choice be clouded by US tax compliance fears. 

Feel free to PM me.


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## underation

> ...don't get scared into filing, don't get scared into renouncing.


Hear hear. 

There are obvious advantages to having US citizenship, and depending on circumstances and aims, there can be obvious advantages to being entitled to file US tax returns. A lot of people have made a lot of (entirely legitimate) money while filing 1040s.


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## Nononymous

And, as the earth rotates and I come into morning in my time zone, I'll agree with the previous.

Don't do anything right away, take your time. The worst choice is to begin filing, unless you are planning a move to the US soon or can somehow seek financial advantage from US tax compliance and citizenship (some apparently do, but I've never been sufficiently curious to figure out how). 

Lifetime non-compliance is dead easy, with or without renunciation. The whole Super thing isn't complicated if you're not compliant, I assume.

I wouldn't rush off to renounce just yet. That's a decision to be made when career and education plans are perhaps more fully formed. There's no particular cost to keeping the citizenship if you're non-compliant and not troubled by FATCA (or banks overreacting to FATCA and making life difficult, which apparently is not an issue in Australia).

On that note, are your banks aware of your US citizenship? Have they asked the question, and if so, how have you answered? One view is that you are safe to answer truthfully as long as you won't be denied services (which happens in some countries) because the IRS won't do anything with the data reported since it has no collection mechanism for nor interest in small amounts of money in faraway lands. I prefer to answer untruthfully and conceal US citizenship, figuring it's better to take a small risk by lying to the bank if it prevents information about you from being sent to the US government.

One other thing, if in future you plan on travel to the US, and have a US birthplace, you may find yourself either obtaining a US passport (as US citizens are technically required to do) or risking a lecture by using an Australian passport, particularly if you've had to fill out an ESTA waiver thingy. But obtaining a US passport is pretty low risk, it doesn't mean the IRS will suddenly send you a tax bill. (The passport application asks for a Social Security Number but if you don't have one it's permissible to enter all zeroes.) Or just be sensible and come to Canada instead.


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## DavidMcKeegan

All of the replies above are options, but for the most part none are correct as per IRS law. Being an accountant I tend to take a conservative approach, but I personally would sleep better just filing properly and being up to date on your US taxes. 

I would not rush into renouncing, perhaps give it a few years of filing the US returns to see how troublesome you find it and if it is worth giving up that US passport (if you renounce you should technically have the last five years of returns filed anyway). 

It is also true that if you are just now making over the income threshold (roughly 10K if you are a single employee), your easiest option would be to just start filing returns and reporting your income. You can work with an expat accountant in the first year to make sure you are doing it correctly and then file on your own in the future as use the professionally prepared return as a guide. If you have been over the income thresholds for some time, you can use Streamlined to get caught up without risk of penalties. 

In the future, if you decide to renounce, you will need to have the last five years of taxes filed and then also file Form 8854 with your final tax return. This is the formal exit from the US system. 

In the end the choice is up to you, good luck!


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## Nononymous

DavidMcKeegan said:


> All of the replies above are options, but for the most part none are correct as per IRS law. Being an accountant I tend to take a conservative approach, but I personally would sleep better just filing properly and being up to date on your US taxes.


Non-compliance is not "incorrect" per IRS law. It's simply choosing to ignore IRS law.

In your professional experience, have you ever encountered a non-compliant US person with no US assets or income - i.e. someone completely out of the US tax and financial systems - who has been proactively contacted by the IRS on the basis of FATCA reporting, passport renewal or any other type of information somehow supplied to or obtained by the US government? 

As things currently stand, I think the future risks from attempted compliance greatly exceed the future risks of continued non-compliance, for a dual citizen with no US ties.


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## underation

underation said:


> Renouncing is a good option if you don’t need or want the citizenship. It means you are no longer affected by FATCA.
> 
> You can renounce immediately. Contact the US Embassy and ask for an appointment to renounce, and they’ll tell you what documentation you need to bring (birth certificate, passports, etc) and which forms you need to fill in. You pay up front on the day you renounce. You’re a US citizen when you go in and you’re not a US citizen when you come out. You don’t need to file any US tax forms, unless you choose to. When I renounced, I opted to file the Expatriation form, just to notify the IRS that I was no longer tax-resident in the US. It’s not necessary, if you have no US income or assets.


Though you can certainly renounce immediately, I should have added that there’s no need to do so. You can take your time and consider carefully all your options.

If eventually you decide to renounce, you can then proceed.

Once you’ve sworn the Oath of Renunciation, you’re no longer a US citizen. If you need to pay US tax on income received during the part-year preceding renunciation, you can file a 1040NR, attaching a statement to list the US-taxable income you need to pay tax on.

If you don’t need to pay US tax, you needn’t file the 1040NR.

You can also file the Expatriation form, if you choose. It doesn’t affect the validity of your renunciation in any way, if you choose not to file it.


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## Nononymous

DavidMcKeegan said:


> In the future, if you decide to renounce, you will need to have the last five years of taxes filed and then also file Form 8854 with your final tax return. This is the formal exit from the US system.


The final exit from the US tax system different from the loss of US citizenship. One may renounce without ever having been compliant. Certainly it seems to be an increasingly popular option now (based on survey of other forums). People spend the $2350 to be rid of US citizenship and its associated FATCA problems, but if they were never in the US tax system, they ignore the tax compliance business. (Technically this means that one is still a US person for tax purposes, but so what?)


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## underation

Nononymous said:


> (Technically this means that one is still a US person for tax purposes, but so what?)


It appears to me that it just means the IRS doesn’t know you’re no longer tax-resident in the US.


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## Nononymous

underation said:


> It appears to me that it just means the IRS doesn’t know you’re no longer tax-resident in the US.


It means that the IRS never knew of your existence until it received your name from the State Department after you renounced. What the IRS then does with this information is a mystery. Presumably nothing. But it also means that you never formally exited the US tax system that you were never actually in, which is a bit of a zen koan isn't it?


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## underation

Nononymous said:


> It means that the IRS never knew of your existence until it received your name from the State Department after you renounced. What the IRS then does with this information is a mystery. Presumably nothing. But it also means that you never formally exited the US tax system that you were never actually in, which is a bit of a zen koan isn't it?




(and a second one to make it post:  )


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## JustLurking

Nononymous said:


> ... they ignore the tax compliance business. (Technically this means that one is still a US person for tax purposes, but so what?)


Absolutely no argument with your point here, but the pedant in me demands that I add a small footnote. 

It _used to be_ the case that you remained (technically) a US taxable person even after renouncing or ditching the green card, until you had filed an initial IRS form 8854. Introduced by the TCJA in 2004, and clearly a pretty dodgy state of affairs, not just for individuals but also legally and constitutionally for the US. HEART swept this away in 2008; although that introduced a spiteful Soviet-style exit tax, along with a presumption of guilt if not up-to-date with annual tax filings, it did at least reconnect the date of termination of all future US tax entanglement with the date of renunciation or green card ditching.

If you have a high tolerance for pain, you can see all of this going on in the instructions for form 8854.


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## underation

> ...a presumption of guilt if not up-to-date with annual tax filings...”


A presumption of guilt if the form isn’t filed.

If the form is filed, and compliance confirmed, there’s no presumption of guilt. Not having filed US tax returns is not treated as evidence of non-compliance.

I filed the Expatriation form precisely in order to put it on record that I had been compliant with US tax obligations. 

Done and dusted.


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## horten

Wow thank you everyone for these extensive replies! I'm a bit overwhelmed with the amount of information and will have to process it first. I'm glad I was able to spark a bit of a discussion on the general pros and cons associated with the different strategies.

For now, it's great to know that there is no immediate rush to do anything. As far as I'm aware none of my Aussie banks know of me being a US citizen. I do however sometimes receive mail from the US embassy (I think?) about events, voting, etc.

My father is a dual citizen himself, and is currently also working on getting his US tax situation in order. Is there any risk of me being put on the IRS's radar by anything he might file?




Moulard said:


> I think that I am the resident Aussie on the list. Like you, I am a Seppo who moved here as a child - although some 30 years before you. But fundamentally I have been through your exact same thought processes fears and concerns.
> 
> Feel free to PM me.


Moulard, I was hoping you would show up in this thread  It's great to be able to reach out to someone who has experienced much the same. Thank you.


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## horten

Oh, maybe to clarify, as it has been mentioned in some comments: I do have a US passport, as well as an SSN.


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## Nononymous

Keep on not doing what you're not doing, I'd say. In other words, do nothing for the foreseeable future. Take your time.

If your Australian banks have never asked about US citizenship, they probably don't know. I personally would keep it that way, by simply saying "no" if the question ever comes up.

The e-mails you receive from the US embassy are consular niceties, and do not mean that the IRS knows of your existence. No worries there.

I don't think there's any way your father's attempt at compliance could create problems for you, as you are too old to be a dependent, and he can't attempt to claim the child tax credit. He would have no reason to identify you to the US government. There might possibly be some issues in the future if you were to inherit US assets (stocks or real estate, not cash) but that's a whole different discussion.


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## Moulard

> . As far as I'm aware none of my Aussie banks know of me being a US citizen.


Australia has enabling legislation for both FATCA and CRS, both of which require banks to report to the ATO the accounts for foreign tax residents. I am more familiar with FATCA than CRS, but fundamentally if you open a new account you will be asked about tax residency. Under FATCA, existing accounts are grandfathered in. According to the IGA once a pre-existing account hits $50k they are meant to ask about tax residency. 

Yes, Oz has four main banks, but one must remember that under the IGA "local banks" are exempt from FATCA Reporting. Annex II of the IGA defines what a local bank is, but without checking the balance sheets, I would suspect it is a fine reason to bank with a local credit union or building society. Of course they may still have to be CRS compliant. But long and the short, some of the questionnaires I have seen are very vague allowing plausible deniability if you accidentally ticked NO.



> My father is a dual citizen himself, and is currently also working on getting his US tax situation in order. Is there any risk of me being put on the IRS's radar by anything he might file?


Possibly, but I would suggest that the only risk would occur if he claims you as a dependent on his return, in which case he would have to provide your name and SSN. The reality is that there would be many reasons, including dependence, why you would not have filed. So its not going to raise alarm bells. 

The dual citizenship of your father raises an interesting question. Where you born here or in the US? If in Australia, then any concerns around the exit tax associated with expatriation are a moot point. Unfortunately if you were born outside Australia, then I *believe* that technically you were not an Australian until your birth was registered. Which technically may mean that you were not an Australian citizen at birth. But I am not that familiar with case law related to the definition of Australian citizenship. 

The s.42 constitutional kerfuffle has highlighted that some countries like Greece and Australia do not recognize citizenship until registration. In the case of Greece once registration occurs citizenship is retroactively applied from birth. I simply cannot comment if under Australian law that is also the case, but I do not think it is. But it might be worthy of investigation.



> Moulard, I was hoping you would show up in this thread  It's great to be able to reach out to someone who has experienced much the same. Thank you.


Glad to help and offer my thoughts on the topic. Much to the annoyance of my family my private vice is to read through case law, rulings, audit statistics and the like while watching the Boxing Day Test.


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## DavidMcKeegan

Nononymous said:


> Non-compliance is not "incorrect" per IRS law. It's simply choosing to ignore IRS law.
> 
> In your professional experience, have you ever encountered a non-compliant US person with no US assets or income - i.e. someone completely out of the US tax and financial systems - who has been proactively contacted by the IRS on the basis of FATCA reporting, passport renewal or any other type of information somehow supplied to or obtained by the US government?
> 
> As things currently stand, I think the future risks from attempted compliance grea exceed the future risks of continued non-compliance, for a dual citizen with no US ties.



You would have to owe the IRS more than 50K in overdue taxes to worry about your passport being revoked, and they would send you a letter in advance warning you that they have sent your details to the state department, so one would have a heads up if they were going to run into passport issues. Most expats don't owe US taxes, so this would be a rare occurrence. 

They have not released details on folks getting caught in FATCA compliance checks, so an exact number here is impossible to guess. So while I think that is currently a small risk, I have seen a big increase in the IRS sending out notices in the past year or so (for items they never sent notices on before), so I don't think this nonchalance will last long. You are much better off coming forward voluntarily while the waters are calm versus getting caught later on.


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## Nononymous

DavidMcKeegan said:


> You would have to owe the IRS more than 50K in overdue taxes to worry about your passport being revoked, and they would send you a letter in advance warning you that they have sent your details to the state department, so one would have a heads up if they were going to run into passport issues. Most expats don't owe US taxes, so this would be a rare occurrence.


By definition, a non-compliant person is not filing, so the only way they could be overdue for anything is if the IRS created a substitute return and determined that taxes were owing, on the basis of who knows what information. Have you ever heard of this happening to a person outside the US who is fully non-compliant and has no US assets or income?



> They have not released details on folks getting caught in FATCA compliance checks, so an exact number here is impossible to guess. So while I think that is currently a small risk, I have seen a big increase in the IRS sending out notices in the past year or so (for items they never sent notices on before), so I don't think this nonchalance will last long. You are much better off coming forward voluntarily while the waters are calm versus getting caught later on.


Again, FATCA compliance checks against US residents who are already filing is one thing; FATCA compliance checks against non-residents who are not in the US tax system is quite another. Have you seen any evidence of the latter?

What sort of notices has the IRS suddenly begun sending out with greater frequency?

My broader point is, for a dual citizen with no US financial entanglements, there is currently no meaningful way to be "caught" because there is no means of inflicting and enforcing punishment. For that to change the US would have negotiate new collection assistance agreements with a great many countries. Presumably someone at the IRS understands that there's no ROI in going after non-resident duals, because they've said next to nothing on this issue since the creation of the streamlined program around the time FATCA was implemented in 2014. (We won't count the transition tax and GILTI mess, that was Congress.)

Anyway, you have your view, I have mine, but I find it useful to ask these questions of someone who is actually dealing with compliant taxpayers and the IRS, because you may see things that we don't learn about through scanning various fora. So thanks for your patience and responses.


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## DavidMcKeegan

Nononymous said:


> By definition, a non-compliant person is not filing, so the only way they could be overdue for anything is if the IRS created a substitute return and determined that taxes were owing, on the basis of who knows what information. Have you ever heard of this happening to a person outside the US who is fully non-compliant and has no US assets or income?
> 
> 
> 
> Again, FATCA compliance checks against US residents who are already filing is one thing; FATCA compliance checks against non-residents who are not in the US tax system is quite another. Have you seen any evidence of the latter?
> 
> What sort of notices has the IRS suddenly begun sending out with greater frequency?
> 
> My broader point is, for a dual citizen with no US financial entanglements, there is currently no meaningful way to be "caught" because there is no means of inflicting and enforcing punishment. For that to change the US would have negotiate new collection assistance agreements with a great many countries. Presumably someone at the IRS understands that there's no ROI in going after non-resident duals, because they've said next to nothing on this issue since the creation of the streamlined program around the time FATCA was implemented in 2014. (We won't count the transition tax and GILTI mess, that was Congress.)
> 
> Anyway, you have your view, I have mine, but I find it useful to ask these questions of someone who is actually dealing with compliant taxpayers and the IRS, because you may see things that we don't learn about through scanning various fora. So thanks for your patience and responses.


If someone has never filed anything in the USA and has no US income, it would be near impossible for the IRS to have them in the system. So the risk of "getting caught" is slim (although with FATCA that risk becomes a little more so each year). I have not heard of someone who has never filed anything getting caught in a compliance check. That being said, just because someone does not get caught doing something against the law does not change the law or the obligation to file behind it. I personally sleep better knowing that everything is done properly and that I am not hiding anything. 

Recently we have seen a crack down on late filing penalties and notices for missing items like 3520A forms and 5472 forms. I imagine they will continue to crack down on these more complex forms and there is no telling what they will scrutinize in the future.


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## underation

DavidMcKeegan said:


> If someone has never filed anything in the USA and has no US income, it would be near impossible for the IRS to have them in the system. So the risk of "getting caught" is slim (although with FATCA that risk becomes a little more so each year).


I filed while I lived in the US, then I left and didn’t file again. Like millions of others. Not “hiding”, not doing anything wrong or illegal.




> I personally sleep better knowing that everything is done properly and that I am not hiding anything.


US expats who pay the tax due on their income to the country that has the taxing rights, and don’t file US tax returns, aren’t hiding anything.


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## Nononymous

DavidMcKeegan said:


> If someone has never filed anything in the USA and has no US income, it would be near impossible for the IRS to have them in the system. So the risk of "getting caught" is slim (although with FATCA that risk becomes a little more so each year). I have not heard of someone who has never filed anything getting caught in a compliance check.


Thank you for your honesty. Not everyone in your line of work is so forthcoming.



> Recently we have seen a crack down on late filing penalties and notices for missing items like 3520A forms and 5472 forms.


We can thank the compliance industry for encouraging Canadians to "play it safe" and file 3520 forms for ordinary RRSP/RESP/TFSA accounts that really should not be considered trusts; chickens now coming home to roost with the late filing penalties. See current thread over at Isaac Brock for more info. Another fine example of blind obedience leading the unwary astray.


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## DavidMcKeegan

underation said:


> I filed while I lived in the US, then I left and didn’t file again. Like millions of others. Not “hiding”, not doing anything wrong or illegal.
> 
> 
> 
> 
> US expats who pay the tax due on their income to the country that has the taxing rights, and don’t file US tax returns, aren’t hiding anything.


I can't change your opinion or force you to file your tax returns, but your understanding of the rules is incorrect. If you are a US citizen and make over the income threshold each year, you are legally required to file a tax return. The US taxes based on citizenship and not residency and while I am not saying the rules are fair or typical, they are indeed laws and you are providing guidance to people based on your opinion and not fact. 

https://www.irs.gov/help/ita/do-i-need-to-file-a-tax-return


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## Bevdeforges

DavidMcKeegan said:


> I can't change your opinion or force you to file your tax returns, but your understanding of the rules is incorrect. If you are a US citizen and make over the income threshold each year, you are legally required to file a tax return. The US taxes based on citizenship and not residency and while I am not saying the rules are fair or typical, they are indeed laws and you are providing guidance to people based on your opinion and not fact.
> 
> https://www.irs.gov/help/ita/do-i-need-to-file-a-tax-return


Several of us here have tried to make that point with the guy. At a certain point, you may just be wasting your breath. (Er, whatever one wastes online in a forum like this one.) 

But thanks for your candor. Like you say, no one can force someone to change their opinion or to file their returns - but it's important for each taxpayer to understand and accept the risks they may or may not be facing based on whatever decision they take.


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## underation

DavidMcKeegan said:


> I can't change your opinion or force you to file your tax returns, but your understanding of the rules is incorrect. If you are a US citizen and make over the income threshold each year, you are legally required to file a tax return.


That’s the point. I’ve never had US-taxable income over the threshold.

Consequently - no need to file.

I agree that we’ll just have to agree to disagree. 



> The US taxes based on citizenship and not residency


Taxation rights, however, are based on the US-UK treaty.




> and while I am not saying the rules are fair or typical, they are indeed laws


Yes, they’re law in the US. Here, they’re merely a citizenship obligation.



> and you are providing guidance to people based on your opinion and not fact.


That’s ok. Lots of US expats did their best to provide guidance to me, to the effect that the IRS would be “coming after me” and fining me $10,000 per year per account for all the decades I never filed US tax returns or filed an FBAR It didn’t seem likely to me, so I looked into it and eventually understood the situation.

The IRS, however, has never caused me the slightest concern. They sent me a refund on my last part-year of US filing, and then, many years later, I returned the compliment by filing Form 8833 to let them know I had renounced. A happy ending.


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## Nononymous

I actually quite like this approach. No idea if the US government considers it correct or not, but since the IRS doesn't appear to care about non-compliant US citizens with no US income or assets, the outcome is still the same.


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## Jca1

I can't advise which option to take, but I think it's probably good to make a decision soon. It gets much more complicated when you've been working outside of the US for longer and your net worth is higher.


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## Nononymous

Jca1 said:


> I can't advise which option to take, but I think it's probably good to make a decision soon. It gets much more complicated when you've been working outside of the US for longer and your net worth is higher.


It becomes more complicated to come into US tax compliance later in life with higher net worth. However, the passage of time does not make it any more complicated to not come into US tax compliance!


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## underation

Jca1 said:


> I can't advise which option to take, but I think it's probably good to make a decision soon. It gets much more complicated when you've been working outside of the US for longer and your net worth is higher.


Doesn’t it only get complicated if you’re making money in one country and your money’s making money in another?


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## DavidMcKeegan

Just a FYI but the IRS just released guidance that they will be implementing more compliance checks to catch those who are not caught up or not filing correctly. One of the programs they announced has to do with those who expatriated. So if you renounced at the embassy, but did not file the proper tax forms to go along with that, I would recommend filing them now before these checks start rolling out. 

https://www.greenbacktaxservices.com/blog/the-irs-new-compliance-campaigns-target-expats-and-taxes/


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## underation

I agree. File the expatriation form (plus of course tax forms if you had US-source income), and you’re done and documented.


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## underation

underation said:


> File the expatriation form (plus of course tax forms if you had US-source income...


For anyone who may be contemplating renunciation, who has no US-source income or assets: it’s worth being aware that the Form 8854 instructions make it clear that it’s not necessary to file a US tax return for the year of expatriation unless “required” to do so (e.g. in order to pay US tax due for the final part-year of citizenship and the first part-year of non-citizenship.) 

In other words, if you have no US income or assets, and have no outstanding US tax debts, you can file 8854 to certify compliance without having to file a pointless zero-due split-year NR1040/1040 (let alone backfiling _five years(!)_ of pointless zero-due 1040s - or, even worse, applying for an IRS disclosure programme such as the Streamlined Procedures).


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## DavidMcKeegan

That is unfortunately not how it works and the Form 8854 specifically asks the following question:

"Do you certify under penalties of perjury that you have complied with all of your tax obligations for the 5 preceding tax years?"

All US citizens are required to report their *worldwide* income to the USA, so you need to file a US tax return regardless of whether you have US sourced income or not. 

If you personally filed only the Form 8854, I would back file the years that are missing...better safe than sorry as when the IRS catches you they typically are not lenient.


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## underation

> That is unfortunately not how it works and the Form 8854 specifically asks the following question:
> 
> "Do you certify under penalties of perjury that you have complied with all of your tax obligations for the 5 preceding tax years?"


Did you miss the bits where the 8854 instructions tell you how to file the 8854 *when you’re not required to file a return?*



> All US citizens are required to report their *worldwide* income to the USA, so you need to file a US tax return regardless of whether you have US sourced income or not.


All US citizens are required to report income on which they are liable for tax, actually. 

And the penalty for failing to file a return is a percentage of the tax that you would have owed if you had filed.

A percentage of zero is zero. Therefore, the penalty for not filing a zero-due return is $0.00

And yes, as I’ve said, I filed only Form 8864, and truthfully certified compliance; and carefully followed the instructions for filing 8854 when not required to file a return. Q.E.D.

And me and the IRS are still Best Friends Forever. 



> If you personally filed only the Form 8854, I would back file the years that are missing...better safe than sorry as when the IRS catches you they typically are not lenient.


Why, what are you [strikeout]hoping[/strikeout]concerned they’ll do to me? When they “catch” me? And why haven’t they done it already?


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## Nononymous

DavidMcKeegan said:


> That is unfortunately not how it works and the Form 8854 specifically asks the following question:
> 
> "Do you certify under penalties of perjury that you have complied with all of your tax obligations for the 5 preceding tax years?"
> 
> All US citizens are required to report their *worldwide* income to the USA, so you need to file a US tax return regardless of whether you have US sourced income or not.
> 
> If you personally filed only the Form 8854, I would back file the years that are missing...better safe than sorry as when the IRS catches you they typically are not lenient.


What do "catch" and "not lenient" mean in the context of someone with no US assets or income, citizenship in their country of residence, and no desire to visit the US? Letters in the postbox threatening penalties that cannot be collected? 

If a person renounces with no US tax owing, they can fill out five years worth of tax forms and send them all in, they can do nothing, or they can file an 8854 with lot of zeroes on it. Ultimately it's the same outcome as far as the Treasury is concerned - no money to be made.

If a person renounces but would owe US tax not because of US income sources but because of double-taxation stupidity (e.g. capital gains on sale of primary residence, not taxable in their home country) then it's between them and their conscience what they decide to tell the US government, particularly in situations where the IRS has no other sources of information beyond what is volunteered, and no mechanism for collection.


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## underation

As long as the former citizen doesn’t file a US tax return, the proceeds of the sale of their principal residence are taxable by the residence country - not by the US. No need for anxiety about it. That’s not income on which the renouncer is liable for US tax.

Keep well clear of the treaty, if you don’t have US income/assets; don’t file US tax returns unless you need to pay US tax on US income, or claim a refund of US tax previously paid. If you do need to file a US tax return as well as filing 8854, it may be simpler to sell the residence after renouncing, so that there’s no need to report the income. 

(If you sell before renouncing, then obviously you do need to report the sale if you’re filing a US tax return. While you’re a US citizen, if you opt to be “taxed like an American” on your worldwide income, you have to report everything that’s not exempt by treaty or otherwise excludable under American law.)


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## Nononymous

underation said:


> As long as the former citizen doesn’t file a US tax return, the proceeds of the sale of their principal residence are taxable by the residence country - not by the US. No need for anxiety about it. That’s not income on which the renouncer is liable for US tax.


Boris Johnson, or rather Boris's accountant, clearly thought otherwise. But no need to continue the debate.


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## underation

Nononymous said:


> Boris Johnson, or rather Boris's accountant, clearly thought otherwise. But no need to continue the debate.


Boris Johnson sold his house while he was still a US citizen receiving US income. His accountant will undoubtedly have been filing his US tax returns, and his US tax bill for the year in which he sold the house would clearly not have been zero.

The debt was incurred, and settled, well before the year of his renunciation.


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## underation

Whereas I (a US citizen with *no* US income and *not* filing US tax returns), sold my principal residence at least a dozen times, over the years, and was never liable for US capital gains tax.

All perfectly legal and aboveboard.


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## underation

*The IRS view*

1040 instructions, p. 109:



> Our legal right to ask for information is Internal Revenue Code sections 6001, 6011, and 6012(a), and their regulations. They say that you must file a return or statement with us *for any tax you are liable for.*


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## Bevdeforges

DavidMcKeegan said:


> That is unfortunately not how it works and the Form 8854 specifically asks the following question:
> 
> "Do you certify under penalties of perjury that you have complied with all of your tax obligations for the 5 preceding tax years?"
> 
> All US citizens are required to report their *worldwide* income to the USA, so you need to file a US tax return regardless of whether you have US sourced income or not.
> 
> If you personally filed only the Form 8854, I would back file the years that are missing...better safe than sorry as when the IRS catches you they typically are not lenient.


The only quibble I'd have with this is that for someone who is renouncing but whose income fell below the filing threshold for their filing status the last 5 years, I would dare say that one could claim to have complied with all tax obligations. Have seen this a number of times with US citizens married to foreigners where the foreign half of the couple was the primary breadwinner. I do note that last year they seem to have dropped the MFS threshold to something ridiculous like $5 - kept thinking it was a typo. But for those who renounced prior, that would be a valid excuse for not bothering to back file 5 years.

One "interesting" question is that of overseas US citizens whose primary source of income is something specifically mentioned as taxable only in the country of residence in the tax treaty. Thinking here specifically of US SS, which is taxed exclusively by the country of residence in both the UK and German tax treaties (Italy, too, though there are some additional requirements for that to kick in).


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## underation

> ...overseas US citizens whose primary source of income is something specifically mentioned as taxable only in the country of residence in the tax treaty. Thinking here specifically of US SS, which is taxed exclusively by the country of residence in both the UK and German tax treaties ...


And UK State Pension, which is always taxable only by the UK when paid to a UK resident.

And UK government pensions, which are always taxable only by the UK when paid to a UK resident.

Etc.

The fact is, UK residents get taxed on their UK-source income by the UK in accordance with UK law. No need to invoke the tax treaty.

But if a UK resident has US citizenship and US-source income - then the treaty may become applicable if invoked by the taxpayer.


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## underation

Thinking further:

For a US citizen with significant US-source income, the prospect of filing Form 8854 may be a serious barrier to renunciation, and one that can’t easily be avoided, since renouncing _without_ filing 8854 is not a practical solution. 

For a US citizen in this position, renouncing may not be the best option.

But for a US citizen who has no significant US-source income/assets, Form 8854 is not risky, and is not a potential barrier to renunciation — on the contrary, it’s an opportunity to document the (already accomplished) _end_ of US tax residence. 

For a former citizen in this position, there’s no need whatever to worry about the value of one’s home, or tear one’s hair out trying to find ways to reduce one’s net worth, because in reality there’s no need to file the form at all. Documenting the fact that one has no outstanding US tax liabilities, if desired, can just as easily be done with an affidavit.


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## Bevdeforges

Don't trouble yourself, underation. The question I posed was for David, not for you. I was actually interested in getting a professional tax preparer's take on the matter.


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## underation

Bevdeforges said:


> Don't trouble yourself, underation. The question I posed was for David, not for you. I was actually interested in getting a professional tax preparer's take on the matter.


No problem, I wasn’t answering your question, I was answering my own. 

Finished now. Good luck with your enquiries.


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## DavidMcKeegan

Bevdeforges said:


> The only quibble I'd have with this is that for someone who is renouncing but whose income fell below the filing threshold for their filing status the last 5 years, I would dare say that one could claim to have complied with all tax obligations. Have seen this a number of times with US citizens married to foreigners where the foreign half of the couple was the primary breadwinner. I do note that last year they seem to have dropped the MFS threshold to something ridiculous like $5 - kept thinking it was a typo. But for those who renounced prior, that would be a valid excuse for not bothering to back file 5 years.
> 
> One "interesting" question is that of overseas US citizens whose primary source of income is something specifically mentioned as taxable only in the country of residence in the tax treaty. Thinking here specifically of US SS, which is taxed exclusively by the country of residence in both the UK and German tax treaties (Italy, too, though there are some additional requirements for that to kick in).




I think instances like that would be the only situation where you would not have to worry if you were investigated by the IRS as *legally* you don't have a requirement (not misinterpreting the rules to your benefit to believe you don't have a requirement). 

If you earned under the income threshold or had exclusively income that was not taxable/reportable to the USA, then you did not have a filing requirement and even if the IRS were to reach out during a compliance check, I would imagine that explaining the situation and the fact that your income did not cross the threshold would be pretty straightforward.

Note that many individuals who don't earn an income abroad are still on joint checking accounts so many cross the FBAR threshold even if they have not crossed the requirement to file a Federal return. In a situation like that I would be sure to file the appropriate FBAR's (back filing for the last six years if you need to get caught up). 

https://www.irs.gov/individuals/international-taxpayers/delinquent-fbar-submission-procedures


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## underation

DavidMcKeegan said:


> If you earned under the income threshold or had exclusively income that was not taxable/reportable to the USA, then you did not have a filing requirement and even if the IRS were to reach out during a compliance check, I would imagine that explaining the situation and the fact that your income did not cross the threshold would be pretty straightforward.


I agree.


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## Nononymous

DavidMcKeegan said:


> If you earned under the income threshold or had exclusively income that was not taxable/reportable to the USA, then you did not have a filing requirement and even if the IRS were to reach out during a compliance check, I would imagine that explaining the situation and the fact that your income did not cross the threshold would be pretty straightforward.


So what would actually happen during a "compliance check" if the IRS "reached out" to someone about whom they had zero information beyond a name, address and date of renunciation supplied by the State Department? No SSN, no history of filing tax returns or FBAR reports, no FATCA data (if someone declined to identify themselves as a US person or fell under their bank's mystery reporting threshold).

I'm quite curious. It would seem that the renunciant holds all the cards here.

(As ever, someone with US assets or income sources or past history of filing is in a different situation.)


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## underation

DavidMcKeegan said:


> I think instances like that would be the only situation where you would not have to worry if you were investigated by the IRS as *legally* you don't have a requirement (not misinterpreting the rules to your benefit to believe you don't have a requirement).


Clearly, a UK-resident renunciant (and indeed anybody outside the US that gets that ridiculous “specified US Person” label stuck on them) is entitled to interpret the rules as they see fit, and come to their own decision as to whether it’s in their interest to file a US tax return.


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## DavidMcKeegan

Nononymous said:


> So what would actually happen during a "compliance check" if the IRS "reached out" to someone about whom they had zero information beyond a name, address and date of renunciation supplied by the State Department? No SSN, no history of filing tax returns or FBAR reports, no FATCA data (if someone declined to identify themselves as a US person or fell under their bank's mystery reporting threshold).
> 
> I'm quite curious. It would seem that the renunciant holds all the cards here.
> 
> (As ever, someone with US assets or income sources or past history of filing is in a different situation.)


Right now it is near impossible to say what would happen or how they would enforce US compliance on these folks. The checks have not started rolling out but when they do and as we hear about effected individuals, will post about it on our blog and also via this forum.


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## underation

Shouldn’t be too difficult, in treaty countries, if tax has actually been assesed as due but has not been paid.


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## Nononymous

DavidMcKeegan said:


> Right now it is near impossible to say what would happen or how they would enforce US compliance on these folks. The checks have not started rolling out but when they do and as we hear about effected individuals, will post about it on our blog and also via this forum.


Really about the only thing they could threaten - monster international criminal tax fraud money laundering etc. cases excepted - is to deny a person future entry to the US. Unless they (re)negotiate tax treaties to greatly expand collection assistance.


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## underation

underation said:


> The fact is, UK residents get taxed on their UK-source income by the UK in accordance with UK law. No need to invoke the tax treaty.
> 
> But if a UK resident has US citizenship and US-source income - then the treaty may become applicable if invoked by the taxpayer.


However, if a UK resident invokes the treaty (for example by filing a US tax return and reporting UK earned income as US-taxable and claiming tax credits from the US to reduce/eliminate the US tax bill), they must also report UK income for which they can’t claim tax credits (such as the income from ISAs, or gain from the sale of their principal residence). Otherwise, if the IRS detects the omission, they can make a treaty request for assistance in collection:



> Each of the Contracting States shall endeavour to collect on behalf of the other Contracting State such amounts as may be necessary to ensure that relief granted by this Convention from taxation imposed by that other State does not inure to the benefit of persons not entitled thereto. This paragraph shall not impose upon either of the Contracting States the obligation to carry out administrative measures that would be contrary to its sovereignty, security, or public policy.


Of course, the IRS might never detect the non-reporting; but if there’s no US income it would be simpler and safer not to report anything (i.e. not file), as that means the treaty has not been invoked, no treaty benefits have wrongfully been claimed, and there’s no wrongdoing for the IRS to detect.


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## sammygirl12

When I found out about the need to file...I became compliant in 2011...this year I was fined 10K US for a a 3520-A form filled late by my accountant. that's 20K Australian. I never owe anything and I have engaged a cpa (which costs me 2K Australian everyday) to be compliant. This has been a nightmare! I am dual citizen and have not lived in the states for over 25 years, I will never live there and have no accounts or property there.


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## Nononymous

Thus, sadly, answering the question posed by this thread: choose 2 or 3, but not 1.


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