# Tax consequences on IRA upon renunciation of US citizenship



## broucks

I have an IRA worth about 300K.
I am renouncing US citizenship.
What are the taxes due on my IRA ?


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## Bevdeforges

There is no reason a non-US citizen can't have an IRA - though you won't be able to contribute any more toward it. Just have to sit and wait until you hit retirement age and can start withdrawing funds.

However, as a non-US citizen, you will be subject to mandatory 30% withholding on all withdrawals from the IRA (plus any early withdrawal penalties if you take the money out before you reach the minimum age for that - currently 59 1/2).

There are no taxes due on renunciation - however you will have to notify the financial institution that holds your IRA that you are no longer a US citizen and thus are subject to the 30% withholding requirement. (Or rather, I would expect that the IRS will notify your financial institution for you.)
Cheers,
Bev


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## broucks

broucks said:


> I have an IRA worth about 300K.
> I am renouncing US citizenship.
> What are the taxes due on my IRA ?


Sorry...i should have mentioned that i am retired and have started withdrawing from it.


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## Bevdeforges

OK, then the only change will be that you will be withheld at 30% on withdrawals. You may be able to get some of that back by filing a 1040-NR at the end of the year, but I'm not familiar enough with how non-residents are taxed to be able to tell you much more than that. (BTW, if you're also getting US social security, that will also become subject to the 30% withholding once you renounce.)
Cheers,
Bev


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## JustLurking

Bevdeforges said:


> However, as a non-US citizen, you will be subject to mandatory 30% withholding on all withdrawals from the IRA (plus any early withdrawal penalties if you take the money out before you reach the minimum age for that - currently 59 1/2).


Not universally. The US withholding is 30% for residents of non-treaty countries, but if there is a US income tax treaty in place then a different rate may apply.

The US tax withholding rate on pension distributions for residents of Italy under Article 18(1) of the US/Italy treaty is 0%.

Anecdotal evidence suggests that not all IRA custodians will honour that rate even where validly claimed on a W-8BEN (eg Fidelity), in which case a 1040NR to the IRS would be required to recover the over-withholding.



Bevdeforges said:


> There are no taxes due on renunciation - however you will have to notify the financial institution that holds your IRA that you are no longer a US citizen and thus are subject to the 30% withholding requirement. (Or rather, I would expect that the IRS will notify your financial institution for you.)


Not so for everyone. For 'covered expatriates' a potentially hefty tax may be due on renunciation. The 'exit tax' deems all retirement accounts to have been completely distributed on the date of renunciation, and so makes the entire balance fully taxable immediately. This can cause significant financial damage.

Anyone with sizeable retirement savings is therefore strongly motivated to ensure that they are not considered to be a 'covered expatriate'. One way would be gifting so as to duck under the $2MM asset limit before renouncing.

It seems unlikely that the IRS would ever notify one's financial institution of anything (apart from a lien, perhaps!). This is what W-8BEN and W-8CE -- to "voluntarily" waive treaty rights -- are for.


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## Bevdeforges

Just remember that the tax treaty between the US and Italy for pensions is a bit "unusual." Italy is one of the few countries where US SS benefits are taxable only in Italy - but for Italian residents who are also Italian citizens. If in doubt, take a look at the tax treaty itself. (Available on the IRS website - or probably also on the Italian tax authority website.) I would check particularly how the US-Italy tax treaty treats IRAs - in some tax treaties they are specifically mentioned as being considered as "US government pensions."

Plus, there is a big difference between the tax rules/laws as they are written and what you can practically "get away with" based on how you file (or don't).
Cheers,
Bev


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## broucks

*taxation of IRA on renouncing from the internet*

Yeah well it doesn't seem so straightforward.
The worst scenario would be to have 30% withheld in the states and pay 26% on the withdrawal here in Italy .........
Info on the internet seems to say there is no tax payable but it is hard to believe they would allow that 

A Roth IRA is treated as fully distributing to a covered expatriate on the day before renouncing U.S. citizenship. The income tax cost of such a distribution is zero if the Roth IRA has been in place for five taxable years (see the explanation below) and the covered expatriate is age 59 ½ or older.

n short, if an individual is a “covered expatriate” upon renunciation (or LPR abandonment), they will generally be subject to U.S. income taxation on the entire amount of the IRA (along with all other assets with unrealized gains), reduced by the exemption amount (currently US$680,000 for the year 2014). - this would reduce my obligation to 0 as my IRA is less than 680,000

Deferred compensation, such as IRAs, pension plans, and stock option plans, is not counted as part of your assets under the “deemed sale” described above. Instead, 30% of the total will be withheld and given directly by the payer to the government any time taxable payments are made to you from the deferred compensation item. This withholding replaces all other taxes on the deferred compensation.

It's not letting me post links !! as I have only 2 posts ;((


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## Bevdeforges

Yup, what you've posted sounds about right. 

If your IRA is beneath the exemption amount, then you're fine on that score. But it sounds like what you need to do is to check the US-Italian tax treaty on the regular IRA. I know Italy claims the right to tax your US Social Security if you are both resident in Italy and an Italian citizen, but I'm not sure if that same thing applies to IRAs and other retirement benefits coming from the US. But the catch there is that most of the firms that hold IRA assets will simply withhold 30% on withdrawals being paid out overseas (whether or not you are a US citizen) and leave you to sort out the rest (i.e. reclaim the "excess withholding" on your income tax return).

It's definitely one of the down sides of renouncing "simply" to avoid taxation.
Cheers,
Bev


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## rsetzer99

Italy will tax your IRA withdrawals, after giving you credit paid for tax paid to the US. Although, for all practicable purposes, since the Italian rate will almost certainly be higher than your US rate, at the end of the day, its really just paying the Italian tax rate, with tax returns arrived at by using expensive accountants to reconcile the distribution between countries. 

About the only thing Italy will not tax income wise is pensions that are from government units, both Federal and State. Teachers, Police, Firefighter, ect are examples of those who may receive a pension at the State level.


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## JustLurking

broucks said:


> A Roth IRA is treated as fully distributing to a covered expatriate on the day before renouncing U.S. citizenship. The income tax cost of such a distribution is zero if the Roth IRA has been in place for five taxable years (see the explanation below) and the covered expatriate is age 59 ½ or older.


If your IRA is indeed a Roth IRA (and not a traditional pre-tax one) and you have held it for a while, meet the age requirements for penalty-free and tax-free access, and so on, then you are in good shape with respect to the US exit tax, because a "deemed distribution" would not generate a US tax liability any more than a real one would.



broucks said:


> In short, if an individual is a “covered expatriate” upon renunciation (or LPR abandonment), they will generally be subject to U.S. income taxation on the entire amount of the IRA (along with all other assets with unrealized gains), reduced by the exemption amount (currently US$680,000 for the year 2014). - this would reduce my obligation to 0 as my IRA is less than 680,000


It looks like you have this slightly wrong. Many people do; it is ridiculously arcane. The US$680,000 exemption is for "deemed disposition" capital gains only, so you can't use it against the "deemed distribution" of your IRA balance.

But... you should still be okay on the IRA, though, if as you suggested above this is a _Roth_ IRA.

In all cases, if you can ensure that your assets are below $2MM on renouncing, and that you are up to date with US tax filings you escape the exit tax entirely. There is also an exemption if you were a dual US/Italian citizen at birth.

If you are not a 'covered expat' -- that is, not subject to the exit tax -- then you do not have to complete a W-8CE for your IRA custodian, in which case they should honour the W-8BEN and remit cash to you without any US tax withholding (though as noted earlier, some are known not to do this correctly; likely they are as fearful of falling foul of some obscure or hidden IRS rule as the rest of us).

All this to buy your freedom from the "Land of the Free". :-(


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## Bevdeforges

The firm that holds my IRA says that they will withhold 30% on all withdrawals made overseas - US citizen or not. To that end, I'm having my IRA funds transferred to my US bank account, and then transferring from there to my French bank account. When I get to the point where I will run up an IRS liability on my taxes, I will adjust the withholding accordingly - but anything to avoid a 30% hit when I'm nowhere near that bracket.

Anyhow, just a caveat that different financial companies may have different policies on withholding - mostly to make things easier for them, rather than for you.
Cheers,
Bev


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## broucks

*not a roth ira*

OK not knowing the differences between IRAs I posted content related to a ROTH IRA.
My IRA is an inherited IRA from my mother's estate (she in turn had inherited it from my father).
How does this change the equation?
Also covered or not covered ? What does this mean?
I left the states in 1978, spent a year in Australia, then 1 and 1/2 in germany then back to Australia as a migrant. I didn't opt for citizenship (shucks) 'cause at the time that would have meant giving up US citizenship as US didn't allow dual nationals. 
I then moved to Italy in 1986 where I work at FAO (a UN agency) until my retirement in end 2011.
I am now trying to get Italian citizenship and am in the final stages (months away) at which point I will pay to purge myself of US citizenship.
I am not sure how to declare the IRA in Italy ... as an investment or as a pseudo pension ... there are different tax implications. On an investment it is taxed on gains at 26% ... as a pension it is taxed as income on withdrawal (as in the states).
So ... to make a decision I have to know how the US considers the IRA when I cut my ties.
Sorry for the confusion but I definitely am confused.


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## JustLurking

broucks said:


> My IRA is an inherited IRA from my mother's estate (she in turn had inherited it from my father). How does this change the equation?


It seems there are huge US tax complexities in general for non-spouses who inherit IRAs -- the IRS has a complete and very dense looking publication on the topic. Lots in here about required distributions within just a few years of inheriting and so on. Not my area at all.

However, I can't see any way this would change the _expatriation_ tax situation, which works on the basis of bringing forward tax that has been deferred. In the case of Roths there's effectively no deferred tax, making them benign. Non-Roths are where the problems can lie, for covered expats.



broucks said:


> Also covered or not covered ? What does this mean?


Described in this posting, part of an online book by Phil Hodgen. Your aim is to *not* be a covered expat. If being covered is a possibility, you'll want to use every method at your disposal to avoid it. The US expatriation tax ('exit tax') can reach into your _unrecognized_ capital gains and into your _non-US_ pensions, so potentially *extremely* damaging financially if you are caught by it.

Reading Phil's other expatriation blog postings will also be a good use of your time, since you will really need to understand this stuff before proceeding. Over the past decade, renouncing US citizenship has become vastly more expensive and much more fraught with peril and difficulty. Passed as part of HEART in 2008, the 'exit tax' is the US's new financial Berlin wall.



broucks said:


> I am not sure how to declare the IRA in Italy ... as an investment or as a pseudo pension ... there are different tax implications. On an investment it is taxed on gains at 26% ... as a pension it is taxed as income on withdrawal (as in the states).


For this you'll have to spend some quality time with the US/Italy tax treaty. Focus on Article 18. Paragraph 1 suggests that your IRA withdrawals are taxable only in Italy, and _perhaps_ taxable by Italy as income (based on extrapolating how the UK interprets this clause it its treaty -- of course you should check all of this for yourself).


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## broucks

Grazie ... grazie molto !! 
Thanks - Looks like there is a lot to read - Experts are hard to find as well.
I have been talking to the local KPMG office and they are not allowed to assist individuals and are having great difficulty finding experts.
If you know of one .......... who could find the best path forward for me on this .... it would be much appreciated
Thanks again


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## broucks

OK
Key seems to be covered/ non covered.
If not covered
From Hodgen
"If you are an ordinary Expatriate, you will provide Form W-8BEN to the custodian. Then the appropriate withholding can occur because there is a payment from the IRA to a nonresident alien taxpayer."
I would assume .... (I hate assumptions) that the custodian will hold some standard amount on distribution. This amount can then be reclaimed by filing a non-resident 1040 and claiming tax paid (26%) here in Italy. (Italy has precedence from US/Italy tax treaty and the fact that I am an Italian resident / citizen).
The key is not to be covered and then understanding with certainty the treatment of an uncovered.
Thanks muchly to JustLurking for giving me this information ....


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## JustLurking

broucks said:


> If not covered ... I would assume .... (I hate assumptions) that the custodian will hold some standard amount on distribution.


The right amount for the custodian to withhold for the IRS, under the US/Italy treaty, is 0%. They _should_ do that when presented with a correctly completed W-8BEN, but as noted above, may not. It depends on the provider. Fidelity have recently been reported to have started withholding 30% no matter what, as have TIAA-CREF. Vanguard have apparently said that they will honour W-8BENs, but I'm not aware of anyone having put that to the test yet.



broucks said:


> This amount can then be reclaimed by filing a non-resident 1040 and claiming tax paid (26%) here in Italy.


Nearly. If your custodian withholds anything more than 0% then you have to file a 1040NR to reclaim _all_ the US withholding. Whatever you pay to Italy is irrelevant in that filing.

It will work something like this. Enter the IRA withdrawal on line 7 of the 1040NR schedule NEC, put 0 in column d of that line and 0 on line 15, then follow through the rest of the return (US tax withheld goes on line 62, typically d) and you should find that your entire withholding is refunded. You will need to include a form 8833 showing the treaty article that justifies 0% US tax. Shouldn't require any more than that, though.



broucks said:


> The key is not to be covered and then understanding with certainty the treatment of an uncovered.


Yup, that one. If you've understood the mechanics of covered expat status and the exit tax then you can see how folk with sizeable assets can be effectively ensnared in US citizenship forever more. Avoid like the plague, then. (In my opinion passing this exit tax is one of the dumbest things congress has done in a long time.)


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## Bevdeforges

Just to throw in one more big confusing factor: I have been told that, in the case of the "standard format" tax treaties, where a "government pension" paid by a foreign country to a US citizen resident in the foreign country is taxable only by the foreign country, that the correct approach for US tax returns is not to report the foreign pension at all on the US forms. 

The corollary for this would be that, if your IRA distributions are explicitly taxable only in Italy, perhaps they do not need to be declared at all to the US - except perhaps where you did so solely to claim back withholdings that should not have been taken out at all. Perhaps there is some way you can use the W8BEN form to impress upon the investment house that the US does NOT have the right to tax the distribution. (Have never studied the W8BEN form in any detail - but you could always send a copy of the tax treaty with it and highlight the relevant sections.)
Cheers,
Bev


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## JustLurking

Bevdeforges said:


> ...Perhaps there is some way you can use the W8BEN form to impress upon the investment house that the US does NOT have the right to tax the distribution.


The W-8BEN is _precisely_ for this. There are reports though that least two IRA custodians simply ignore it:



> [Fidelity] stated unambiguously that all distributions will be subject to the 30% withholding even with a W-8BEN on file, and that's their "new policy".
> ...
> As per my comments on a couple of other threads, TIAA-CREF is following a similar vein.


Broadening disregard for W-8BENs appears to be the new post-FATCA reality for non-resident aliens. This creates the need for a 1040NR and a potentially very long wait for retirement funds (perhaps up to 18 months, since the IRS often takes months to process non-resident refund claims).


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## broucks

OK Thanks to all for mostly clarity on the IRA. It's with Schwab in a non US account with my address here in Rome. When I withdraw they just ask me how much I want to withhold for US and PA taxes.

Back to the pension ....
It is not a government pension but an UNJSPF (United Nations Joint Staff Pension Fund - I worked for FAO (Food and Agricultural Organization HQ in Rome)) pension fund paid out of Geneva or New York.
On retirement I started out not paying tax on it in the US (Its tax status in Italy is unclear to the extent that people don't pay tax on it - the salary was tax exempt so the logic is that the contribution to the fund should have been tax exempt as well and so the pension....).
But ... all the other US retirees pay tax on it so I started getting nervous and retroactively paid it ....... 1040X - Until this year I was doing all my own taxes in TurboTax.
Now with the research I've been doing on the IRA and reading the tax agreements between US and Italy I wonder whether I have to pay it in the states.
Do I have to pay tax on my UN Pension in the US ?

https://www.sullcrom.com/siteFiles/Publications/SC_Publication_New_Italy-U.S._Income_Tax_Treaty.pdf

"The Treaty clarifies that social security or other similar payments made by one state to a resident of the other state shall be taxable only in the state of residence. "

It would seem to be social security or other similar payments but not by a state but by an entity but the essence seems to be that it is taxable only in the state of residence (which has been Italy for 30+ years).
If it is not taxable then I can just not declare it.

This needs further investigation.

The other thing I need to understand re covered is the definition of "US Income Tax Liability" - what line on the 1040 does this refer to ?

To all who are still listening - thanks for your patience. The accountant who did my US taxes for 2015 just sent me an email saying that he didn't feel knowledgeable enough to do my taxes and suggested I hire someone with knowledge of US/Italian tax agreements to review my 2015 return.
The US sure makes my life difficult.
Talk about taxation without representation ... )


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## Bevdeforges

Yeah, the issue you're running into is that the UN is not considered a "state" within the meaning of the tax treaties. The "international civil service" retirement system is kind of a private pension system - or so it is considered. NGO salaries are not taxed in most countries - except, of course, the US. This comes up every time Congress threatens to pass legislation to repeal section 911 of the tax code (which is the one with the FEIE). 
Cheers,
Bev


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## JustLurking

broucks said:


> The other thing I need to understand re covered is the definition of "US Income Tax Liability" - what line on the 1040 does this refer to ?


I would read this to mean line 63 (2015 version, described as "... This is your *total tax*"). Take your past five years of 1040 forms, add up the *total tax* number found on each, and divide by five. If that comes to less than $160k or so you failed the average annual net income tax test (hurray).

In practice this test doesn't catch many folk. To hit it you'd need a _very_ large income, say $500k or more annually over a sustained period. Much more likely is to be caught by the $2mm asset test. Own a home in a middle class neightbourhood of a sizeable first-world city and have 20 or 30 years of retirement saving behind you and you can be there. The income tax test is likely only going to catch the 'rich', but the asset test can easily capture far more average folk.



broucks said:


> ... and suggested I hire someone with knowledge of US/Italian tax agreements to review my 2015 return.


This is one more ugly facet of the US exit tax. _Very_ few professionals understand it, and even fewer know how it interacts with the disparate and divergent tax rules of the other 190 or so countries on the planet. And every expatriate's financial situation will be different, so that most boilerplate advice will be too general to be usable anyway.

More often than not, expats are simply left to handle this either entirely on their own, or forced into using extremely expensive 'experts' who, it often turns out, know hardly any more than the rest of us about the minutiae of US expatriation taxes, and regularly less (but charge handsomely anyway).

In the mid 1970s the US was all bent out of shape about the Soviet exit tax being applied to educated folk who wished to leave the communist bloc and move to the west, citing 'human rights' and 'restricted freedom of movement'. Well, now the US has its own exit tax, while Russia and former communist states do not. Quite a turnaround in the intervening forty years, then.


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## broucks

OK but the Italian US agreement of 1999 seems pretty clear :
ARTICLE 18
Pensions, Etc.
1.	Subject to the provisions of paragraph 2 of Article 19 (Government Service), pensions and other similar remuneration beneficially derived by a resident of a Contracting State in consideration of past employment shall be taxable only in that State.

n'est-ce pas ? - i am not a lawyer ...


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## JustLurking

broucks said:


> OK but the Italian US agreement of 1999 seems pretty clear : ARTICLE 18 Pensions, Etc.1....


Yes it does. But Article 1 paragraph 2 also says:


> Notwithstanding any provision of this Convention except paragraph 3 of this Article, a Contracting State may tax: ... its citizens by reason of citizenship as if there were no convention between the Government of the United States of America and the Government of the Italian Republic for the avoidance of double taxation with respect to taxes on income and the prevention of fraud or fiscal evasion.


Article 18 paragraph 1 is not one of the listed exceptions in Article 1 paragraph 3. And because the US _deems_ -- there again is that ugly weasel word so beloved of the US -- the exit tax to become due on your last day as a US person, there is a potential problem here.

This stuff is slippery. The US is much keener on signing treaties than it is on abiding by them, and regularly reneges on treaty clauses anyway. You need to be on permanent guard.



broucks said:


> I am not a lawyer ...


Nor am I. But thanks to the appalling complexity, not to mention the rapacity, of US tax laws I have been forced to become much more of one than I used to or wanted to be.

You keep asking about exit tax issues. If you are seriously in danger of being a 'covered expat' you will want professional advice before proceeding.


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## broucks

so ... they make a convention and then say a contracting state is free to ignore the convention ..... very strange
the think about taxable in the place of residency is very interesting .... from a logical and not necessarily legal point of view ... if this is taken at face value ... there is no tax on my pension as the pension is not taxable in Italy so if I can avoid US tax ... and this is what logic seems to say .... then there is not tax payable ... the convention doesn't say preference should be given to the place of residence ... it says taxable in the place of residence.
I guess there are precedents for this as someone must have tried this.

Covered. I am actually pretty close to the 2 million. I have a disable daughter and was thinking of transferring .5 to my ex wife to create a fund to look after our daughter and move me under the ceiling. As she is Italian I don't think the US has anything to say about this gifting ....

Yeah. I thought about law school and now in my late 60s I am getting my specialisation.


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## JustLurking

broucks said:


> ... thinking of transferring .5 to my ex wife to create a fund to look after our daughter and move me under the ceiling. As she is Italian I don't think the US has anything to say about this gifting ...


And yet, it does. There is no marital deduction for gifts to a _non-US citizen_ spouse. Instead you get an exemption of around $145k or so, beyond which you need to file a US gift tax return. Phil Hodgen posted a good example of this exit tax strategy in action.

There will likely be no _actual tax_ due on this gift, but the reporting here represents yet another US tax landmine for you to navigate around in your quest for freedom, with (of course) the usual penalties for noncompliance. The US will continue to meddle in your affairs until you renounce; and afterwards too, if you become a 'covered expat'.


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## broucks

Jeez Louise ... gift tax ... reading this and trying to comprehend ... I think I need guidance on the whole situation ... recommendations ? - Hodgen ?
It's very confusing what with the annual limit and the lifetime limit. Reading it seems that there is no tax due to family within the threshold of 5,340,000 lifetime gift tax exemption .... It's as if everything is written to be obtuse instead of clear.


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## JustLurking

broucks said:


> ... I think I need guidance on the whole situation ... recommendations ? - Hodgen ?


Assuming that was directed at me... not really, no. Sorry.

I spent a lot of my time working through my own situation in the very early days of the exit tax (actually, even before it passed), and from what little contact I had with professionals then, it was very clear that I knew far more about it than them, and that if I paid them it would be for them to learn about it on my dime. This was pre-Phil Hodgen.

Now I imagine Phil Hodgen would do a very good job, but I suspect he would be _far_ too expensive for a 'simple' case. In all honesty, if you ask questions, read, research, read, and research some more you can probably figure it all out for yourself in the end. It's a major PITA, but at least you have the satisfaction of being the master of your own affairs when you finally find closure.

One last point. In my last posting I spaced on the 'ex' part of your plan to gift to your 'ex wife'. So the allowance before you hit US gift tax return territory is even lower than the $145k I mentioned. More like $14k, and then you start burning through your "lifetime estate basic exclusion amount" of around $5.43mm to negate having to pay actual gift tax; see IRS form 709 instructions for more. Of course, since all of this is working up to no longer being a US citizen in future, and so being free entirely from here on out of any danger from US estate taxes, burning through that isn't an issue.


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## broucks

Yeah. Experts.... My local KPMG office can't advise individuals so they offered to find someone to advise me. They found him and he wants 7-10 K for advice on expatriating myself.
Prior to that they had set my daughter up with someone to do her US taxes. She made 4000 euro one year and 10000 the next working as a self-employed psychologist working with Alzheimers sufferers and their families. The expert said she had to pay a 12.4 percent self-employment tax on her earnings. She researched it and found that a dual national gets to choose which social security country he/she wants to participate in and not only did she not have to pay for US social security, she didn't have to file and so saved the 450 the expert wanted to charge her.
Hard to get people with experience in international tax and even harder to get people who are familiar with US and italian tax law and the agreements that have been made between italy and the US.
some things one can't get an answer to by research. An example is whether I have to pay tax on my pension in the states. We talked about this before but the wording seems clear to me and I am tempted to just not pay it. If I don't file going forward they might not notice but surely trying to repair past years with a 1040X they will find a means to not give me my money back.
Of course the thing that boggles the mind is that the US makes me do all this, basing taxation on citizenship and not residency (I think Ethiopia is the only other country that does this). I get nothing for my tax dollar, really 0 and an enormous headache filing each year, translating all my Italian finances and taxes to send to Uncle Sam. Sorry for the rant.


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## JustLurking

broucks said:


> ... Prior to that they had set my daughter up with someone to do her US taxes.


So your daughter is a US citizen?

Assuming she wants to remain one and not also renounce herself, you have even more motivation to avoid 'covered expat' status. If you do not, she may in future be liable for section 2801 tax, which will take 40% or more of any gifts or bequests from you to her.

Phil Hodgen's take on section 2801 neatly sums up congress's lunacy in enacting this piece of nonsense:



> Here’s the simple second order effect to the “U.S. persons pay a tax to inherit from a covered expatriate” tax rule of Section 2801. It becomes expensive for the offspring of a covered expatriate to inherit wealth. We should expect the children of covered expatriates to renounce U.S. citizenship as well. If you are a child who stands to inherit a vast sum of money from your parents, who expatriated, you are likely to choose expatriation (and inheriting 100 cents on the dollar) vs. U.S. citizenship (and 60 cents on the dollar).
> 
> Tax law encourages people to expatriate.


"Dumb" seems like far too small a word for this epic monstrosity, but unfortunately this sort of thing is entirely par for the course these days with congress.



broucks said:


> Sorry for the rant.


Exasperating, isn't it? No apology necessary. I feel your pain.


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## Bevdeforges

Basically, you're preaching to the choir here - it's only amongst the expat population that there is any really "strong" feeling about the citizenship based taxation issue. Most folks back in the Old Country see it as a way to tax wealthy fat cats who stash their ill-gotten gains abroad.

But the tax adviser who told your daughter that she got to choose her social insurance system wasn't correct, either. It's generally the case that you pay the social insurances where you live (or rather, "are tax resident"). It pays to take a good look at Publication 54 before you talk to any "international" tax adviser. In my experience, most of them are actually quite limited in their understanding of filing from overseas.
Cheers,
Bev


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## broucks

But I can still die and leave money to her, right ? or does Uncle Sam take a chunk of that as well ???


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## JustLurking

broucks said:


> But I can still die and leave money to her, right ? or does Uncle Sam take a chunk of that as well ???


It's a tax on _gifts and bequests_. If you become a 'covered expat' and your daughter remains a US citizen, then if you die and your assets pass to her, she becomes liable for US tax at 40% of everything she receives above $14k, under section 2801.

So yes, Uncle Sam could take nearly half of her inheritance.

You often read statements in the media and on web sites to the effect that 'gift recipients never have a US tax liability', even from very reputable sources, but section 2801 clearly creates just such a tax on recipients of gifts or bequests from covered expats. And not a small tax, either.

Can I suggest you introduce yourself on the 'Isaac Brock Society' web site? Here you will find people in all stages of renunciation, and their collective experience will help you further plan your own route through the morass. You can also read about the lawsuits currently being pursued against extraterritorial US tax laws.


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## broucks

Thanks. I'll check it out. I am now clearing my slate of PFICs which I have been heavily invested in here in Italy never dreaming that they could be a problem ...
Luckily I am retired so I can spend 20% of my time dealing with Italian and American taxes.
Thanks again and Happy 2017


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