# Exit tax after renunciation, due to non-tax filing status



## maharbal

I'm brand new here, having just learned 2 weeks ago that I'm an American citizen! Well that was a surprise and then a seriously stressful couple of weeks as I learned that the US taxes according to citizenship not residence. Then I learned about FBARs. I have never suffered anxiety before and now I really understand what it's all about.

My parents are both Canadian. They lived in Iowa for 3 years in the 60s, while my dad attended university there, which is when I was born. When he graduated, we moved back to Canada and none of us have ever lived there since. I was almost 2 when we moved back.

Anyway I am keen to renounce, having no connections at all to the USA. I don't have a single relative near or distant, or friends there, and haven't even visited since 1995. I don't have a SSN, never had a passport. It's a foreign country to me! If I ever thought my US birth granted me anything, I figured it might help expedite a Green Card application. 

When I renounce -- assuming the consulate ever reumes their renunciation appointments -- I'll be a covered expatriate, having never filed any taxes or anything. But I do plan to use the "Relief Procedures for Certain Former Citizens" program to get compliant with taxes and FBAR forms and all that. I can't stand the thought of having the threat of the IRS hanging over me for the rest of my life! 

However at the time of renunciation, I won't be tax compliant and will be subject to the exit tax. 

I'm not rich but my husband (Canadian citizen) and I own a house in Toronto that is worth a mint now, (we bought 20 years ago), thanks to the crazy real estate market. 

Here's the question: How to calculate the exit tax? Our net worth in real estate after mortgage is subtracted, is probably around one million Canadian $. I have no savings really. Just my half of the house. Is that how exit tax is calculated.. by subtracting mortgage and dividing in half the assets you jointly own with your non US spouse? Or am I going to be on the hook for exit tax? Any advice is greatly appreciated. Thanks in advance!


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## stanski

Honestly with that much money on the line I would hire an accountant or lawyer familiar with this to help you out with the process. Try not to stress out too much though (which i know is easier said when you are the person not worrying, but it is possible), Americans live with the threat of the IRS as a constant backround hum and eventually it just because white noise and you realize in reality you will be fine as long as you aren't doing anything shady.


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## Bevdeforges

If you really don't have a US SS number and have never had a passport, you're very likely not on anyone's radar as being a US citizen and you could easily just continue on as you have been doing. 

The expatriation tax doesn't apply until you have $2 million in net worth, or average net income over the last 5 years of something like $170,000. 

And even if a bank or other financial institution asks you for a W9 form, just be aware that these are maintained by the financial institution that asked you for one. The form doesn't go to the IRS. There are even instructions for the W9 form that tell you how to fill it out if you don't have a SSN. (So obviously you're not the only person in that situation.)

There is also a special Relief procedure that may apply to you: https://www.irs.gov/individuals/int...relief-procedures-for-certain-former-citizens

Up to you how you want to proceed, but you may well be able to get around the worst of the "penalties" if you haven't owed any taxes anyhow.


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## Nononymous

stanski said:


> Honestly with that much money on the line I would hire an accountant or lawyer familiar with this to help you out with the process.


That's a fabulous way to waste money. 

Ignore the IRS and above all don't listen to the lawyers and accountants who will *always* advise compliance, in all situations, and who will happily charge a healthy fee to help with the paperwork.


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## Nononymous

Slow down, take a deep breath, relax. You are in no danger here. Do not rush to begin filing US tax returns. Your best approach is to continue doing nothing, forever. The IRS is not going to come looking for you.

I am in exactly the same demographic. The child of two Canadians studying in the US in the 1960s, returned to Canada as a small child. Unlike you, I actually used my US citizenship, moving down to study for 5 years in the 1990s. I obtained a US passport and SSN, and filed US tax returns while working. Despite that I stopped filing when I returned to Canada and have never filed since. I have no intention of filing again, nor do I particularly desire to renounce US citizenship, since it presents no risks to me.

(I may renounce but for different reasons. My elderly parents apparently told their estate lawyer that I am a US citizen and are now very worried that the IRS will somehow swoop in to claim a share of my inheritance. This is not rational but I can't convince them otherwise. So it may be worth US$2350 to renounce if it puts them at ease. Particularly this year if I can claim the US stimulus benefit to offset the cost. I would not file any returns or exit paperwork after renouncing, however. As you perhaps know, one may renounce without being in tax compliance.)

The one thing you must continue doing is *not* revealing your US citizenship to any Canadian banks. If they know, they may request an SSN, which you don't have. The FATCA reporting itself would not be a huge problem - you won't suddenly start receiving letters from the IRS - but it's still best avoided.

Otherwise, relax. You do not need to spend money on this. You do not need to come into US tax compliance. You don't particularly need to renounce. If it helps you sleep nights, be aware that the IRS can collect no money (taxes owed, penalties, FBAR funds) from Canadian citizens in Canada.


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## Nononymous

Correction: that last comment in parentheses should read "FBAR fines" not "FBAR funds".


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## maharbal

*maharbal*



Nononymous said:


> The one thing you must continue doing is *not* revealing your US citizenship to any Canadian banks. If they know, they may request an SSN, which you don't have. The FATCA reporting itself would not be a huge problem - you won't suddenly start receiving letters from the IRS - but it's still best avoided.


Unfortunately that's exactly what I did. Last week I found a tax professional who specializes in US tax and who also helps with renunciation. He gave me a big to do list, and I got right on it. The person I spoke to at the bank quickly figured out why I needed old statements, and this is now another thing making me sweat at night! 

Still, I find everyone's advice and recommendations to stop stressing out, pretty reassuring, so thank you! When I first learned of this, I felt like the IRS were coming for me and everything I owned.


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## Nononymous

Oops. Cross-border tax professionals are so helpful. Fire this clown, pronto.

So the bank is probably on to you by now. Here are some helpful tips to help you fix the problem and sleep better:

1. Under the US-Canada agreement, FATCA reporting does *not* include RRSP, RESP, RDSP and TFSA accounts.

2. For all other accounts, FATCA reporting only kicks in when the account balance exceeds US$50,000 (per the agreement, though banks are not prevented from reporting lower-value accounts).

So, even if the cat is out of the bag as far as your bank is concerned, it may not be a huge issue. First, determine whether you would actually be subject to any form of reporting. If no, that is excellent news. If yes, time to change banks.

The bank may demand that you get an SSN. Do not do it. Stall them, claim that it's impossible because of COVID, and take your business elsewhere. Open new accounts without disclosing US citizenship (super easy, they won't ask where you were born, it's just a check-box on the application form). This will require lying, but one become accustomed to it.

If your spouse is not a US citizen, this is a good thing. If you trust your spouse, keep assets in his or her name. Only use a joint account with a relatively low balance for daily expenses, as this will never be reported. Other accounts should be kept in the name of the non-US spouse. Just be aware that this requires a certain amount of trust in the relationship, and may not be ideal for estate-planning purposes.

Sleep well. Panic in the first few weeks is normal. After that, the "they haven't found me yet, why would they find me now?" logic kicks in and you can forget about this nonexistent problem.


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## JustLurking

Bevdeforges said:


> The expatriation tax doesn't apply until you have $2 million in net worth, or average net income over the last 5 years of something like $170,000.


Although it won't make any difference to the OP, for accuracy, note that the income trigger for the US's execrable expatriation tax is an average _tax liability_ of $168,000, not average _income_.

Also, there is an exception for US citizens who were born dual, live in their other country of citizenship, and have no recent history of US residence.

Full details in form 8854 instructions:

https://www.irs.gov/instructions/i8854


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## maharbal

*Renouncing without legal obligation to file taxes*

Vis a Vis US Citizens in Canada, one US tax preparer says on his website:

"If you have no ties to the US, you may not have to file taxes to relinquish"

Obviously if somebody relinquished decades ago, no taxes due. But I assume relinquish in this context also includes current renunciation. The part that I am really wondering about, is the suggestion that having no ties to the US might mean no need to file taxes. I can find nowhere on the internet that suggests such a thing might be true.

Does anybody know what this tax preparer is alluding to?


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## Nononymous

- delete -


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## Nononymous

maharbal said:


> Does anybody know what this tax preparer is alluding to?


The tax preparer is alluding to reality: if you don't have any ties to the US, you can safely ignore any and all tax filing requirements before or after you renounce. The IRS can't do a thing about it.

That being said, what they may be referring to is this: if you performed a relinquishing act prior to 2004 (e.g. obtaining Canadian citizenship) and subsequently did nothing to actively "use" your US citizenship (e.g. renew a passport, vote, or file tax returns) then you can document your relinquishment to obtain a CLN (for the same absurd fee of US$2350) but are excused from the exit tax and all the various compliance requirements (i.e. 5 years returns and FBARS plus form 8854). Or, one simply renounces and files nothing and the end result is the same.

In your case, I wouldn't even bother renouncing. You're an Accidental. You don't have a US passport or SSN. They don't know that you exist, and can't touch you anyway. Ignore everything, you'll be fine. Save yourself the money and hassle.


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## Pacifica

Regarding current renunciations (or relinquishment by other method specified in _Immigration and Nationalities Act_, s. 349(a)), I’ve noticed, since I started tracking enunciation/relinquishment for the Isaac Brock Society in 2011, that quite a few people who have no ties to the US, particularly if they are not in the IRS system already, have chosen not to file. By law, of course, one should file; but, in reality, it’s been coming down to personal choice, which option makes one feel more comfortable.

Here’s some background info regarding renunciation/relinquishment and the relationship between DoS and IRS: 

*Department of State*

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

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


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

(b)	The DS-4079 questionnaire, which is relevant and required for relinquishments, is not used for renunciations in Canada (or most places elsewhere AFAIK). However, some consulates may be using it for renunciation (while DoS discourages its use with renunciation, they do not forbid it (7 FAM 1264). Your local consulate will let you know which forms they require, either on their website or when you send in an appointment request). 

The DS-4079, asks at q. 13 (e) “Do you file US income or other tax returns?" This question is on the DS-4079 is there as an indicator of your ties and connections to the US, which is important if you’re claiming to have relinquished some years ago (in which case you’re trying to illustrate your lack of ties/connections/citizenship behaviour). For renunciations, it’s irrelevant if you have ties/connections/citizenship behaviour or not – and your answer has no bearing on if you can renounce or not. 

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

*IRS*

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

If a person does not file, the citizenship itself remains terminated and the CLN remains valid.


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## maharbal

Boy am I ever regretting my initial panic where I hustled to get things sorted out. Doing nothing at all would have been the best course. To top it off, the tax guy I thought I hired did a disappearing act as soon as I sent him my info. No word from him in 3 weeks. I know he's still alive because he has posted on fb recently!


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## Nononymous

It happens. Don't beat yourself up.

You can quietly fire the tax guy. Just say that you're confident that you can handle it yourself. Pay any outstanding bills and call it a lesson learned. But don't continue or give him any further information. He's not going to report you to the IRS.

Figure out how you can repair the damage with having possibly confessed US citizenship to your bank. There's a chance they haven't yet flagged you as a US person, and it will all blow over. Or you can easily fix this with some combination of closing accounts, moving to a new institution (where you will *not* disclose US citizenship when opening an account - use your drivers license as ID, not your passport) or taking your name off joint accounts and leaving assets in your spouse's name only. Worst case, something is FATCA reportable and the IRS gets one tiny data point this year only for a person they've never heard of who has no Social Security Number. This is not something worth losing sleep over.

PS on edit: For an account to be reported under FATCA, three things need to happen. The account-holder must be flagged as a US person. The account balance must exceed US$50,000, though banks are free to report lower. The account must be of reportable type, which does *not* include RRSP, RESP, RDSP, TFSA etc. - in other words, only regular bank accounts and investments that are not tax-protected. So you may well be quite safe even if the bank has you down as a US citizen. I would still switch banks to prevent it from happening in future, however.


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## maharbal

My bank accounts are definitely nowhere near FATCA reporting limits.(I wish!) Seems like all will be well and I suppose worst case scenario is simply renounce. Your advice has been invaluable for easing my state of mind. Thank you Nonymous!


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## Nononymous

Renouncing is pretty extreme, not needed in your case I'd say. 

I would exercise caution with the bank though. Try, ever so subtly, to figure out whether they have you flagged as US person. If yes, change banks or take precautions against future problems (they might one day demand that you obtain an SSN - this is happening already in Europe). If no, all good. 

Maybe for now do nothing, but if they ever ask for an SSN, you'll know that they suspect.

And be sure to ghost the tax guy!


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