# US Expatriation - Final Tax Return



## Boggled

I was formerly a US national and renounced in 2014. I'm now looking into how to file my last tax return and am finding it hard to get straight answers. I'm hoping some others who've done this can shed some light. Here are some particular points:

*1)* It looks like I need to file as "dual status" for 2014 (1040 and 1040NR, with 8854, of course). I've found no IRS documents that support this, but I've read various claims online that this is the procedure.

What have others done? Does anyone know of an IRS document that says explicitly to do this? I find it strange to apply something designated for those who are "resident aliens" and "nonresident aliens" in a single year when I was not an "alien" for the first part.

*2)* Assuming 1), I cannot take a standard deduction and must file separately (not jointly, if married), but I can take a (probably pro-rated) FEIE, housing exclusion, personal exemption, and apply the foreign tax credit against anything remaining after deductions/exemptions. Is this correct?

*3)* I imagine each yearly exemption/deduction would be pro-rated until the day before renunciation. E.g., if I renounced on Feb 1, 2014, I'd be permitted 31/365'ths of the exemption values for 2014?

*4)* Do tax brackets work differently for a dual status return? For example, suppose I were paid handsomely at $35,000/mo (pure fiction!) but was only a US citizen in January. Also suppose I took no deductions at all so my full US liability was $35k. Would only the first two tax brackets apply (10 and 15%) because my 2014 US-taxable income was "only" $35k? Or, does one need to extrapolate somehow based on what the full year's salary might be and apply higher brackets in the right proportions?

I'm guessing the lack of a standard deduction is to compensate for this, but I want to make sure. It could be more fair to extrapolate, but that could also severely punish someone that got extra income in January (say, bonuses or relocation reimbursements).


Apologies for such a long post and many thanks in advance for any insights. I've found it's fairly easy to get information on the 8854, but there's scant information out there about the final year's tax return!


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## BBCWatcher

Boggled said:


> *1)* It looks like I need to file as "dual status" for 2014 (1040 and 1040NR, with 8854, of course). I've found no IRS documents that support this, but I've read various claims online that this is the procedure.


The IRS describes the procedure in Internal Revenue Bulletin 2009-45, Section 8B. You have summarized the procedure correctly.

For the rest of the questions, I would refer you to IRS Publication 519 (U.S. Tax Guide for Aliens), particularly Chapter 6 (Dual-Status Tax Year). As I write this the 2014 tax year edition of Publication 519 isn't out yet, but I'm sure it will be soon. Perhaps it's best to wait on the 2014 edition, then come back with remaining questions.


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## Ex NRASpouse

Hi, Boggled. I remember the feeling well! My husband renounced in 2013 and we posted both the 8854 and the tax forms in Feb 2014. In March 2014 he received one query, which we answered, and have heard nothing since so we’re assuming that it has all been accepted. BTW although my husband was the US citizen, I did his tax returns, etc – hence the use of “I”.

I would emphasise that I am not an expert but, for what it’s worth, here’s what I did. I should say that my husband had no US income and was never resident in his renunciation year. I suspect that you may be in a different situation and so our experience may not be helpful.

*Dual status*
•	There were several posts on this which highlighted the confusion and conflicting instructions within both the IRS and among tax advisors.
• I found the one entitled “1040 and 1040NR in year of relinquishment of citizenship” particularly helpful.
•	The 2013 1040NR instructions (P6) define a Dual Status Tax Year as:
“..one in which you change status between non-resident alien and resident alien.”
•	My husband changed status from a citizen to a non-resident alien. He had never been a resident alien.
•	I took the view that, while he needed to file a 1040 NR, he was not a “dual status” taxpayer.

*Form 1040 NR – for the period from renunciation date to 31 December*
•	He had no US-based income at all post-renunciation so pages 1 & 2 were all zero and there was no claim for deductions.
•	Schedules A and NEC didn’t apply to him.
•	The only other part that was relevant to him was the Other Information schedule.
•	Question E of the OI schedule relates to immigration status. The Instructions give advice on this. This is the one that we used:
o	“If you were not present in the United States on the last day of the tax year, and you have no U.S. immigration status, enter “Not present in U.S.—No U.S. immigration status.”
•	For filing status he ticked Other married non-resident alien

*Form 1040 – 1 Jan – date of renunciation*
•	All the relevant forms and schedules were completed 
•	The income was actual for the period
•	We used standard deductions and exemptions and pro-rated for the period.

Good luck.


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## Boggled

BBCWatcher said:


> The IRS describes the procedure in Internal Revenue Bulletin 2009-45, Section 8B. You have summarized the procedure correctly.


Thanks, but I'm not convinced that's correct in my case. This specifically references _covered_ expatriates, but I am not one (I'm not wealthy enough and have always filed previous taxes).

Maybe the IRS just doesn't care about the small fish. It's still a curious and annoying omission.

Excerpt from the bulletin:


> A covered expatriate must file a dual-status return if he or she was a U.S. citizen or long-term resident for only part of the taxable year that includes the day before the expatriation date.


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## Boggled

Thanks very much for those details, Ex NRASpouse!

I think it perfectly reasonable, given the information (/lack thereof) I've seen and assuming your husband was not a covered expatriate, to arrive at the same conclusion about dual status.

I haven't looked into the 1040 and 1040NR much at all (I've always used TurboTax in the past), but your post will be even more helpful when I finally do!


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## Ex NRASpouse

Boggled said:


> ..assuming your husband was not a covered expatriate..


Correct assumption, Boggled.


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## Boggled

Quick clarification: For his 1040, what filing status did you use (jointly, separately, head of household)?

Thanks again!


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## Ex NRASpouse

For the 1040 it was Married, Filing Separately, same as always; and I attached the same supporting schedules to the 1040.

What I sent to the IRS was:

1040 NR
8854 - the original
CLN
1040 - and supporting schedules

I also posted a copy of the 8854 to the Treasury Dept at Philadelphia. But you should check the 2014 instructions to make sure this hasn't changed.

By the way, one of the 2013 posters on this topic had his 1040 sent back to him because he hadn't signed it, so make sure you sign both.


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## BBCWatcher

Boggled, it looks like Chapter 4 of Publication 519 provides the official guidance, but again wait for the 2014 edition to be sure. I note this interesting sentence in the 2013 edition: "If you were formerly a U.S. citizen or resident alien, these rules may not apply. See Expatriation Tax, later, in this chapter." And this one, just above: "Resident aliens are generally taxed in the same way as U.S. citizens." (That sentence can also be written as: "U.S. citizens are generally taxed in the same way as resident aliens.")

When reading the IRS's instructions one must always presume that every word has at least some meaning. In this case, "_may_ not" has meaning. Its meaning is rather clear since the IRS provides the exception details in the following sentence: you may be a covered expatriate with special rules (a possible expatriation tax). Since you are not, the rules in that section of Publication 519 _do_ apply, and thus you follow the same path as dual-status filers (i.e. 1040NR with 1040 as attachment).

So there you go, there's your official instructional guidance. A bit obtuse and roundabout to be sure, but it's there. If you still have any doubt you can ask the IRS.


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## DavidMcKeegan

Hello Boggled,

I agree with the above, I think you will have to file the dual status return along with the Form 8854 for your final tax year. If you haven't already checked this out, I would recommend reading the IRS details for the Dual Status return as they are quite helpful.

Taxation of Dual-Status Aliens

Good luck and let us know if you have any further questions!


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## Boggled

BBCWatcher said:


> Boggled, it looks like Chapter 4 of Publication 519 provides the official guidance, but again wait for the 2014 edition to be sure. I note this interesting sentence in the 2013 edition: "If you were formerly a U.S. citizen or resident alien, these rules may not apply. See Expatriation Tax, later, in this chapter." And this one, just above: "Resident aliens are generally taxed in the same way as U.S. citizens." (That sentence can also be written as: "U.S. citizens are generally taxed in the same way as resident aliens.")
> 
> When reading the IRS's instructions one must always presume that every word has at least some meaning. In this case, "_may_ not" has meaning. Its meaning is rather clear since the IRS provides the exception details in the following sentence: you may be a covered expatriate with special rules (a possible expatriation tax). Since you are not, the rules in that section of Publication 519 _do_ apply, and thus you follow the same path as dual-status filers (i.e. 1040NR with 1040 as attachment).


I've read your reply numerous times, but fail to comprehend your logic. In particular, I can't fathom how you made the logical jump from my not being a covered expatriate to p519 applying to me. I cannot find a sequence of statements that logically arrive at this conclusion.

I understand that words have meaning. "May not" simply indicates the potential for different rules. It's vague in the extreme. It neither 1) states which rules, nor 2) states which conditions determine which rules apply or do not apply. Presumably to address the latter, it next refers to the "Expatriation Tax" section at the end of the chapter, which only mentions "dual-status" once, and only in the section entitled "Expatriation Before June 4, 2004". That doesn't apply.

Moreover, under the appropriate section "How To Figure the Expatriation Tax (If You Expatriate After June 16, 2008)", p519 ch4 states:



> If you expatriated or terminated your U.S. residency, or you are subject to the expatriation rules (as discussed earlier in the first paragraph under Expatriation After June 16, 2008), you must file Form 8854. Attach it to Form 1040 or Form 1040NR if you are required to file either of those forms.


This suggests that there may be situations in which one files an 8854 plus one, both, or neither of 1040 and 1040NR. But it says nothing about how to determine which must be filed, nor whether -- if both -- they must be done so as "dual status".



BBCWatcher said:


> So there you go, there's your official instructional guidance. A bit obtuse and roundabout to be sure, but it's there. If you still have any doubt you can ask the IRS.


I appreciate your input, but I very much disagree that a conclusion can be had from this.

I'll contact the IRS and wait for the 2014 publication.


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## BBCWatcher

OK, let's try again....

We can all agree a former U.S. citizen is (now) an alien, right? Either a nonresident one (typically) or a resident one. ("Resident" means U.S. resident here. This is the IRS, not Japan's tax authority.)

OK, so Publication 519 looks promising, doesn't it? It's entitled "U.S. Tax Guide for Aliens." So let's see what it says....

Turn to Chapter 4, entitled "How Income of Aliens is Taxed." Promising again, that fits.

OK, now Chapter 4 leads off with a discussion explaining that resident aliens are generally taxed the same as U.S. citizens, taxed on their worldwide income, etc., etc. Hey, that's you! You were a U.S. citizen, and you/we know how U.S. citizens are taxed. (That's partly or fully what motivated you to expatriate.) You already knew that. Now, keep reading....

....Well, there you go! "If you were formerly a U.S. citizen or resident alien...." That's confirmation that "these rules" -- the text that just preceded that sentence in Chapter 4 -- do apply to you because the clause appearing after that sentence (the Expatriation Tax, i.e. the exception) does NOT apply to you.

This is basic set theory stuff here, and the IRS assumes you're familiar with that, at high school level.

1. U.S. citizens are taxed on worldwide income. While you were a U.S. citizen, that's easy -- you already knew that. (As it happens, resident aliens are generally taxed the same way.)

2. You are now an alien, so Publication 519 very much applies to you.

3. You are ALSO a dual status filer for tax year 2014 because you're just like a resident alien who becomes a nonresident alien (expatriates).

4. You do NOT have to worry about the Expiration Tax. (The Expiration Tax also applies to certain former resident aliens who expatriated.)

What other filing regime are you proposing if not this one, the dual status one? I really think Publication 519 is clear enough on this point, if you read it carefully.


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## BBCWatcher

Also, IRS Form 1040NR is chock full of mentions of former U.S. citizens. Special rules apply for _certain_ former U.S. citizens, etc. But if the special rules don't apply, you follow the standard/regular rules: 1040NR for the second part of the dual-status year.

I don't think this is really all that mysterious. Sure, the IRS could have written the instructions a bit better, but if they're not screaming they're at least sending all the right signals.

Naive question: Didn't you check all this out _before_ you expatriated?


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## Boggled

BBCWatcher said:


> (That's partly or fully what motivated you to expatriate.)


Untrue and irrelevant.



BBCWatcher said:


> This is basic set theory stuff here, and the IRS assumes you're familiar with that, at high school level.


Mind foregoing the unnecessary condescension in the future? Maybe I'm slow; I didn't get to first order logic until university.



BBCWatcher said:


> 2. You are now an alien, so Publication 519 very much applies to you.
> 
> 3. You are ALSO a dual status filer for tax year 2014 because you're just like a resident alien who becomes a nonresident alien (expatriates).


Now I see. This is our fundamental disagreement. 519 only claims to pertain to _aliens_ who transition their residence status. I went from citizen to alien, which I don't see as being the same. You can claim all you want that citizens are more-or-less resident aliens from a tax perspective, but there's still a great deal of ambiguity there. Being "generally" taxed the same, doesn't mean they're exactly the same thing; you can't just make a textual substitution elsewhere to fit your conclusion. I simply see no hard equivalence between the two in what I've read.

Adding to doubt and ambiguity, the IRS explicitly points out that covered expatriates must file dual-status, while making no mention of the non-covered case. Why would they bother to qualify it if such rules pertained to any expatriate whatsoever? Why would they litter the texts with statements indicating that 8854 may be submitted with many different tax returns (1040, 1040NR, none, both)?



BBCWatcher said:


> What other filing regime are you proposing if not this one, the dual status one?


I don't know, I'm not a tax expert, nor do I pretend to be on the internet. Ex NRASpouse's procedure seemed perfectly reasonable to me given everything I've read.

I'm not trying to be difficult. Dual-status also seems perfectly reasonable to me, and one could presume that that's what the IRS had in mind. However, I still maintain that they did not make this clear and unambiguous.


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## Boggled

BBCWatcher said:


> Naive question: Didn't you check all this out _before_ you expatriated?


Not in such depth, no. Why would I if it had nothing to do with my decision? I incorrectly presumed that the IRS would have a clear procedure.


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## BBCWatcher

The instructions are clear enough to me, but obviously you disagree. You asked for instructional evidence, I answered (cordially), and you didn't like my answer (less cordially ).

OK then, ask the IRS.

By the way, set theory again: covered expatriates must file dual status in the expatriation year, yes. Does that mean everybody else must not? Of course not. Some (even many) people expatriating are (it would seem) not required to file a U.S. income tax return -- in particular if they don't meet the (lowest applicable) filing threshold. But some are required to file. Covered expatriates must. You can't take "Covered expatriates must..." and spin that to mean "I am not a covered expatriate, therefore I must not." That interpretation flunks basic logic. It just means that section of the IRB doesn't apply to you, that's all. (Sorry I even brought it up. I shouldn't have.)

But go ahead and ask the IRS if you're not convinced, and do us a favor and let us know what they say.


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## Boggled

BBCWatcher said:


> I answered (cordially), and you didn't like my answer (less cordially ).


Good grief. I am not the condescending charlatan here. Get off your high horse, please.



BBCWatcher said:


> You can't take "Covered expatriates must..." and spin that to mean "I am not a covered expatriate, therefore I must not." That interpretation flunks basic logic. It just means that section of the IRB doesn't apply to you, that's all. (Sorry I even brought it up. I shouldn't have.)


Nowhere did I say that it implies "must not". I'm saying that it says nothing about my particular case, so it may or may not apply. If anything, you are spinning this by claiming that you can conclude what to do when the antecedent (is covered expat) is false. You cannot. First order logic permits either consequent.


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## Bevdeforges

OK, kids... advice given and now it's up to the OP to decide how to proceed. I think we've "discussed" this one to death.
Cheers,
Bev


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