# Becoming tax compliant for renunciation?



## Ravion (Jan 27, 2014)

This whole FATCA thing is getting out of hand and I'm considering renouncing soon in order to save myself the sleepless nights so many have reported to have due to the IRS.

Does anyone know the process of how to do it the 'proper' way?

This is how I understand it to be in a nutshell:
1. Apply for an SSN (and no, I do not have one)
2. Make an appointment to renounce
3. Renounce
4. Catch up on 5 years' worth of tax forms
5. Submit that exit form (can't remember the number) within a year of renouncing

Is this correct or have I missed something? I am a bit concerned about applying for an SSN suddenly out of the blue, and also about the order in which I renounce and submit the tax forms.

Thanks for any pointers.


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## Nononymous (Jul 12, 2011)

Some might recommend reversing the order of 3 and 4 - catch up on the taxes first, then renounce.

There is also the unorthodox view that you renounce and just ignore the taxes - what are they going to do about it? And the slightly less rebellious view that you renounce then file the exit tax forms as a "covered expatriate" - you won't pay anything if your net worth is under $650k.


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## Ravion (Jan 27, 2014)

Thanks.

I would be concerned about traveling there in the future. That is my main concern.



> And the slightly less rebellious view that you renounce then file the exit tax forms as a "covered expatriate" - you won't pay anything if your net worth is under $650k.


The last condition on the form is that you've been tax compliant for the last 5 years. Theoretically, I could have earned under the threshold for filing (which is a lot closer to the truth than the $650k  ) but I really don't want to get locked up and deported next time I try to enter.


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## Nononymous (Jul 12, 2011)

If you're going back and forth probably best to do it by the book, though there are folks who haven't and they travel without problems - the bureaucracy is not as omnipotent as you'd think.


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## Nononymous (Jul 12, 2011)

Ravion said:


> The last condition on the form is that you've been tax compliant for the last 5 years.


Right. But if you don't meet that condition, you file as covered expatriate, and if your net worth is under $650k there's no exit tax.


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## BBCWatcher (Dec 28, 2012)

Ravion said:


> I would be concerned about traveling there in the future. That is my main concern.


How "main"? There is no guarantee of entry into the United States if you are not a U.S. citizen or national.


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## maz57 (Apr 17, 2012)

There are some missing facts here. Do you have another citizenship? If so, how did you get it? Do you have a US birthplace? If you don't have a SSN you are essentially invisible to the US government. If you are a dual from birth there are some special considerations in the exit tax procedure.

BBC is right. Although there's no guarantee of entry for non US citizens, you wouldn't be jailed or deported, you would simply be denied entry. Unless you have a criminal record or some other "problem", its unlikely you would be turned back.


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## BBCWatcher (Dec 28, 2012)

Let's not over-interpret what I wrote.

I'll try again. _*If guaranteed entry into the United States is something you cannot do without*_, don't renounce U.S. citizenship. Only U.S. citizens and U.S. nationals are legally guaranteed entry into the United States. Everybody else is subject to the whims, discretions, fashions, fads, and fees of U.S. border control and immigration policies, as enforced by overworked and underpaid U.S. Customs and Border Protection officers.

Once CBP ascertains that you are a U.S. citizen or U.S. national -- presenting a valid U.S. passport does that -- you cannot be denied entry into the United States. (You can be arrested and detained just as anyone else can -- citizen or non-citizen -- if there's an outstanding warrant for example, but that's a completely separate issue.) If you're anybody else the CBP officer considers whether or not to admit you, and that officer has the right not to admit you for almost any reason or not much reason at all. Moreover, almost everybody else -- Canadians excepted -- gets to pay at least the "Mickey Mouse Tax" (i.e. ESTA fees) or visa fees in order to be _considered_ for but not guaranteed entry into the United States. And you get to stand in the longer, non-U.S. line.

So, what causes you to lose more sleep? The IRS (not sure why), or the risk of a (mostly) unreviewable CBP officer denying you entry into the United States after standing in the longer immigration line that makes connecting to your next flight less likely even if you are admitted? Pick your poison.


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## Vangrrl (Aug 23, 2011)

If you don't have a US birthplace or SSN, I'd just let it be. No need to "out" yourself as a US Citizen.


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## BBCWatcher (Dec 28, 2012)

In the interests of completeness -- and "come to think of it" -- there is at least one category of criminal acts under U.S. law that only non-U.S. citizens/nationals can commit: self-inflicted U.S. immigration violations. The most popular violation is simply overstaying, and the most popular sanction (if any) for that most popular violation is revocation of ESTA Visa Waiver Program privileges (if any) and debarment from the United States, usually for 10 years.

Is that a problem? That depends on one's individual situation and how one weighs the many considerations. One thing that's always true, though, is that if you want a life free of all risks of all kinds then you'd better choose another planet...or another universe.  If I lose any sleep it tends to be when worrying about the people I love. The IRS not at all -- I file truthfully, and I pay. If I made a mistake in my favor it'd be both surprising and unintentional, and in that unlikely event that might mean paying a bit more. I don't lose sleep over whether the price of chicken will rise tomorrow either, so there you go.


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## Bevdeforges (Nov 16, 2007)

The main point here is that, before you renounce, you need to have some other nationality. Can't travel much of anywhere these days without a passport of some kind, so that's the first priority.

Then, if you have a US place of birth, you will need to have proof of your renunciation to hand if you want to enter the US on a non-US passport. 

There is a law still on the books (why do they always pass new laws without bothering to revoke the old ones?) that says that you "may" be denied an entry visa if you have renounced your US citizenship. Have not heard of them actually doing so in recent years - and apparently the actual wording of the law says that the US attorney general is the one who can refuse you any and all sorts of visas after renunciation. I suspect your renunciation would have had to have been fairly notorious for them to invoke this, but you never know.

If you've gotten by this long without a SS number, I'd tend to let sleeping dogs lie.
Cheers,
Bev


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## BBCWatcher (Dec 28, 2012)

Bevdeforges said:


> There is a law still on the books (why do they always pass new laws without bothering to revoke the old ones?) that says that you "may" be denied an entry visa if you have renounced your US citizenship. Have not heard of them actually doing so in recent years - and apparently the actual wording of the law says that the US attorney general is the one who can refuse you any and all sorts of visas after renunciation. I suspect your renunciation would have had to have been fairly notorious for them to invoke this, but you never know.


That law might become known as the "Eduardo Saverin Law." As far as I know he has not tested that law. If I were his attorney or advisor I'd recommend he not try.

Congress has shown no interest whatsoever in revoking that particular law, and I would not anticipate Congress showing any such interest in the future. In other words, I doubt that law is an old law that some Congresspersons think ought to be cleaned up, amended, or sunset somehow. If put to a vote again it'd pass again, probably on a unanimous voice vote.


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## Bevdeforges (Nov 16, 2007)

The law in question was passed in 1996 - as part of the one that said that if you renounce "for tax reasons" (as determined by the IRS, not your interpretation of matters) you would be subject to US income taxes for another 10 years. I suspect they somehow amended the 10 year bit when they set up the expatriation tax (or whatever it's called). 

But Tina Turner still gets into the US no problem.
Cheers,
Bev


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## BBCWatcher (Dec 28, 2012)

Bevdeforges said:


> But Tina Turner still gets into the US no problem.


She now gets to stand in the longer line and pay for her ESTA every couple years. Though if she's flying on a private jet the line is a lot shorter, and she can probably afford her ESTAs. 

If I were advising anyone considering renunciation of any country's citizenship, some version of "don't be a jerk" would part of the advice. There are a lot of laws on the books, and there's also a lot of discretion in their enforcement (or non-enforcement). That's true to one degree or another in every country.

To pick another "classy lady" example, Rita Levi-Montalcini passed away in December, 2012, at the age of 103. She was the oldest living Nobel Prize winner. She co-won the Nobel Prize in Medicine in 1986 for her joint discovery of nerve growth factor. She did most of her research in the U.S., and she naturalized as a U.S. citizen. However, she eventually moved back to her native Italy and reacquired Italian citizenship. (Former Italian citizens reacquired Italian citizenship more or less automatically after two years of continuous residence in Italy under the citizenship law at that time. Nowadays Italian citizenship law is even more forgiving.) In 2001 she was appointed as one of the very few Italian senators for life, and she served rather energetically in that post.

There's a U.S. law on the books that gives the U.S. State Department the option (but not the obligation) to strip U.S. citizenship from those who accept a public policy position (legislator, minister, etc.) in a foreign government. In other words, legally speaking Ms. Levi-Montalcini put her U.S. citizenship in jeopardy by accepting that Italian Senate appointment in 2001. But the U.S. State Department simply declined to pursue the matter.


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## maz57 (Apr 17, 2012)

Bevdeforges said:


> The law in question was passed in 1996 - as part of the one that said that if you renounce "for tax reasons" (as determined by the IRS, not your interpretation of matters) you would be subject to US income taxes for another 10 years. I suspect they somehow amended the 10 year bit when they set up the expatriation tax (or whatever it's called). Bev


The law you refer to is known as the Reed Amendment and has never been used. The reason it has never been used is strange. As you say, the IRS was charged with determining whether the renunciation was for "tax reasons", whatever that means. But it would have been the Attorney General (and Department of State) who actually banned the person from entering the US. The problem is that the IRS is forbidden by law to share a person's tax information with any other government agency, and Congress has never made the adjustment to the information sharing rules to accommodate enforcing the Reed Amendment.

The IRS was relieved of determining whether the renunciation was for tax reasons in 2004 when the current Form 8854 and exit tax regime was created. That's when the ten year filing requirement ended as well. If you owe tax on the 8854 you pay upon exit and that's that. At least 8854 is a cut and dried calculation and not subject to the whim of unnamed officials and politicians. But the Reed Amendment continues to sit unused on the books.

I would add that with FATCA certain current politicians are pushing to change the info sharing rules to allow the IRS to share all this nice new incoming information with other agencies such as State, Homeland Security, and Customs, but those changes have not yet been made to the best of my knowledge.


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## Bevdeforges (Nov 16, 2007)

Ah, thanks for sharing that information. I had only heard of the 1996 law through AARO (back when I belonged). Figured something had to have changed. But like you say, the IRS has long been forbidden to share its information with other government agencies. It's a big reason why there's no real worry about coming and going from the US if you haven't been filing.
Cheers,
Bev


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## Ravion (Jan 27, 2014)

> If you've gotten by this long without a SS number, I'd tend to let sleeping dogs lie.


I really wish I could do this but I feel that FATCA would soon smoke me out. Every country that I have anything to do with (incl. the country of my other citizenship) has signed FATCA now. 

Does anyone know what happens in these Model 1 countries? I know Switzerland is the more severe Model 2 version and I know all about that so let's not go there. In the other countries where they report your information to the tax authority which then passes it on to the IRS how does that happen exactly? E.g. would they report everyone or only those who earn over the tax-free threshold for example? 

Could things get sticky here, since of course the IRS has no record of "Ravion"?

And I can't hide the fact that I'm a US citizen due to a US birthplace, which is obviously also printed on my other passport. What a massive blight on one's life.


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## Nononymous (Jul 12, 2011)

I can only give the example of Canada. FATCA comes into effect on 1 July but to me it appears relatively toothless. Most of the tax-protected retirement and savings vehicles (similar to IRA or whatever) are exempt from reporting. Canadian banks never collected citizenship data so for existing accounts they will need to do this retroactively, but only for accounts above a relatively high balance threshold (the number escapes me). I am a dual US-Canadian citizen with a US birthplace living in Canada; I do NOT expect to hear from my bank. For new account I expect that banks will begin asking for citizenship or place of birth information, but it's not clear yet if they will actually want to see proof or documentation - i.e. they may decide that merely asking the question is enough to satisfy the requirement - in which case one is free to lie about it. So all in all the odds of being ratted out by FATCA seem very low here, which means it's quite viable to remain off the radar if you are a dual citizen in Canada; as an added bonus, the Canadian government refuses to collect any FBAR or tax penalties, so the US doesn't really have much to threaten you with.

Your situation is obviously different. (And as you doubtless know, your Swiss bank may now have all kinds of unpleasant paperwork requirements if it suspects you of being American; we've heard reports of banks asking to see proof of FBAR and tax compliance from account holders.) It really depends on what information your banks have, and what they might try to obtain. If you opened accounts with your non-US passport and they did not record your place of birth, you might well escape FATCA reporting.



> In the other countries where they report your information to the tax authority which then passes it on to the IRS how does that happen exactly? E.g. would they report everyone or only those who earn over the tax-free threshold for example?


As far as I know, there is no "proactive" reporting of your income to the IRS by the tax authorities in other countries. There are information-sharing agreements for investigations, but no general dump of income data from one country to the other. FATCA and FBAR are concerned with reporting assets, not income.


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## Bevdeforges (Nov 16, 2007)

Ravion, in your case I would definitely read (or at least skim) through the Bilateral Agreements for the countries in which I have reportable bank accounts. Foreign Account Tax Compliance Act (FATCA)

I was (pleasantly) surprised to see that there are a number of accounts and financial institutions specifically exempted from the reporting requirements. With a "good sized" pot of cash, chances are, you'll be included in the reporting - but it's not a bad idea to assess your particular "exposure" according the the rules.
Cheers,
Bev


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## BBCWatcher (Dec 28, 2012)

Ravion, I'm curious. I understand you haven't filed yet, but what's your likely U.S. tax liability if you did? Switzerland is not the world's lowest income tax jurisdiction, and IRS Form 2555 is rather potent even if it were.


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