# To denounce or not to denounce



## Brank2015

Hi everyone,
Firstly I was really impressed by the replies of Nononymous,BBCwatcher and Bevdeforges regarding a note from Green99, posted on Feb 21, 2015 on US dual citizen tax and am really hoping for some help in my case.
I am single,born in the UK, moved to US in 1986 and took US citizenship in 2001 when I intended to stay there. Circumstances changed in 2010 when I needed to return to the UK for family reasons. I needed to quit work then which has now morphed into my retirement. I have been filing US taxes via my accountant every year since 1986. For the first time this year my US accountant informed me due to a change in the law in 2013 I need to declare my UK bank accounts as they total more than the threshold on form 114.(FinCen). My UK bank accounts were bolstered recently via inheritance. For the past couple of years My only US income has been premature withdrawal of my 401K for time spent in the US which I have declared. I make a modest sum of money via some rental property in the UK which I declare here. 
I do not intend to work again here or in the US and intend to reside here in the UK.
I need to decide what action to take with respect to my 2014 US tax return as I am very nervous about 'moving onto the radar'.
From what I have read on this forum and elsewhere I am really tending towards to denounce my US citizenship to simplfy my tax issues and just pay tax in the UK.
How complex is it to denounce my US citizenship and long does the process take?
What will the IRS need from me to denounce?
What action do the IRS take in relation to my denouncement?
Will I still be able to travel to the U.S. post denouncement?
I would really appreciate any advice in this matter
Thanks in advance


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## BBCWatcher

That would be _renouncing_ your U.S. citizenship. "Denounce" just means "to complain," and we all do that from time to time. 

What are the advantages (or perceived advantages) of renunciation in your situation? That seems to be missing from your post, so let's start with that question.

I'm not aware of any change in the law in 2013 concerning these issues, so I'm not sure what your accountant meant.


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## Brank2015

Sorry you are correct on Renounce. As I see it the advantage of renouncing would be to avoid paying US tax on my UK property rentals and also having to declare all my UK savings( FYI I do not receive much interest on this). Also further UK inheritance may come my way which may be subject to US tax?
My US accountant wrote to me this year and stated I would need to answer the question on my return on, Do you have any Overseas accounts with a yes and declare the details. Maybe I should have done this before?
Thanks


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## Bevdeforges

Was going to make the same comment on renounce vs. denounce, but I see BBC beat me to it.

Anyhow, filing the FinCEN/FBAR reports only involves disclosing the existence of your bank accounts. There aren't any direct tax consequences, even if the high balance you are reporting seems high (to you). 

But actually, you were supposed to be reporting your worldwide income all along - including bank interest and rental property income. Receiving money or assets from an inheritance won't affect the taxes you owe to the US, though if you inherit through a trust or certain types of mutual funds, that may require additional reporting due to some of the recent FATCA provisions. And interest or other income you receive from the inherited funds does add to your worldwide income.

As far as renouncing goes, the first thing to know is that it'll cost you $2350 or thereabouts. And there are a certain number of inconveniences that go with renunciation if you have savings, assets or significant interests back in the US. There is also an "expatriation tax" - though that doesn't kick in until you have a couple million US$ in assets, so it may not apply in your case.

You say that you don't receive much interest on your UK savings. You may want to see how much (if anything) you might owe if you add your UK interest and rental income to your tax return. (Don't forget that you can offset with income taxes paid on this income to the UK.)

In short, renunciation can be an expensive solution to a problem that may or may not exist. Take a look at your whole financial situation and see whether it is worth it in the long run to spend the money and take on the inconveniences involved. (If you have income from the US, you'll be subject to a 30% withholding rate on things like US Social Security and withdrawals from an IRA or 401K if you renounce.)
Cheers,
Bev


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## BBCWatcher

For the record, even if it would ordinarily apply, under current law the U.S. Expatriation Tax is probably avoidable if you remain a resident of the U.K. continuously and your renunciation occurs in the year 2021 or later.

I agree with Bev. As a U.K. resident it's rather hard -- not impossible, but difficult -- to end up _owing_ U.S. tax on non-U.S. source income. Also, renunciation has no effect on any tax liabilities incurred up to the date of renunciation, and it also has no effect (except potential negative ones -- 30% withholding, as Bev mentions) on tax you would owe on U.S. source income. So, I agree, you first have to figure out what you _owe_ (or would likely owe) in additional U.S. tax _going forward_ from some hypothetical renunciation date in the future, and then you assess whether $2350 plus an Expatriation Tax (if applicable) plus other negatives are costs worth incurring. "Usually not" for U.K. residents, but run the numbers if you're curious.

As for reporting burden, that's an interesting thing. If you have U.S. source income you still have tax returns to file. Bear in mind also that the penalty for not filing a tax return _if you genuinely owe zero U.S. tax_ is zero. As long as you file your FBARs (FinCEN Form 114) and IRS Form 3520 (or 3520-A), as/if applicable, if zero is genuinely your U.S. tax owed then you're free of tax/financial penalty risk even if you don't file your 1040s. Oddly enough renunciation means you actually do have to file tax returns (or, more precisely, swear under penalty of perjury that you have), so you don't get the (legal) option of non-filing in the run-up to renunciation. So for some/many people renunciation triggers, oddly enough, more _tax_ paperwork than their personal status quo.


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## Pacifica

@ Brank2015,

London Embassy's website has a page describing the renunciation procedure at London (note - some procedural details, such as booking, _etc._, vary a bit from place to place) along with links to forms used in the process and source material for further information.


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## Nononymous

It sounds to me like there's nothing much to be gained by renouncing. You have US-source income (401k) so have to deal with reporting anyway. You will very likely not owe the US any taxes on your UK-source income, so it's not going to save you any money. The only additional requirement is reporting bank balances every year.

I would still denounce, however.


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## Nononymous

I suppose the one rationale for renouncing would be a future inheritance of sufficient size and type to trigger some sort of obnoxious US reporting requirement, or even taxes owed to the US - a Boris Johnson scenario perhaps. It's unlikely, but it might be worth getting some professional advice to determine whether renouncing now, before inheriting, would save you sufficient grief and/or money down the road.

Then there is the "partial compliance" approach. Continue to file what you need to file with the US due to your 401k withdrawals, and ignore the rest. If you do not have a US birthplace and your UK financial institutions know nothing of your US citizenship, you would easily escape FATCA reporting - which means that the US receives only the information you choose to give them. This of course depends on your comfort level with ignoring US tax obligations.


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## Nononymous

Nononymous said:


> This of course depends on your comfort level with ignoring US tax obligations.


The fact that you still have assets in the US (401k) makes partial compliance a wee bit riskier, I suppose.


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## BBCWatcher

Nononymous said:


> I suppose the one rationale for renouncing would be a future inheritance of sufficient size and type to trigger some sort of obnoxious US reporting requirement, or even taxes owed to the US - a Boris Johnson scenario perhaps.


Nope, no U.S. taxes owed -- at least, not without a _lot_ of advance warning after receiving the inheritance. Any inheritance received will have a cost basis that gets (re)set to the date when received. Moreover, the U.K. tax code only offers a tax preference to a single primary home, as I understand it.


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## Brank2015

Thank you all for your advice, I really appreciate it.
I have done a 180 on Renouncing, however, as Nononymous put it, I will continue to denounce!
One thing I have decided on is to obtain a second opinion over my NYC accountant in order to obtain a much clearer understanding of my individual position. 
I live in London and would really like to sit down with a U.S. tax specialist, preferably an individual as opposed to the large tax companies that you find on Google. Can anyone point me in the right direction please? Thank you all again.


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## Bevdeforges

It's probably not the right time of the year, as most US tax advisors are just getting into full swing, but you may want to try and find an enrolled agent in the UK. Enrolled agents are tax-specific accountants (usually) who are certified by the IRS, though they work independently from them.

https://member.naea.org/naeassa/rflssareferral.query_page?p_vendor_ty=EA for the professional society's listing of enrolled agents. (Just fill in the Country block and search to see who's available.) 
Cheers,
Bev


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## Brank2015

*Thank you*

Thank you Bev, enjoy your weekend
Brank


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## perryf

I too am considering my options. What about estate tax implications for your spouse or children if they are non resident aliens? I read a story somewhere about the irs swooping in to claim a chunk of money due to a spouse who was a beneficiary of a retirement plan? I know that many horror stories are simply not true but are estate taxs another issue to consider?


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## BBCWatcher

If your net worth is greater than $5.43 million (the U.S. estate tax exemption in 2015 -- it increases each year with inflation) then you'll want to look into estate planning. That's not many people!

Even if you have that happy problem of being quite wealthy, renunciation isn't often the best way to solve an estate tax problem due to the Expatriation Tax. And there are more than a few countries with higher estate taxes and/or lower thresholds, so those must be considered in conjunction with U.S. estate taxes (and credits).


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## perryf

Thanks that clearly doesnt apply to me! Appreciate the swift reply and advice


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## BBCWatcher

An NRA who holds U.S. financial assets, whether inherited or not, is subject to 30% withholding on any gains associated with withdrawals. (Or a lower rate of withholding if a tax treaty says otherwise and the NRA has filed a W-8BEN to claim the lower treaty rate.) That 30% may or may not be partially or fully recoverable by filing a 1040NR (non-resident tax return). None of this is particularly unusual by global standards. Japan, for example, withholds income tax (at a rate slightly higher than 20%) from bank interest, and that's not recoverable. It isn't actually surprising that the U.S. would tax gains on U.S. source income. (Nondeliquent U.S. citizens have the relatively rare privilege of not being subject to withholding, but they've usually got to pay estimated taxes.)

Perhaps that was the "big chunk" observation, but there's nothing shocking or surprising in that. Part of an estate is its unrealized gains, and those are still taxable when realized.

One technique some people use if they're bothered by that -- and also care about a charity -- is to donate the most highly appreciated assets to that charity. They then get a big charitable deduction (at fair market value), and they don't have to pay the capital gains tax on those big gains.

The U.S. is fairly unusual in continuing the U.S. tax advantages of inherited Roth IRAs and 401(k)s -- those are wonderful accounts in that respect and in others.


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## perryf

perryf said:


> Thanks that clearly doesnt apply to me! Appreciate the swift reply and advice


Just a clarification, I was interested in the outcome for a non US Citizen and non US resident Spouse. I can't remember the original source of information about the IRS swooping in on the death benefit of the Australian superannuation fund. But, apparently, if a spouse is a non resident alien (not a US Citizen or US resident) they are not eligible for that generous 5 million plus exemption unless some sort of trust is established. Otherwise, the death tax kicks in at some modest amount ($60,000?) and it is possible that the IRS will ask the surviving spouse to prove they contributed 50% or more to all assets including property or else it is considered to be 100% part of the deceased estate and liable to be taxed at 40%.


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## BBCWatcher

A (deceased) U.S. citizen or U.S. resident has a $5.43 million estate tax exemption based on worldwide assets (tax year 2015 figure). It doesn't matter who inherits the estate. It's an estate tax, not an inheritance tax. (If a U.S. citizen-spouse inherits the estate, the exemption is unlimited.)

The estate of a (deceased) non-resident alien with no U.S. assets would not be taxed by the U.S. either.

That leaves non-resident aliens with U.S. assets. Yes, there is an estate tax on those U.S. assets -- _only on the U.S. assets_. Yes, there's an exemption of $60,000 (or higher if a tax treaty says otherwise). An Australian superannuation fund is non-U.S., and thus there's no U.S. estate tax on that asset (or on any other non-U.S. asset) if the person who died was an NRA.

NRA status (versus U.S. resident status) for estate tax purposes is determined _slightly_ differently than NRA status for income tax purposes.


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## Brank2015

Hi Bev
Just tried your suggested link.....member.naea.org etc and it is forbidden, can you suggest another route or link please? I very much appreciate your help,
Thanks


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## Bevdeforges

Better than that - check your PMs.
Cheers,
Bev


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