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Form 8854: Expatriate Exit Tax & Renunciation Process

Form 8854: Expatriate Exit Tax & Renunciation Process
Ines Zemelman, EA
18 February 2022

Parse the instructions carefully

IRS Publication 519 provides a long list of exceptions titled: Exception for dual-citizen and certain minors. The next line, although not bolded and less exciting, is arguably more important as it indicates what the exception is referring to! 

“The exceptions listed here refer to being exempt from the Exit Tax - not the process of expatriation, which no one is exempt from.”

What if I am a minor who left the US at birth - am I not exempt from the renouncing process?

Correct --- unfortunately you must go through the same process as full grown gainfully employed adults.

Even if you are a minor US citizen, you must still file form 8854 to expatriate. Until you do so you will remain a US tax resident (even if you have no requirement to file at the moment). In order to file 8854, you must also certify that you are up to date on your last 5 year tax returns.

In sum - do not make the mistake of assuming that you are not required to go through the process. In order to give up your US citizenship and US tax filing requirements for the future, you must still file 5 years of tax returns (even with no income to declare), along with form 8854.

What is form 8854?

Tax form 8854 is the form (Exit tax form) every U.S. citizen or long-term resident needs to file before giving up their U.S. citizenship/residency for good. It shows that you are not a covered expatriate and proves to the U.S. government that you’ve settled all your tax bills. If it turns out you’re considered a covered expatriate, you may end up owing an exit tax.

A covered expatriate is someone who meets at least one of the below standards:

  1. You have a personal net worth of over $2 million at the date of expatriation
  2. Your average net income tax liability from the past five years is over a set amount ($172,000 for 2020)
  3. You fail to indicate on Form 8854 that you’ve filed a tax return for each of the past five years

You can find the detailed IRS form 8854 instructions (2021) here.

Who has to file IRS Form 8854?

Tax form 8854 is used by long-term residents giving up their Green Card and U.S. citizens relinquishing their U.S. citizenship. Long-term residents are those who have held a Green Card for eight out of the past 15 years. So, if you are a Green Card holder and have only had it for two years, you would not have to file this form.

If you’re required to file and you don’t, the penalties are steep: If you fail to file Form 8854 when you’re supposed to you could be fined up to $10,000.

Form 8854 due date

Attach your initial Form 8854 to your income tax return (Form 1040, 1040-SR, or 1040-NR) for the year that includes your expatriation date, and file your return by the due date of your tax return (including extensions). Also send a copy of your Form 8854, marked “Copy,” to the address under Where To File, later. If you are not required to file an income tax return, send your Form 8854 to the address under Where To File, later, by the date your Form 1040-NR (or Form 1040 or 1040-SR) would have been due (including extensions) if you had been required to file. (See Resident Alien or Nonresident Alien in the Instructions for Form 1040-NR.)

File your annual Form 8854 if you expatriated before 2021 and you:

  1. Deferred the payment of tax on any property on a Form 8854 filed in a previous year,
     
  2. Reported an eligible deferred compensation item on a Form 8854 filed in a previous year, or
     

Reported an interest in a non grantor trust on a Form 8854 filed in a previous year.

Publication 519 on the irs.gov website explains: 

Certain dual-citizens and certain minors (defined below) are not subject to the expatriation tax.

 

 
Dual Citizens Expatriation tax exceptions 
  • You became at birth a U.S. citizen and a citizen of another country and you continue to be a citizen of that other country.
  • You were never a resident alien of the United States (as defined in chapter 1).
  • You never held a U. S. passport.
  • You were present in the United States for no more than 30 days during any calendar year that is 1 of the 10 calendar years preceding your loss of U. S. citizenship.
 
Certain Minor Expatriation Tax Exceptions 
  • Neither of your parents was a U.S. citizen at the time of your birth.
  • You expatriated before you were 18½.
  • You were present in the United States for not more than 30 days during any calendar year that is 1 of the 10 calendar years preceding your expatriation.


Instructions for Form 8854 also explains the same information but in summary:

 

Dual-citizens and certain minors (defined next) won't be treated as covered expatriates...However, these individuals will still be treated as covered expatriates unless they file Form 8854 and certify that they have complied with all federal tax obligations for the 5 tax years preceding the date of expatriation

  Dual Citizens Expatriation tax exceptions 
  • You became at birth a U.S. citizen and a citizen of another country and, as of the expatriation date, you continue to be a citizen of, and are taxed as a resident of, that other country.
  • You were a resident of the United States for not more than 10 years during the 15-tax-year period ending with the tax year during which the expatriation occurred. For the purpose of determining U.S. residency, use the substantial presence test described in chapter 1 of Pub. 519.
  Certain Minor Expatriation Tax Exceptions
  • You expatriated before you were 18½.
  • You were a resident of the United States for not more than 10 tax years before the expatriation occurs. For the purpose of determining U.S. residency, use the substantial presence test described in chapter 1 of Pub. 519.
Ines Zemelman, EA
Founder of TFX