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Expatriation -- Am I exempt? Exit Tax & Renunciation Process are two separate things!

Expatriation -- Am I exempt? Exit Tax & Renunciation Process are two separate things!
Ines Zemelman, EA
23 June 2018

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.

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 Taxes for Expats