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The Importance of Filing Form 8854 When Expatriating

The Importance of Filing Form 8854 When Expatriating
Ines Zemelman, EA
10 February 2016

If you are a long term resident of the United States and you voluntarily renounce your green card and your permanent resident status, you must start by filing Form I-407.

Once you have resided in the United States with a green card for at least eight years, you are considered a long term resident of the US. If this is the case, your expatriation date is most often the date that your lawful permanent resident status is abandoned by filing Form I-407 with the Department of Homeland Security. The kicker, though, is that filing Form I-407 is just the beginning of your expatriation journey.

USCIS no longer accepts I-407 at international field offices by mail or in-person.  As the processing time of a mailed I-407 is 60 days, excluding transit, a taxpayer should consider that delay in making their choice to voluntarily abandon LPR status. In very rare circumstances, a U.S. embassy, U.S. consulate, or USCIS international field office may accept a Form I-407 in person if an individual needs immediate proof that they have abandoned LPR status.

You will also be required to file Form 8854 with the IRS. Until you file this form, you are still liable for taxes in the US.

Once you expatriate from the United States, you are required to file Form 8854. This is a notification to the IRS that you have officially renounced your long term resident status. Not only will you be required to file a US income tax return after having given up your green card, you may also be facing harsh penalties for not filing Form 8854 in a timely fashion.

Form 8854 should be filed in the year of your expatriation. If you are expatriating this year, you will be required to file form 8854 along with your US income tax return this year. If you don’t have to file a tax return, simply mail Form 8854 to the IRS using the address indicated in the instructions for form 8854

Let’s take a look at a case to see how failure to file Form 8854 not only requires you to go through unnecessary and complicated procedures.

A long term resident returned to Italy in 2013, and he filed Form I-407 expatriate from the United States. Here is the history of his filing US income tax returns:

He filed an income tax return in 2012, but there was some unreported income. He was a legal permanent resident of the United States until he renounced his green card in 2013. In 2013, he filed another tax return and failed to file Form 8854. In the year 2014, he filed another tax return and still didn’t file Form 8854; and he did the same thing in 2015. Now, in 2016, he is going to have to file an amended tax return and file Form 8854 with the IRS.

Using the example provided above, the question becomes how to file Form 8854 and the time at which he lost his permanent resident status.

If you find yourself in this situation, you may be asking yourself if you are still considered a US Resident or if you have actually expatriated in 2013 or this year when you finally file Form 8854. Another question that may arise is whether or not to file Form 8854 with your 2016 tax return or your amended 2013 tax return.

Next question: What was my expatriation date? The IRC (Internal Revenue Code) §877A(g)(3)(B) defines the expatriation date has the date the individual is no longer a lawful permanent resident of the US. At the same time, the IRC §7701(b)(6) states that an individual is a lawful permanent resident if:

  • He has been living in the United States as an immigrant compliant with all immigration laws, or
  • His lawful permanent resident status has not been revoked or voluntarily abandoned.

As indicated earlier, the date that Form I-407 is delivered to the Consular official is generally the date on which a lawful permanent resident status was renounced. Since his green card was abandoned in 2013, that’s the tax return with which Form 8854 should be filed.

If you are found to have willfully neglected your responsibility to file Form 8854, you could be facing harsh penalties.

The fine for failing to file Form 8854 during the year in which your green card was abandoned could result in a fine as high as $10K. According to IRC §6039G(c)(2), if you were required to file a statement in accordance with subsection (a) and you failed to file that report with the Secretary by the deadline, you could be liable for the entire $10K penalty. If you are able to prove that your failing to file this form was non-willful, you may be able to get this fee waived.

Aside from the confusion on the actual date of expatriation, there is the fact that failure to file Form 8854 will cause you to fail your certification test.

When a US Person expatriates, a certification of being compliant with all tax obligations is required. Having failed to file Form 8854 on time, the individual is unable to certify that those obligations have been met, and will – therefore – be considered a covered expat.

According to IRC §877(a)(2)(C), a person is considered a covered expat if he fails to certify that he has been compliant with all tax laws and regulations for the previous five years.

Ines Zemelman, EA
Founder of TFX