Timing Your Expatriation to File Form 8854 as Tax Compliant

Timing Your Expatriation to File Form 8854 as Tax Compliant

Timing Your Expatriation 

Sometimes, US persons (especially Long-Term Lawful Permanent Residents) are unaware of expatriation and/or what the US government requires in terms of tax compliance and form filing until they have already (unintentionally) performed the expatriating act. In this all-too-common situation, a US Taxpayer who has been a Lawful Permanent Resident (LPR) in at least eight of the last 15 years (LTR) decides they no longer want to be a US person. Therefore, they move overseas and file Form I-407. The I-407 is not a tax form but rather an immigration form that is filed with USCIS. The biggest issue with filing the USCIS Form I-407 is that for Long-Term Lawful Permanent Residents, this is considered the expatriating act — and the date used to determine exit tax treatment. While some Tax Practitioners/Attorneys may argue that the actual expatriation date is when the final return is filed, that would seem like a (very far) stretch — especially in light of the new 2021 Form 8854 instructions update.

What is Expatriation?

Expatriation is the process of formally renouncing US Citizenship or formally relinquishing Permanent Residence status. The act of expatriating is mainly an immigration issue, but there are many tax implications as a result of expatriating from the US. One of the key questions becomes: “What is the date of expatriation?” The reason the date of expatriation is crucial is that it is the date used to measure whether the person qualifies as a Covered Expatriate – and possibly subject the taxpayer to exit tax.

When is the Expatriating Act?

Despite what some tax professionals may try to sell their clients on, the date of expatriation is not the date of filing that final tax return or 8854. Unfortunately, there does not appear to be much in the way of any ambiguity when it comes to determining the expatriating act. Some practitioners may want to take the position that the expatriating act is when you file Form 8854 and file your final tax return — but this directly contradicts the position taken by the IRS.

In fact, the Internal Revenue Service recently updated their instructions for Form 8854 and clarified when the expatriating act happens. 

A key difference between the prior and current Form 8854 instructions is as follows:

US Citizenship

      • Prior Instructions: “You are considered to have relinquished your U.S. citizenship on the earliest of the following dates:”

      • Current Instructions: “You are considered to have relinquished your U.S. citizenship (and consequently, have an expatriation date) on the earliest of the following dates.” 

Legal Permanent Residence

      • Prior Instructions: “If you were a U.S. long-term resident (LTR), you terminated your lawful permanent residency on the earliest of the following dates.”

      • Current Instructinons: “If you were an LTR, you terminated your lawful permanent residency (and consequently, have an expatriation date) on the earliest of the following dates.”

When is the Date of Expatriation?

In the current Form 8854 instructions, the IRS provides two sets of rules to determine the expatriation date — depending on whether the person is a US Citizen or a Long-Term Resident.

Date of Relinquishment of U.S. Citizenship

“You are considered to have relinquished your U.S. citizenship (and consequently, have an expatriation date) on the earliest of the following dates.

        • The date you renounced your U.S. citizenship before a diplomatic or consular officer of the United States (provided that the voluntary renouncement was later confirmed by the issuance of a certificate of loss of nationality).

        • The date you furnished to the State Department a signed statement of your voluntary relinquishment of a U.S. nationality confirming the performance of an expatriating act (provided that the voluntary relinquishment was later confirmed by the issuance of a certificate of loss of nationality).

        • The date the State Department issued a certificate of loss of nationality.

        • The date a U.S. court canceled your certificate of naturalization.”

Date of Termination of Long-Term Residency

“If you were an LTR, you terminated your lawful permanent residency (and consequently, have an expatriation date) on the earliest of the following dates.

        • The date you voluntarily abandoned your lawful permanent resident status by filing Department of Homeland Security Form I-407 with a U.S. consular or immigration officer.

        • The date you became subject to a final administrative order that you abandoned your lawful permanent resident status (or, if such order has been appealed, the date of a final judicial order issued in connection with such administrative order).

        • The date you became subject to a final administrative or judicial order for your removal from the United States under the Immigration and Nationality Act.

        • If you were a dual resident of the United States and a country with which the United States has an income tax treaty, the date on which you commenced to be treated as a resident of that country under the treaty, did not waive the benefits of the treaty, and gave notice to the Secretary of the commencement of such treatment. See Regulations section 301.7701(b)-7 for information on related filing requirements.”

What Does This Mean?

It is important to note that in these instructions, the IRS specifically identifies that a person has an expatriation date at the time one of these above-referenced actions is taken, as either a Long-Term Resident or US citizen.

Interestingly, none of the expatriating acts refers to filing the final tax return or 8854 as the date of expatriation. Presumably, this language was added to the instructions in order to clearly show that the expatriation date is never when the final return is filed.

Preparation for Expatriation is Key

As with anything involving international tax, it is important to understand the different facts and circumstances surrounding the submission before making any proactive representation to the IRS. Some Taxpayers may want to consider reaching out to a Board-Certified Tax Law Specialist experienced in International Tax for assistance.

Golding & Golding: About our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure

Contact our firm today for assistance.

    Schedule a Confidential Reduced-Fee Initial Consultation with a Board-Certified Tax Attorney Specialist

    Address

    930 Roosevelt Avenue, Suite 321, Irvine, CA 92620