Sunday, 3 July 2011

Expats : How to File Form 8854 -

More and more Americans are renouncing their citizenship and choosing to sign form 8854. Failure to sign form 8854 can result in penalties.

As the US raises its tax rates for high end earners and is forcing more and more Americans to claim their foreign bank accounts, the rate of Americans renouncing their citizenship is increasing. According to The Wall Street Journal, more than 500 Americans renounced their citizenship in the 4th quarter of last year. This was more than double for the entire year of 2008.

According to the IRS , "Expatriation tax provisions apply to U.S. citizens who have relinquished their citizenship and long-term residents who have ended their residency (expatriated). Form 8854 is used by individuals who have expatriated on or after June 4, 2004."


The Right to Leave

Any American can leave and renounce their citizenship, but it is being recommended not to list taxation of the cause for expatriation. Even though the government realizes this is the main reason, it is better to use religion, job or marriage as a reason for denouncing

Before leaving the US, sell all property and remove all funds from US bank accounts. If the US suspects that the expat left to avoid all taxes, they may have the right to hold on to their holdings for up to ten years.
According to the IRS, "Expatriation includes the acts of relinquishing U.S. citizenship and terminating long-term residency."


News Rules and Regulations

An expat will continue to be a US citizen until they file form 8854 and will be liable for all prior tax owed on any years not paid or filed on. In addition they are liable for tax on foreign income also until they expatriate from the US. The IRS is notifying all expats who have not complied with form 8854 requirements that they may be subject to a large penalty of $10,000.

Expats who renounce their citizenship or terminates their long term residency on or before June 3,2004 must file form 8854. For a more detailed explanation of this very complex law read this: Publication 519, U.S. Tax Guide for Aliens.

Upon expatriation, the expat must certify that the past five years of taxes are paid and current. Even if the taxpayer cannot pay all the tax is due, they must file and make arrangements for an installment plan.

Who Must File Form 8854?

Expats must file this form to:
  1. Show that the reason for expatriation was due to saving taxes
  2. To follow the annual reporting requirement for expats under section 6039G, if liable for tax under section 877.
Note. Naturalized citizens who lost their citizenship due to a federal court revoking their naturalization, do not have to file form 8854. However if the naturalized citizen gave up their right and renounced the government, the form must be filed.


Where to File Form 8854

Expats who are present in the US following expatriation and subject to tax should file form 8854 and attach it to form 1040 and mail to the address below. If the expat is not liable for tax, send the form to the address below also.

Internal Revenue Service
P.O. Box 331
Drop Point S607-F8854
Bensalem, PA 19020

Having the right to leave is something called "FREEDOM." It may come with a big price though. Any American living abroad has had thoughts of freedom and the thoughts of taking up residence in another country. This should be a decision that is given a great deal of thought, as being a citizen of the US may be a gift that will never be given again.


Weber, Christopher (April 6, 2010) "Growing Number of Expats Renounce Citizenship as IRS Toughens Rules" Politics Daily.com

Photo courtesy of Photobucket;  NHIM_hoasi