Gifts, Bequests, Inheritances and Expatriation

This Week’s Question

This week’s question came from reader N., who answered the question in the “Welcome to the Expatriation Only Newsletter” email I sent him with this:

My biggest question regarding expatriation is regarding inheritance. How does taxation change upon renunciation?

Webinar for Noncovered Expatriates

Course Overview:
We will help you understand the tax paperwork you need to prepare in order to properly renounce your U.S. passport and NOT be a covered expatriate.

Phil Hodgen, Attorney

Friday April 24, 2015
8:00AM to 10:00AM Pacific Time

Will your future self hate you?

This week’s question comes up fairly frequently, particularly from “accidental” American citizens. The typical example is a person who was born in the United States while his parents were attending school, but who left and returned to his home country at a very early age–never to return to the United States.

I have no Social Security Number and I have never filed a tax return. I want to renounce my citizenship. Should I get a Social Security Number and file five years of tax returns before I do that?

And when I say “fairly frequently” I mean twice today. :-)

Mentally incompetent people and renunciation; some bad solutions

Commenter badger on the blog suggested this topic:

Could you follow up with your always insightful and informative comments – this time on the related situation of those living (and many born) entirely abroad – who are prevented (lifelong) by US law from expatriating or being expatriated (by a parent or guardian) because they are deemed legally incompetent to understand citizenship and thus to voluntarily renounce or relinquish it? They therefore are bound forever as US taxable citizen persons abroad – with all the pain and burdens that entails.

This is very important – in order for families to arrange for ALL family members to renounce and have the same non-US status for simplicity sake, and to protect their legal, local, non-US disability grants, benefits and savings (ex. Canadian Registered Disability Savings Plans RDSPs) from punitive and unjust US extraterritorial taxes, FBAR, and 3520/A burdens imposed on the funds provided by non-US taxpayers, parents and governments in order to provide for the wellbeing and support of those who cannot provide for themselves – due to chronic or congenital physical, neurological, psychological or intellectual impairments which make them unable to care for and support themselves.

It’s the paperwork, stupid

It’s time to channel my inner Bill Clinton. (OK, maybe that’s not such a good idea). When he was running for election, his campaign manager’s mantra was “It’s the economy, stupid.”

Anecdotally, the people we help expatriate complain about the expense, burden, and risk of U.S. tax paperwork when they are living abroad. Quite often they owe no income tax to the United States. Despite that, they must prepare a tax return far more complex than the one that a U.S. resident would have — with the accompanying expense and risk for screwing up. And there are many opportunities for screwing up that are simply not available to a person living in the United States. :-)

The science is settled. We now have academic confirmation. A recent study led by Dr. Amanda Klekowski von Koppenfels of the University of Kent (in Brussels) looked at U.S. citizens and expatriation. (Hat tip to Jackie Bugnion at American Citizens Abroad for alerting me to this). A summary on the University’s website refers to the paperwork and penalty problems as being central to renunciation considerations.

FBAR Filing In the Year of Expatriation

This week’s question comes from someone who was flummoxed by ambiguity and the IRS’s inability to answer questions. I will quote the whole email because it make me happy.

Dear Phil H,

Thank you for helping me navigate through the murky waters of expatriation. Your writings have been both a ray of illumination and a catalyst for the fight or flight response. You have been infinitely clearer than the folks at the IRS, helplines, Embassies, etc.

Thinking that I was at last free from the unreasonable demands of a country I have not lived in for many decades, and relieved that my financial accounts/career/financial security/etc. have been saved from FATCA inspired oblivion, I was propelled into another few hours of frenzy by something you wrote in this week’s newsletter… about a FinCen 114 being due for the year of expatriation. To confirm your information, I sent an email to this IRS recommended address: FBARquestions@irs.gov. Here follows the reply I received. Its beauty might appeal to you. It is a record of incomprehension and increasing anxiety from both parties. I am being told that the FinCen 114 is not needed in the year of expatriation.

I’ve been left with the impression that my command of English is inadequate, and that I have seen ambiguity where none exists. Alas, it is the only language I speak with fluency. Perhaps, as a lawyer, you will be able to clearly see what I could not.

The question is whether, in the year of expatriation, you must file the dreaded FBAR, now named FinCen Form 114.

Form 8854 Balance Sheet Math for Married Expatriates

I get a lot of questions. (Please keep them coming!) Some of them I answer in my weekly Expatriation Only email, but this one seemed to be ripe for a quick blog post.


Hi Phil, I have a question about the filing out the 8854. In the balance sheet section, since all my assets are joint assets with my wife, does that mean I input half of the value of the assets I have?

Basically I have cash and stocks. So can I just put in half the amount? For example I have 500k usd in cash. Then I would put 250k in the balance sheet section.

Filing Form 8854 by FedEx–A Success Story

I received a comment from a reader — she successfully used FedEx to file her Form 8854. I have edited the email slightly to anonymize it.

Hi Phil,

I expatriated in 2013 and faced this issue in June of 2014 when I was ready to submit my final 2013 return plus send a copy of 8854 to Philadelphia. I was sending both at the last minute but, mindful of the instruction that 8854 had to be received by June 15, planned to FedEx to both Austin & Philadelphia to ensure a timely delivery. Well, of course, I ran into the problem of no street address for the 8854 office in Philadelphia.

You can’t file Form 8854 via FedEx or UPS

This Week’s Expatriation Question:

This week’s question is postal. It came in a comment to a blog post on the site.

Hi, does anyone know the STREET address to file form 8854? The instructions only listed a generic US mail address. I need a street address for FEDEX to deliver it. Please advise.

Step-By-Step Tax Filings For a Noncovered Expatriate

This week’s question is from reader P. Let’s pretend his name is Phil, because that would be confusing. His question:

I am going for my interview to renounce on Feb 13/15. I don’t have any US income and I am not a “cover expatriate”. I have my 5 previous tax returns and FBAR’s filed. I will have to file another tax return for 2014 within the next 2 months. Do I file my 8854 with this return and then I am finished with the US? Or what else do I have to do? What is a 1040NR? Do I need to file 2 tax returns for 2015 too? ( Jan 1/15 – Feb 13/15 and then Feb 14/15 – Dec 31/15?

I will sure be glad when I am done with all this!