Archive for 'Expatriation'

Real questions about expatriation for our workshop


Please send your hardest questions about expatriation. This will help us prepare an upcoming workshop–we will know the real problems that are bugging you.


We are planning to put on a multi-part workshop in a couple of months. It will be highly technical–to the level of “this is how you answer Line 8″. Yes, that specific.

The workshop is going to be aimed at regular people–people with net worth under $2,000,000, so they (probably) will not be covered expatriates.

Workshop Mailing List

We have a special mailing list just to get information on expatriation topics only. Sign up for the Expatriation Only mailing list by clicking on that glorious hyperlink. :-)

Real Life Problems Needed

In order to prepare a workshop that is highly, highly useful to you, we need to know what problems you are facing.

Yes, we have worked with a gazillion people and talked through their exit tax problems. But there is always something new. I want to know about it.

And then there are the utterly common questions that are so obvious that we don’t even think about them. That’s dumb. They’re common problems to us, but not necessarily to you–this will be the first time you see the problem, when you expatriate. We need to be reminded of the obvious!

Please Send Your Problems

Please submit your comments, suggestions, or real-life problems so we can build these topics into the workshop. The easiest way is to use the Contact Us page. Or email me. My email addresses on on the Contact Us page.

Or you can use the comments on this blog post to write your question or vent about the problem you are having with expatriation.

I cannot guarantee it, but it is highly likely that as a reward for participating your precise question will be answered to the best of our ability. :-)

Questions Submitted Already

We already have many questions that have been submitted. Here they are. You can say “Me too” or tell me about some variation on the theme you see there–facts specific to you.

Certification Test

  • Do I have to have already filed amended tax returns I think I might need to file when I file Form 8854?
  • Are FBARs (and amended FBARs) covered under the certification test? Do I have to file those prior to filing Form 8854 to meet the certification test? (different due dates for 8854/tax return and FBARs)
  • What is the best way to amend an FBAR if the FBAR people and IRS told me not to report the account but we later found out that we needed to?
  • Can we use the foreign tax credit on the amended returns if we didn’t on the original returns? Is it better not to?
  • If you never owed any tax do you still have to file the five prior years of returns to meet the certification test or can you just sign off on the 8854?

Form 8854 Questions

  • Does renunciation have any effect on final tax return due date, or is it the date that you would normally file tax returns?
  • Do we have to complete Part V of Form 8854 (balance sheet and income statement) if we are not covered expatriates?
  • Is it possible to file Form 8854 prior to filing the tax return for the final year?
  • Should a married couple split assets in half (in other words, show each asset at 50% of its value) when computing a balance sheet for Form 8854?
    Are personal loans included as an asset on Form 8854?

Determining Whether You Are a Covered Expatriate

  • Why is there the need to calculate the net tax liability for the prior 5 years when determining whether I am a covered expatriate (referring to Phil’s blog post on the subject from April 25, 2013)? Why not just enter the taxes you owed as shown on 5 prior years of returns?
  • How is appreciated real estate valued for determination of covered expatriate status? Is it based on the current assessment or on the amount of appreciation since acquisition?
  • I am right near the covered expatriate mark; how do I make sure I’m below?
  • How do I value non-controlling shares of a foreign small business for determining whether I am a covered expatriate?
  • How do I value a term life insurance policy for determining whether I am a covered expatriate?


  • I have an IRA account; how do I get it out of the US? Are there any brokerage firms that will accept this type of account?
  • Should I roll over my 401(k) to an IRA or cash out when I leave? Or neither? What are the rules for IRAs on foreign addresses?
  • My employer allows me to take a loan against my 401(k). Should I take that and immediately default on it, thereby making it declarable income but with no withholding?
  • My child is a dual citizen (US-UK). I want to open a child ISA. I will be the custodian. There are no withdrawals allowed until the child is 18. What are the rules for this as relates to income/capital gains?
  • Are there benefits to liquidating US pensions (IRAs, 401(k)s) just after expatriation? Are there benefits to taking distributions over time with the 30% withholding? What is the best option?


  • I live in a country with a different tax year (not calendar year like the US). How is that handled, particularly for a final year tax return?
  • At what point does a green card holder (with a US citizen spouse) no longer have an obligation to file a US tax return?
  • A green card holder planning to expatriate who has a US citizen spouse who is not expatriating is going to split up their assets and move them to separate accounts. What is sufficient to make the split “real” for US tax purposes? Should they do this prior to filing Form 8854? Does the timing affect to whom the assets belong?
  • Is Form 1040NR filed for the entire portion of the year in which I am a nonresident?
  • Is timing of income payments important? Is pro-rating an option, or do I just report the entire year of US income even though I expatriated in the middle of the year?
  • How is W-8BEN filed? Does it go directly to the brokerage firm/other or to the IRS?
  • If I have no US source income in the years after expatriation, should I still file a nonresident return for those years?
  • If I expatriate and I am a nonresident at year end, do I need to file an FBAR for the year of expatriation?
  • What happens with S-corps at expatriation? Can I own a C-corp or LLC after expatriating? Do I need to wind up US companies before expatriating?
  • If there is a 30% withholding on dividend payments after expatriation, do I still have to file a nonresident return since the full tax due has been withheld?
  • I am the sole trustee and, according to an attorney I spoke with, a “contingent beneficiary” of an irrevocable trust. How does the IRS view this and how would it be handled for expatriation purposes?

How Many Appointments in Buenos Aires to Expatriate?

I heard from someone that it takes four appointments to successfully expatriate in the Buenos Aires Embassy. (He found it expedient to go to another country to expatriate).

The normal expatriation procedure at the moment is a two-meeting process.

  • The first appointment at the Embassy is designed to install a guilt-bomb in your brain, and the delay between the first and second appointment is supposed to give enough time for you to regret your decision and remain an American.
  • The second appointment is where the fun happens and you cease to be a U.S. citizen.

When I first started doing these expatriations under the new rules we had a one-appointment process. Do the paperwork, show up. If the paperwork was wrong, they’d fix it on the spot. Then the Embassy official would generate the other documents. Sign, date, swear out, and you’re done.

Then the two-appointment process started to appear. For a while some locations were one-appointment and others were two-appointment places. And even within that we would see variations. We would see “yes we have two appointment but we’ll informally just finish it all in one appointment” expediency in some situations.

But now “four appointments”? Wow.

The State Department’s uniform procedures are not, it appears, equally applied across the planet. :-)

Anyway, I’m curious about trends. What have you seen in Argentina, or elsewhere for that matter, that deviates from the “two appointments to expatriate” procedure?

Quite apart from the bone-headed bureaucracy of it all, requiring multiple appointments can put a real travel strain on a person who wants to expatriate. Someone living far from the Embassy will have to drive, fly, etc. a long way to scratch the State Department’s itch if two appointments–carefully spread out–are required. I can’t imagine more than that.

Delay in approving renunciations at State Department?

I get emails:

Have you noticed that the US State Dept is taking a very long time to approve renunciations? I have been waiting 9 months. Someone from the embassy where I renounced went to DC a couple of months ago for a training and asked them why it was taking so long. They said it was the job of only one person and that it was not a priority. I think they are doing this to punish the renouncers. What do you think?

Anyone out there have any clue? I have not seen any undue delay in issuing CLNs.

Renunciation trends in Auckland

I received an email yesterday from a contact in New Zealand. Renunciations in the Auckland Consulate are apparently way, way up compared to last year.

I had occasion to speak with an NZ woman who was managing our file because they had messed up on something. She said that there were only 5 renunciation appointments in the last FY (2012-10 — 2013-09), but that they already had 25 appointments for the first quarter of this FY. I didn’t ask if that was number of persons or number of appointments. Anyway, if that trend continues, what is that, a 2,000% increase in one year?

This a large increase. Starting from a low base (five in the prior fiscal year) the statistics are deceiving. Don’t read too much into the percentage increase.

The absolute numbers are small. But I am hearing anecdotally that numbers are up dramatically at other Consulates and Embassies, too. Thus, the trend line may indicate what is happening worldwide. I just don’t have numbers from other countries.

The government’s secret plan is working. Citizens are expensive and they want stuff from Uncle Sam. The new strategy is to print lots of money and force people out of the country. That will help the Federal government balance its budget. /sarcasm.

U.S. brokerage accounts after you expatriate

I did the second webinar today for a limited group of people–all about expatriation. Everyone had a chance to send in questions ahead of time–and I got a lot of them. And there were plenty of questions during the webinar. The show ran for almost three hours: well past the 90 minutes scheduled. Now you know why I limit the number of people in the webinars. :-)

We will do another webinar on expatriation soon. This one will be scheduled at a time convenient to people in Asia. Contact us if you are interested in getting on the list.

But I digress.

One of the questions that came up today is worth blogging about. (What am I talking about? One question only? No way. I have pages of great questions stored in Evernote as blog fodder. But I digress.)

The Question

Let’s say a husband and wife have a normal investment account of U.S. stocks and bonds at a place like Charles Schwab or Merrill Lynch. They expatriate. What should they do about the investment account–leave it in place or move everything outside the United States?

Let’s assume the brokerage company will allow them to stay on as customers (not necessarily the best assumption in the world) and will allow them to invest freely in all types of assets (definitely not true at all!). What should they do?

The Deciding Factors

The two tax considerations are:

  • U.S. income tax; and
  • U.S. estate tax.

Income Tax Considerations

Let’s keep it simple. The husband and wife keep the same account that they had before. They will each give the brokerage company a Form W-8BEN to notify the company that they are now nonresident aliens for U.S. income tax purposes.

The default U.S. income taxation treatment of their portfolio will be:

  • Dividends are taxed at 30%, unless an income tax treaty allows a lower tax rate;
  • Interest should almost certainly be exempt from Federal income tax;
  • Capital gains will be free of Federal capital gains tax–short term or long term; and
  • There will be no State income tax at all (they aren’t residents of any States).

This sounds pretty good. The full result is hard to determine without knowing where our expatriating couple will live, and what the local income tax rules are in that country. Only by knowing the combined tax hit for the U.S. and their country of residence will we know whether it is better (from an income tax perspective) to leave the assets in the United States or move them to the country of residence. But all in all, the U.S. government more or less keeps its hands out of the pocket of nonresident investors.

Estate Tax Considerations

The problem lies with the U.S. estate tax. When nonresidents own U.S. stocks and bonds, they run the risk of getting hit with the estate tax. These assets are treated as “located” in the United States and if the individual dies, they are going to be subjected to estate tax. The first $60,000 of U.S. assets are not taxed. But above that, expect to pay some tax, and pay for the expense of an estate tax return.

The worst example I saw of this situation was a husband and wife who had $65,000 in a Schwab account. They both died. Schwab froze their account until the IRS issued a letter saying “all of the U.S. tax liabilities for these people have been fully satisfied.” That meant an estate tax return (Form 706NA). It meant over a year of waiting. And it meant a trivial amount of tax collected for the U.S. government–far, far less than the professional fees to get Schwab to loosen its grip on the account and turn over the money to the couple’s daughter.

So, when people expatriate I recommend that they move all of their financial assets out of the United States. Why go through the pain and agony of dealing with the U.S. estate tax system? Invest your money elsewhere.

Many countries do not have an estate tax at all. If you expatriate and live in one of those countries, why would you leave assets in the United States where they will definitely be taxed when you die?

Many countries have an estate tax of their own. It is probable that these countries have a tax credit system–if your heirs had to pay estate tax in the United States, they will allow a credit against your home country estate tax for the U.S. taxes paid. But that doesn’t avoid the cost of dealing with the U.S. tax bureaucracy Borg system. The work involved in preparing and filing a Form 706NA is substantial and costly.

A few countries have estate tax treaties with the United States to soften the blow of the U.S. estate tax. If you live in one of these countries, you might have things a little easier. Perhaps the treaty eliminates the tax entirely. But it will not eliminate the requirement to prepare and file an array of U.S. tax paperwork.

All in all, the U.S. estate tax is an excellent reason to NOT invest in U.S. stocks and bonds.

Note that this holds true if you have a brokerage account in another country. If that brokerage account holds U.S. stocks and bonds, you are at risk of the U.S. estate tax just as much as if you had the assets in a domestic Schwab account.

A Solution: Use a Corporation

There is a solution. It is not for everyone, and it is not cheap. But it works.

The problem is the U.S. estate tax. Here is how we solve it. You form a foreign corporation. This might be formed in your home country, or it might be formed in a tax haven jursidiction. Bahamas. British Virgin Islands. You and your wife are the shareholders. Put your money into that corporation. Then use the corporation to open up a brokerage account at Schwab, Merrill Lynch, or anywhere in the world. The corporation then invests its money in U.S. stocks and bonds.

The same income tax results I described above will apply. Dividends will get taxed by the United States at 30%. (If you use a tax-haven country corporation you will not have any ability to use income tax treaties to reduce that rate). Interest will be tax-free, as will capital gains.

The difference lies with the estate tax. If you and your wife die, the U.S. estate tax system asks the first question: what did they own at the time of death? The answer is that you and your wife owned stock in a foreign (from the U.S. perspective!) corporation. That stock is considered to be located outside the United States. A nonresident owned assets outside the United States. The estate tax cannot apply to those assets, so there is no U.S. estate tax.

This is not necessarily a good idea from the perspective of home country tax systems. Many countries have complex systems in their tax laws that are designed to attack holding companies as I have described. In the U.S. system they are called “controlled foreign corporations” if owned by U.S. persons. There is another set of rules called the “personal holding company” rules that penalize the use of corporations that have too much cash in them. Then of course there is the “passive foreign investment company” rules.

Your country of residence might have similar types of rules. If so, a brilliant strategy from the U.S. tax perspective will make you look like a dunce from your home country’s perspective.

The Simplest Solution

The simplest solution, though, is to close out the U.S. brokerage account and pull the money out of the United States. Then, invest the money anywhere you want, but do not buy U.S. stocks, bonds, or mutual funds.

The world is a very large place, with many opportunities for investment. The U.S. government has yet to learn this simple fact. The U.S. government is fat on hubris and the supposed strength of the U.S. dollar.

Winter is coming.