Does Filing a Late Form 8854 Make You a Covered Expatriate?

Does filing a late Form 8854 make you a covered expatriate?¹

No.

If you are late filing your Form 8854, the worst that can happen is that you will be fined $10,000. You will not be a covered expatriate.

Form 8854 and Its Filing Deadline

Congress sets the rules for what is taxed, and what the tax will be. Then it granted the IRS power to design tax forms² and set filing deadlines.³

Expatriates – citizens who give up their U.S. citizenship, green card holders of long-standing – are required to provide information.⁴ Form 8854 is how the IRS exercised its power to design a tax return (and set the filing deadline) for the information required from expatriates.

The filing deadline for Form 8854 is the same as the income tax return filing deadline (including extensions) for the year of expatriation.⁵

Late Form 8854 and IRC Section 877A

A covered expatriate is someone who meets the requirements of one (or more) of three tests:⁶

• Tax Liability Test. Your average tax liability for the five tax years before your expatriation year was $162,000 or more (assuming expatriation in calendar year 2017);⁷ or
• Net Worth Test. Your net worth on your expatriation date is $2,000,000 or more;⁸ or
• Certification Test. You fail to certify that you fully satisfied all of your tax filing and payment obligations for the five years before the expatriation year.⁹

That's it. Three ways to become a covered expatriate. No more, no less. As you will see, they are unaffected by the date on which you file Form 8854.

The Tax Liability Test and the Net Worth Test: No

Money acts as the trigger for two of the ways for you to become a covered expatriate. Thresholds exist for how much tax you paid on average over the five years before you expatriated¹⁰ and for your net worth.¹¹ Exceed these thresholds, and you are a covered expatriate.

The day on which you file a piece of paper with the IRS cannot how much tax you paid in years past. Nor can it affect your net worth. Filing Form 8854 late will therefore not make you a covered expatriate under these two tests.

The Certification Test: No

The certification test talks about what you certify. It does not talk about when you make that certification.

Filing a late Form 8854 will not cause you to become a covered expatriate because of the certification test. The certification test is entirely retrospective. The only way you can fail this test – and become a covered expatriate – is by having some wreckage in your past.

The certification test looks back at the five calendar years before the year in which you expatriate. It asks you to say “yes” when asked whether you satisfied all of your tax filing and payment obligations for all five years. If you answer “no” you fail, and are a covered expatriate. You also fail – and are a covered expatriate – if you claim full compliance with tax law for the previous five years but fail to prove it when audited.

This means that the certification test does not care at all about what you say on the tax forms you file for your expatriation year, or when you file them. There are consequences for filing nothing, filing bad forms, or filing late. But the certification test – and covered expatriate status – will be unaffected by any of these.

Conclusion

A covered expatriate is created by looking at historic facts. Yesterday is not changed by things that happen today. Filing Form 8854 now does not affect your historic tax liability, net worth, or your track record in obeying tax law. Filing a late Form 8854 will not make make you a covered expatriate under any of the rules in IRC § 877A.

If Congress wanted a filing failure in the expatriation year to trigger covered expatriate status, it would have said so.

Late Form 8854 and IRC § 6039G

Form 8854 is what the IRS made when Congress handed them IRC § 6039G and said “collect information from expatriates.” Like most laws, IRC § 6039G tells you what to do,¹² and tells you what will happen to you if you don't do it.¹³

What's the worst that can happen if you miss the deadline? Simple: pay a $10,000 penalty.

Anyone who is required to file Form 8854 and

fails to file such a statement with the Secretary on or before the date such statement is required to be filed or fails to include all the information required to be shown on the statement or includes incorrect information … shall pay a penalty of $10,000 unless it is shown that such failure is due to reasonable cause and not to willful neglect.¹⁴

Nothing is said about failure to file Form 8854 on time as triggering covered expatriate status.

Summary

Form 8854 (the form filed by expatriates) has a filing deadline that is the same as the income tax return filing deadline. If you miss the deadline, there is a potential $10,000 penalty. Missing the filing deadline will not, however, make a covered expatriate out of an expatriate.