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  1. Manny, I’m not Phil, but I can tell you my experience. Since I’m a US citizen, my children are automatically considered US citizens even though they were born overseas and I didn’t get them the report of birth abroad or a passport or anything else – and even though they are citizens of a country that doesn’t allow dual citizenship.

    So from what I understand, if one of the parents meets the requirements, then the child is considered a US citizen at birth – whether or not the parents even want that. See:
    http://www.uscis.gov/us-citizenship/citizenship-through-parents
    http://travel.state.gov/content/travel/english/legal-considerations/us-citizenship-laws-policies/citizenship-child-born-abroad.html

  2. Phil,
    How does one acquire dual citizenship from birth?
    When a child is born in the US they are automatic US citizens. However, can they become dual
    citizens because their parents (US persons) were both originally born from another
    country and filed in the second country a Report of Birth- Child Born Abroad Of (name of country) Parent or Parents.
    Is this child considered Dual Citizen at Birth?
    Thank you.

  3. I too am interested asked by Richard re whether we should include some sort of estimated value of defined benefit pension plans or Canada Pension Plans in our net worth. Another question: one year (the fifth year before my potential expatriation) was not done correctly (an honest mistake): however, even if it had been, there would have been no tax owing. the IRS has never questioned it. All the years since have been done meticulously. Should the single “faulty” year pose any problems with renunciation?

  4. @bubblebustin,

    “Am I correct in saying when an expat pays $250K in foreign taxes (line47FTC) and line 44) would be $275K than his net tax liability would be $25K which would be well below the current $153K threshold ?”

    I am going to defer this to a separate write-up — to explore exactly what the Internal Revenue Code means when it defines the net tax liability test.

    (I do not have enough coffee and brainpower right now to do this!)

  5. @bubblebustin,

    “Secondly if someone who fails the net worth test files Form 8854 too late you say he is by definition a covered expat – does that mean whatever net worth he comes up with will be taxed with 30% ?”

    If someone has a net worth below $2,000,000 but files Form 8854 late, he/she will be a covered expatriate. That means he/she will go through the whole “mark-to-market” computation for calculation of the exit tax.

    The place this happens usually is for people who have most of their net worth in an IRA or other retirement account. For example, pretend there is someone who has an IRA with $100,000 in it, and no other assets. She renounces her citizenship. If she files her Form 8854 on time, she is merely an “expatriate” and there is no tax liability. Instead, the IRA balance will be taxed when she takes a distribution.

    However, assume that she misses the filing deadline for Form 8854. Now she is automatically a covered expatriate. She is treated as having received a $100,000 IRA distribution on the day before she renounced her citizenship. She must pay a giant lump sum income tax payment. (On the other hand, now she can withdraw her IRA balance tax-free and move the money to her home country).

  6. Phil I have 2 questions : “Net Tax Liability” Redefined”
    Am I correct in saying when an expat pays $250K in foreign taxes (line47FTC) and line 44) would be $275K than his net tax liability would be $25K which would be well below the current $153K threshold ?
    Secondly if someone who fails the net worth test files Form 8854 too late you say he is by definition a covered expat – does that mean whatever net worth he comes up with will be taxed with 30% ?

  7. You are correct. If your income is so low that a tax return is not required, then you can expatriate without filing tax returns. The law requires that you had filed all returns that were required. None were required. You filed none. 🙂

    However I believe that filing a tax return is useful even if it is not required. It closes a door on a possible inquiry by the IRS. For this and other reasons I like to get tax returns into the system even if they say “zero” on them.

  8. I am so far not convinced by the argument that people whose income is so low as to not be required to file US tax forms, are nevertheless required to have filed them in order to say yes on the 8854. “Compliance with US tax obligations” does not seem to me to include completing forms you are otherwise not required to complete.
    My daughter who has never made enough to trigger filing requirements, and falls within the dual national at birth category, renounced this year. She has never had a SSN, so could not file tax forms, and according to the IRS website is not required to.
    Does your advice about filing tax forms come from some reading of the rules that suggests it is required, or are you saying that because you are being a cautious lawyer and it seems the prudent thing to do to cover all bases, even if it might not be required?

  9. Phil,
    Many overseas Americans have “interests” in defined-benefit pension plans from foreign employers. The pension is paid as an annuity, but you can calculate the lump-sum value of a person’s interest using the appropriate IRS tables. Clearly, this is a deferred-compensation item that would be instantly taxable as a lump sum to a covered expatriate (outrageous!!). But a question: is it to be included in assets for the $2,000,000 net-worth test? After all, you’re supposed to value it using the gift-tax rules, and by its nature such an interest cannot be gifted. What do you think?

    Another question: What about foreign “social security” interests, such as the Canada Pension Plan and Old Age Security? You can use the IRS tables to calculate their lump-sum values too. Such items are explicitly excluded from reporting on Form 8938, but I can find no mention of them in relation to expatriation. So:

    a) Is the Canada Pension Plan a deferred-compensation item for which a covered expatriate will get zapped for the full lump-sum value?
    b) Do the lump-sum values of either or both of these plans go into the $2,000,000 net-worth test? Food for thought!

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Tax laws change over time, and the information in this post above may be less accurate today than it was at the time of the last revision. This post is not tax advice for your specific situation. Please contact an international tax professional to get personalized advice for your situation.