How to Complete Part I of Form 8854October 10, 2017 - Phil HodgenExpatriation
Expatriates have the rare pleasure of becoming intimate (in a one-time sort of way, usually) with Form 8854. Let’s take a look at Part I of the Form 8854.
- What information are you asked to provide?
- By what right does the IRS claim the power to force you to provide this information?
- How do you answer the questions correctly?
Line 1 – Mailing Address, Telephone Number
The IRS wants to be able to find you after you expatriate. They’re coming to get you, Murdoch.
Line 2 – Address of Principal Residence
If you don’t live at your mailing address, then you must provide your actual residence address.3
Line 3 – Country of Residence
What is your country of residence for tax purposes, if it is different from your principal residence on Line 2?4
Ahh. This can get metaphysical. Some countries have multiple definitions of “tax resident”. (The United States is one of these countries, so don’t sneer and mock.) Answer to the best of your ability. And yes, you can be a tax resident of nowhere. I know people like that, who never satisfy the definition of “resident” for tax purposes in any country.
Line 4 – Your Expatriation Date
Line 4 exists just to tell you, dear taxpayer, what parts of Form 8854 to fill in. It does not ask you for information.
There are different parts of Form 8854 that apply (or do not apply) depending on your expatriation date.
Check the correct box and follow directions–fill in the right parts and ignore the wrong parts.
Line 5 – Date of Notification of Expatriating Act
Form 8854 is asking your to declare the cut-off date: when, precisely, did you cease to be a U.S. taxpayer? Line 5 is where you assert your expatriation date.5
A citizen can only cease being a U.S. taxpayer in one way. Permanent residents (aka green card holders) have two ways to cease being a U.S. taxpayer.
Citizens — First Checkbox
U.S. citizens expatriate by taking an act coupled with an intention to relinquish U.S. nationality.6
The usual method of doing so is renunciation: you stand in front of a consular official and utter some magic words while holding your hand in the air. Then you sign some papers and pay the danegeld. The date to fill in on Line 5 is the date on which you uttered the magic words.
The other methods of relinquishing U.S. nationality are far more interesting.
Most common here is the acquisition of another nationality by a U.S. citizen. This can cause a U.S. citizen to ‘expatriate’ in the eyes of the IRS, if done so with the intention of terminating U.S. nationality.7
Here’s an example of what I mean by interesting. Suppose you moved to Canada in 1968 and became a Canadian citizen in 1973. You swore allegiance to the Queen and took on Canadian nationality, intending to be a Canadian forever.
You would think your relinquishment date would be in 1973, when you took an action (acquired Canadian nationality) with the correct intent (to cease being a U.S. citizen).
In fact, the IRS thinks you are a U.S. citizen for decades after the Department of State thinks you stopped being a citizen.
Regardless of what the Department of State thinks, the IRS thinks you cease to be a U.S. resident on the earliest of the following dates:
- The date you hand in the paperwork to the Department of State confirming the relinquishing act that you took years before;8 or
- The date on which the Department of State issues your Certificate of Loss of Nationality.9
Note that the actual relinquishment date (in 1973, in my example) is not one of the dates for the IRS to treat you as ceasing to be a U.S. citizen.
This leads to an interesting hypothetical result–you are a Schrodinger’s Citizen, simultaneously both a U.S. citizen and not a U.S. citizen:
- 1973. You actually relinquish your U.S. citizenship in 1973.
- 2016. You file the appropriate paperwork with the Department of State to tell them about the relinquishing act you committed in 1973.
- 2017. The Department of State issues you a Certificate of Loss of Nationality in 2017, confirming that you ceased to be a U.S. citizen in 1973 because of your relinquishing act you took in that year.10
The tax rules tell us to take the earlier of (1) the filing date when you gave the paperwork to the Department of State; or (2) the date on which the Department of State issued your Certificate of Loss of Nationality.
The Internal Revenue Service says that you relinquished citizenship in 2016, because that is when you turned in your paperwork to the Department of State.
The Department of State says you relinquished citizenship with an effective date in 1973.
What’s not to love about this?
I think this is just the result of a broken statute. At some point it will be fixed.
Green Card Holders — Second Checkbox
Someone who is a lawful permanent resident and holds that status long enough to be a long-term resident11 will expatriate with an effective date when the person ceases to be a lawful permanent resident.12
If you are a long-term resident who gave up green card status voluntarily, or if the government took your visa status away from you–over your objections–then you fill in the date on the second checkbox.
- For giving up visa status voluntarily, the date of delivery of Form I-407 to the U.S. Consulate or Embassy is the effective date of termination for tax status.15
- If the government takes your visa status away, your tax status as a lawful permanent resident is effective when the time for you to appeal the order has lapsed.16
Green Card Holders — Third Checkbox
Green card holders living abroad can terminate their status as lawful permanent residents by making an election to invoke the protection of an income tax treaty between their country of residence and the United States:
An individual shall cease to be treated as a lawful permanent resident of the United States if such individual commences to be treated as a resident of a foreign country under the provisions of a tax treaty between the United States and the foreign country, does not waive the benefits of such treaty applicable to residents of the foreign country, and notifies the Secretary of the commencement of such treatment.17
You will file Form 8833 to tell the IRS that you are electing nonresident status. The effective date of this election will be the first day that you are, in the eyes of your country of residence, a tax resident of that country.
Example: you move to Italy to live permanently, arriving on February 1, 2016. You remain in Italy for the rest of 2016. Under Italian law (let’s assume) you are a resident for tax purposes. Your start date for nonresident status–and the date that you fill in on the line beside the third checkbox on Line 5–is February 1, 2016.
Line 6 — Number of Days in the USA
Required by law.18 This gives the government enough information to decide whether treat you as a resident alien under the substantial presence test.
You’d think this is repetitive, redundant, unnecessary, and duplicative.
- After all, if you have been in the United States too many days, you are attaching this Form 8854 to a Form 1040 and conceding tax resident status.
- And if you have been out of the United States for enough days to be a nonresident, you are attaching this Form 8854 to a Form 1040NR, which asks for exactly this information in Schedule OI, Item G.
Tough. Answer it here again.
Line 7 — Other Citizenships
Line 7a asks for your other citizenships. List them here. Required.19
Line 7b asks when you acquired those citizenships. Not explicitly required by law, but the IRS can ask you for it based on authority granted to it by Congress.20
Yes it is theoretically possible to give up U.S. citizenship and become stateless. I have seen it happen. Not recommended.
Line 8 — How You Became a Citizen
By birth or naturalization? Answer please. Authority to ask this question was given to the IRS by Congress.21
- IRC §6039G(b)(2). ↩
- Your telephone number is not required by statute, but IRC §6039G(b)(7) delegates power to the Treasury Department to ask for anything it wants. ↩
- Not explicitly required by Congress, so this information may be collected by the IRS under the authority of IRC §6039G(b)(7). ↩
- IRC §6039G(b)(3). ↩
- IRC §877A(g)(3). ↩
- 8 USC §1481(a). ↩
- 8 USC §1481(a)(1), IRC §877A(g)(2)(A). ↩
- IRC §877A(g)(4)(B). ↩
- IRC §877A(g)(4)(C). ↩
- IRC §877A(g)(4)(B), (C). ↩
- IRC §877A(g)(5). ↩
- IRC §877A(g)(3)(B). ↩
- IRC §7701(b)(6)(A). ↩
- IRC §7701(b)(6)(B). ↩
- Regs. §301.7701(b)-1(b)(3). ↩
- Regs. §301.7701(b)-1(b)(2). ↩
- IRC §7701(b)(6), flush language. ↩
- IRC §6039G(b)(6). ↩
- IRC §6039G(b)(4). ↩
- IRC §6039G(b)(6). ↩
- IRC §6039G(b)(6). ↩