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  1. would have worked but isn’t there now a tax on inheritances fron non-us persons, if over $100 K (approximately)?

  2. In case of joint income tax fillers, is it allowed to apportion the US income tax liability for the expatriating spouse (based on her/his income) for Form 8854 (Note: Form 8854 is on indivual basis wnereas US income has been filled on join basis) ?

  3. Lorraine,

    You’re into the zone where you need legal advice specific to you — what to file, what to put on the paper, when to do it, etc. All of this is done with the end in mind — successful expatriation.

    I would guess though that you’d have to file the FBARs. But you need to talk to someone about this and get guidance.


  4. I still have to file the FBARs for the previous 5 years, I gather? Can I just file the tax returns and renounce without the FBARs? Can they come after me for not filing FBARs after I have renounced? These damn FBARs are my problem, not the tax returns.

  5. Lorraine,

    You won’t successfully get out of the USA until you have 5 years of income tax returns on file with the Service. Even if there is no tax due, tax returns will be necessary.

    At the moment the FBAR penalties are not part of the expatriation deal. So file your tax returns and get out of town. Fast. 🙂

  6. If I haven’t filed my income tax forms and FBARs in the past 5 years, I would have to report that I have not complied in Part iV(6). I would be then a covered expat. But my assets are such that I would not pay tax because I would be covered by the $626,000 exemption. I want to know if the IRS would still go after the years I hadn’t filed, or by becoming a covered expat and paying any expat tax if due absolves me of the years I hadn’t filed. Does it wipe the slate clean for the years I hadn’t filed? I mean is it worth taking the chance of filing old returns and Fbars (even when I owe nothing) because they can charge penalties and such, when instead I could become a covered expat on 8854 because I haven’t filed, figure my expat tax, which would be nil because I don’t have many assets, and walk away? Can they turn around after I became a covered expat and settled the expat tax and say “Where’s your 2008-2010 income tax forms?” for example?

  7. The question of community property has not been figured out yet by the IRS, I believe. Your idea is logical — you should only be treated as owning half of the asset. But I don’t know of anywhere that the IRS has discussed this point. With a bit of care you can solidify the question of asset ownership so it will be extremely clear to the IRS. I would suggest that you do this before becoming an expatriate.

    I’m not sure I understand the other questions that you asked. Sorry.

  8. If you have community of property does that mean I would have to list my husband’s (a NRA) personal retirement plans, bank accounts in his name only etc. for the expat tax, and if I did would I divide the values by 2? And, I want to be sure, filing as a covered expat because you didn’t file returns would supersede them coming after you for the years you didn’t file? Is doing the covered expat, if you have less than $626,000 and didn’t file the way to cut all ties with the IRS?

  9. Thanks a heap for this explanation. I`ve searched high and low on the IRS cite and elsewhere and could not find an answer to this question. And the local accountants in my rural area haven`t heard of 8854.

  10. Whether the IRS likes it or not – under current rules you’re allowed to “gift” $5M away to anyone.

    Wait for the legal challenges abroad when FATCA starts biting in 2013 – a new reality will set in for the IRS “this isn’t going to be as easy as Congress thinks.”

  11. “The primary risk that I can see is an attack by the IRS claiming this is a phony arrangement…”

    Well, the exit tax is a phony tax. Lex talionis.

  12. @Wada,

    This would probably work. The primary risk that I can see is an attack by the IRS claiming this is a phony arrangement. “It’s all bull—” is a reasonable attack when the transfer back to the expatriate occurs within a short time. Then the arrangement looks like parking assets with a nominee.

    But leaving the assets with the parents until death and receiving them back via inheritance would be likely to stand. Enough time elapses, wills can be changed, etc. These items introduce real risks that the expatriate might not get the property back. Thus the fact pattern would have a good shot at succeeding.

  13. Phil

    That was an extremely helpful and very detailed post. This is the sort of thing that other lawyers charge mega-billable hours for. I wonder what happens for property located abroad if the IRS “respect local property law” in say the jurisdiction of upper Avalon.

    Another strategy similar to the one that Don mentioned occurs to me. Gift property to an aging parent who is a non-resident alien, until it gets below the magical mark. Then expat and wait till they pass away (rather morbid, I agree) and leave it to you, assuming their country of residence does not have an estate tax or gift tax (when you gifted them sum). And assuming they don’t go senile till then or marry a young gigolo/bimbette 🙂

  14. @Don,

    What you suggest would be absolutely possible. He said, whistling and looking at the sky. 🙂

    Seriously, though. This is the first line of defense. A U.S. citizen can give away assets tax-free up to $5 million. Current rules, that is. If the recipient of that largesse is a non-U.S. spouse, it doesn’t matter. File the gift tax return. Do the paperwork.

    Ideally that will bring the U.S. citizen’s net worth below the magic $2,000,000 mark. At that point it is an easy expatriation.

    This strategy has the advantage of being legitimate, fully-disclosed, and correct.


  15. Just a thought – if a couple were two different citizenships (one US, the other say European), couldn’t the US citizen transfer assests into his non-US spouse’s name, fill in the 8854 with a net worth under $2M, renounce, and afterwards put their financial house back the way it was?

    Apart from pensions etc, couples are allowed to transfer assets to each other in many countries without a tax penalty.

    I know it can get complicated, but in theory it could be possible.

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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.