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  1. @Michael,

    Yes, maybe settling up on the tax bill for the 10-year period may be the best solution — with late payment penalties and interest of course.

    Ultimately that’s what the IRS wants — revenue. If, like other situations, there are paperwork failures, you deal with the paperwork and settle up on the tax liability.

  2. Phil, I do enjoy a nice metaphor as much as the next fellow!

    I assume your concern about 877 applies solely to persons who expatriated (reqlinquished citizenship) after the effective date of that provision. As for those who relinquished citizenship afterwards, I would think its enough that they may owe tax for the 10-year period thereafter, if they happened to have earned income of the kind described in 877. Shouldn’t that be sufficient to address the Government’s concerns?

  3. @Michael,

    Perhaps I should stop using phrases like “human sacrifice.” 🙂 Metaphors are two-edged swords. Oops.

    I agree with the basic idea that if a CLN says the termination of citizenship is pre-2004, then that is what it should be.

    The logical tax solution for that would be to throw the taxpayer into the Section 877 expatriation regime, and require the taxpayer to start the annual Form 8854 stuff that is required for 10 years under Section 877. Maybe you start the 10 year time period under Section 877 from the date that the IRS is notified.

  4. JeffDTom:

    I have a better idea. Perhaps someone (such as an appropriate committee of the American Bar Association) should ask the IRS to issue a ruling confirming that, where a person relinquished citizenship (under whatever the rules were, which I don’t pretend to understand) many years ago, but never received a CLN, and a CLN is ultimately issued (e.g., in 2012) with a pre-2004 effective date, the loss of citizenship for tax purposes is effective as of the pre-2004 date shown on the CLN. Notwithtanding Phil and others throwing around phrases like “crash-test dummy,” and “human sacrifice,” I’m not aware of any reason to believe the IRS disagrees with this position. Indeed, as noted above, I spoke with someone at the IRS (informally) who works in the area and she agreed.

  5. Once again, are these sort of issues compatible with class-action (not in tax court I guess but in a district court– charging systematic discrimination for example). One plantiff might be a “human sacrifice” but hundreds or thousands? At the very least, such an action could result in restraining the IRS and perhaps result in a change of legislation and/or IRS policy to avoid a judgement. That is, if we believe that the courts are still impartial.

  6. I think this issue is greatly overblown.

    2004 is when the idea was first introduced that a person who had otherwise relinquished US citizenship could nevertheless continue to be treated as a US citizen for tax purposes until some “notice event” (my own, inarticulate term) took place. This new rule was set forth in former Code section 7701(n) and it is 100% clear that it was purely prospective in application. By it’s terms, the new rule was only effective for persons relinquishing citizenship post-enactment. Thus, for example, as of 12/31/07 it was perfectly clear that a person who properly relinquished US citizenship in the 1970s, 1980s, 1990s, for example, was (quite properly) “grandfathered” and not affected by section 7701(n) in any way.

    In 2008, section 7701(n) was removed and the rule providing for a person relinquishing citizenship to continue to be treated as a US citizen for tax purposes, until some “notice event” occurred, was incorporated into then-new section 877A. While section 877A is worded very poorly in terms of its effective date, I (and several other specialists in the area with whom I discussed the issue) find it inconceivable that the provision was intended to take people who relinquished US citizenship many years prior to 2004, and who were quite intentionally grandfathered by 7701(n), and convert them many years after the fact into US citizens once again.

    Even for the US, that would be outlandish (and this is said fully in the context of the many other notable events of the last several years). I note in particular that, if such an outlandish thing truly had been intended, there would have been some discussion of it in the legislative history — and yet there is none.

    And, for what it’s worth, I spoke (informally) several weeks ago with someone at the IRS who is knowledgeable in the “expatriation” area, and she agreed with the above analysis.
    While I acknowledge that the statute is drafted quite poorly, I think that upon reasoned analysis this is not a real issue.

    If Phil or anyone else believes it is a real issue, I would be grateful if he or she could comment on the analysis above.

  7. Tim, you’re right. This is a mess. The possibility of a mismatch between immigration law definitions of when you lost citizenship (e.g., by an expatriating act in 1998) and the tax law definitions of when you lost citizenship (not until the State Department issues a piece of paper) exists and is troublesome.

    From the perspective of Congress, however, it doesn’t matter. This is a troublesome problem to a handful of people, none of whom will cast a vote in the next election. So I don’t expect it to be solved by Congress. This will be resolved in Court.

    I need someone who is willing to be the human sacrifice (aka Plaintiff) in this litigation against the United States of America. 🙂 Any volunteers?

  8. What makes Situation 3 most interesting is the following lines:

    Furthermore, these individuals did not intend to relinquish their United States citizenship when they performed these acts. Under current law the acts these individuals performed are no longer considered expatriating, absent proof of intent to relinquish United States citizenship.

    However, what about someone who did “intend” to relinquish their citizenship but has only notified the State Department in the present day. The State Department by issuing a back dated CLN is clearly recognizing the expatriating act as valid under current law however, it is still unclear what the tax law effects of that are and this revenue ruling doesn’t directly answer that(nor would be able to take into account any of the IRC changes in 1996, 2004, and 2008).

  9. This is for commenter Tim, who asked whether this Revenue Ruling is still in good standing. According to Shepards, today, yes it is.

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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.