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  1. I agree completely. There are a number of instances in the cross-border area where, inexplicably, the IRS seems to feel entirely at liberty to make up rules as if they were in the Code. Also, I’m not convinced that under Notice 2009-85 a timely Form 8854 is needed to avoid covered expat status. The Notice obviously says the IRS wants Form 8854 to be filed by the due date of the return for the year of expatriation, and I wouldn’t encourage anyone to file it late, but I do not see any statement in the Notice expressly providing that the consequence of a late filing is that the certification is disregarded and the taxpayer therefore becomes a CE. Am I missing it?

  2. Hi Roy,

    I suppose on a practical level your last point rules the day.

    On an academic level I don’t like seeing the IRS legislate without any statutory basis, especially when the consequences are as far-reaching as in this case.

  3. Brennan,

    You raise a good point: Notice 2009-85 requires timely filing of the 8854 to avoid covered expatriate status… but is the timely-filing requirement actually in the statute? The answer is “no, it isn’t.”

    877(a)(2)(A) provides that the tax-paid test is determined “before the loss of US citizenship..”

    877(a)(2)(B) provides that the net worth test is determined “as of such date” the individual’s US citizenship is lost

    877(a)(2)(C) requires the certification of tax compliance be made… but there is NO TESTING DATE!

    6039G(c) imposes a FTF penalty of $10,000 (subject to defense of reasonable cause) but 877(a)(2)(C) testing date isn’t tied to 6039G.

    Conclusion: untimely filed 8854 shouldn’t trigger covered expatriate status; and if the failure to file was due to reasonable cause and not willful neglect then the $10,000 FTF penalty doesn’t apply.

    HOWEVER, Notice 2009-85 is contrary to this conclusion, and woe to those who disregard IRS’s published positions.

  4. Great topic. But can you draw an even straighter arrow from “late-filed 8854” to “covered expatriate”, without resorting to the IRS notice 2009-85 which is just the IRS’ view? Even if the taxpayer files the 8854 late, they can still truthfully make the required certification of compliance required (as this statement relates to tax years prior to the expatriation year). Is the reasoning that the IRS may refuse to accept the form 8854 if filed late? In which case, the certification has not been (officially) made. The question is what is the effect of a late-filed form, generally? If I file my 1040 late, the IRS will generally accept it, but may charge me penalties/interest. It doesn’t mean they can invalidate my itemized deductions on the return, for example. If the IRS accepts and processes a late-filed 8854, I don’t see how the certification test has been failed.

  5. Hi Roy, yes you could use the streamlined procedures to fix prior year problems and we have done that many times for our expatriation clients. However, it is a hard sell to people who have no money for professional fees, have no intention of returning to the USA, and (frankly) have a fair degree of irritation (at ​*BEST*​) for the U.S. tax system. For them, covered expatriate status doesn’t matter, and they want to be finished with the USA and its paperwork.

  6. Phil,

    Have you considered whether the streamlined filing procedure could be used to fix the non-filed 8854? I asked Chief Counsel’s office this question the other day and wasn’t given a clear answer. Provided the individual otherwise qualifies to participate in either SFO or SFD I think it could fix the situation.


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