- 1 How to Expatriate
- 2 How to Expatriate from the U.S.
- 3 Planning for Expatriation (Step 1)
- 4 Do You already have Dual-Citizenship and Second Passport (Step 2)
- 5 The Expatriating Act (Step 3)
- 6 What is IRS Form 8854 (Step 4)
- 7 Preparing a Dual Status Tax Return (Step 5)
- 8 International Tax Law Firm: Golding & Golding
How to Expatriate
How to Expatriate: For some individuals, when they want to permanently give up their U.S. status, there are certain protocols and procedures they must file. Otherwise, the U.S. taxpayer may remain a U.S. Person for tax purposes — which defeats the purpose of giving up U.S. permanent residence or citizenship. With the United States in political turmoil, many Americans are considering giving up their U.S. person status. For visa holders (such as H-1B, L-1, or B1/B2) or a nonresident who meets the substantial presence test, the process is not all too complex. All they really have to do to avoid U.S. person status is not meet the substantial presence test going forward — there is not much formality to it other than possibly having to file for an IRS sailing permit. If the person is a legal permanent resident who qualifies as a long-term resident or a U.S. citizen, then they have to formally expatriate in order to give up their U.S. person status. The process of formally relinquishing a green card or renouncing U.S. citizenship is referred to as expatriation — and the process has many steps to it, including making formal representations to the Internal Revenue Service, the Department of State, and/or United States Citizenship and Immigration Services. We will review how to expatriate from the U.S.
How to Expatriate from the U.S.
Here are 5 steps on how to expatriate from the United States:
Planning for Expatriation (Step 1)
We cannot stress enough how important it is to make sure you properly ‘exit tax plan’ to expatriate before you actually expatriate. Once you complete the expatriating act, you cannot go back and unwind it — which is why preparation before expatriation is crucial. If you already qualify as a long-term resident — or you are a U.S. citizen – then it is crucial to evaluate your assets, income, and overall tax compliance in accordance with the covered expatriate rules. The goal is to avoid the covered expatriate status. If having covered expatriate status is unavoidable, then the next best strategy is to avoid the exit tax.
Do You already have Dual-Citizenship and Second Passport (Step 2)
When a person is a long-term resident, dual citizenship is not typically a major concern since the person is only a resident of the United States — and presumably already has citizenship in another country. When a person is a U.S. citizen, it is important they have citizenship in another country as well — in addition to an active passport — so they can use it to travel after the expatriation is complete. If a U.S. citizen seeks to renounce their citizenship without proving that they have citizenship in another country, they are referred to as “stateless” and may not be approved for expatriation.
The Expatriating Act (Step 3)
The expatriating act and the level of annoyance with completing the paperwork will vary depending on whether a person is a long-term resident or U.S. citizen.
Legal Permanent Residents
When a person is a legal permanent resident, they will usually just file a form I-407 as the expatriating act. Since 2019, foreign consulates will no longer accept walk-ins for a Form I-407 filing, but that may not be the case in all countries — depending on which country you are in (and how much of a smooth-talker you are). Otherwise, the permanent resident mails the form I-407 to initiate the expatriation process. Presuming that the I-407 is accepted and processed, the date of filing the form will be considered the expatriation date.
On the other end of the spectrum, when a person is a U.S. citizen there is (understandably) a much more in-depth process to expatriation. Generally, the U.S. citizen will travel to a foreign consulate and submit Department of State forms 4079-4083. The U.S. citizen will also undergo an exit interview — and most consulates require that the U.S. citizen to return back to the consulate after the initial appearance for the second interview/meeting, either as a cooling-off period and/or an opportunity for the consulate officer to review the paperwork. Different consulates handle this process “differently” depending on which foreign country the expatriation takes place. At the end of the process, once the expatriate has been approved for expatriation, the citizen will receive a stamped form DS-4083, which is referred to as a certificate of loss of nationality.
What is IRS Form 8854 (Step 4)
Form 8854 is the expatriation statement. It is a detailed summary of the expatriate’s assets and liabilities. We have a separate article detailing the ins and outs of IRS Form 8854.
Preparing a Dual Status Tax Return (Step 5)
In the final year of the filing, the expatriate will file a dual-status return. Example: Jeffrey expatriates on 8/1/2020. Up until the expatriation date, Jeffrey will file a form 1040 (reporting worldwide income). For the remainder of the year (post-8/1/2020), Jeffrey files a form 1040NR as a non-resident.
International Tax Law Firm: Golding & Golding
Golding & Golding specializes exclusively in international tax, and specifically how to expatriate from the United States.
Contact our firm today for assistance with getting compliant.