What is an Annual Expatriation Statement, Who Must File?

What is an Annual Expatriation Statement, Who Must File?

The IRS Annual Expatriation Statement 

Expatriation is the process of formally renouncing U.S. Citizenship or relinquishing Long-Term Lawful Permanent Resident status. And, when the expatriation process is complete, the taxpayer is no longer considered a US person for tax purposes. Typically, this means that taxpayers no longer have to file a Form 1040 tax return each year. Rather, taxpayers only must file a form 1040-NR to report their US-sourced income. But, in situations in which the taxpayer has certain investments in the United States, and primarily items such as eligible deferred compensation, they may have a continuing filing requirement to file Form 8854 in subsequent years after expatriation. Let’s walk through the basics about what the annual expatriation is and who must file it each year even after they formally expatriate.

Initial Expatriation Statement

The initial statement is required by Taxpayers who are either U.S. Citizens or Long-Term Lawful Permanent Residents. The form is filed as part of the final tax return filed by the Taxpayer. For Example, if a Long-Term Lawful Permanent Resident was to expatriate in 2023, then in 2024 when the Taxpayer files their Form 1040/1040-NR, they will include Form 8854. This is referred to as the Initial Expatriation Statement.

Annual Expatriation Statement

Some Taxpayers who have expatriated (and are considered ‘Covered’) may have an ongoing filing requirement even after they have expatriated. It is the same form and is referred to as the ‘Annual Expatriation Statement.’

As provided by the IRS:

You must file Part III if you:

      1. Deferred the payment of tax on any property on a Form 8854 filed in a previous year,

      2. Reported an eligible deferred compensation item on a Form 8854 filed in a previous year, or 3. Reported an interest in a nongrantor trust on a Form 8854 filed in a previous year.

There are also some exceptions and exclusions to consider as well:

As provided by the IRS:

      • Don’t include any distribution from a trust if your interest in the trust was treated in an earlier year as a deferred compensation item or part of a specified tax deferred account.

      • Don’t check the “Yes” box if you elected on a previously filed Form 8854 to be treated as having received the value of your entire interest in the trust as of the day before your expatriation date.

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