Letting go of one’s citizenship and abandoning a long term green card comes with new and important tax responsibilities. One of the most important obligations during this process is the IRS Form 8854, Initial and Annual Expatriation Statement.
Having autofiling Form 8854 comes with grave consequences. Expose to the US exit tax, classified as a covered expatriate, and long-term repercussions with financial and legal matters. Conducting expatriation is a risk as well as compliance options which is important to understand especially in the case where one has already renounced without filing.
What is IRS Form 8854:
Form 8854 covers two important features of expatriation:
- Tax Compliance Affirmation: Signing any form for the past five years includes an absence of any tax dues.
- Covered expatriate definition: The IRS will consider you to be a covered expatriate if any three of the following conditions hold:
- Your net worth is equal to or more than 2 million dollars,
- Your average yearly income tax liability in the five years prior to the expatriation is above a certain amount (which is updated yearly for inflation), or
- You don’t certify that you comply with the tax obligation.
Covered expatriates are deemed to have sold certain assets and categorically subjected to exit tax. This gives rise to significant tax burdens on account of unrealised assets and tax liabilities.
Why Form 8854 Matters
IRS Form 8854 has 2 primary purposes:
- Satisfy Tax Compliance: You must certify that all tax obligations have been fulfilled for 5 years prior to your expatriation.
- Status of Expatriate: The IRS utilizes the form to determine the status of and whether they are a covered expatriate and subject to the expatriation tax as set forth in the Internal Revenue Code Section 877A .
With no compliance to this, the form is automatically treated as a covered expatriate. The IRS has no record of compliance because the form is missing.
The requirement to file IRS Form 8854
- Citizens of the U.S. who renounce their citizenship, and
- Long-term residents who give up their U.S. residency (typically described as holding a green card for 8 out of the past 15 years or more).
It is important to understand that Form 8854 has to be submitted regardless of whether you are subject to any form of exit tax, even those who are below the net worth and income thresholds have to file it.
The IRS offers the Form 8854 and the complete set of guidelines to fill it out directly on their website.
Consequences of Not Filing Form 8854
There are many consequences to failing to file Form 8854. Some of these are listed below:
- Loss of benefits: In many situations, failing to file the requisite forms means you cannot claim the benefit of treaties you may have with the country you are living in.
- Covered expatriate status: Automatic status under the law, so now you are classified as a covered expatriate, regardless of how else you would qualify.
- Penalties: There are certain penalties that the IRS would exercise for failing to file the relevant documents.
The IRS may still continue to see you as a U.S. taxpayer. This means you have to satisfy the additional reporting and filing requirements, which have been documented.
Impact on Future Financial Life
Non-compliance with IRS imposed penalties to failing to file IRS Form 8854 have additional ramifications that touch on various elements of life, such as finances and personal life:
- Exposed individuals may be subject to U.S. taxes, which are significant in light of descendants, wives, and husbands of non compliant expatriates.
- Depositing or keeping cash remotely with criminals is tied to financial institutions and foreign custodians, which may be under obligation to perform FATCA reporting and are therefore unwilling to open accounts for clients with unresolved tax filings for the US.
- Immigrating to the US may be difficult as the unresolved tax issues may remain problematic when applying for a visa or while reentering the US.
How to Correct a Missed Filing
If you failed to file IRS Form 8854, corrective action is possible:
- Late filing: The IRS generally accepts late filings, but they must be accurate and complete.
- Streamlined Filing Compliance Procedures: If you qualify, this program can help you catch up on missed filings with reduced penalties.
- Amended returns: In some cases, you may need to file or amend prior-year returns in addition to submitting IRS Form 8854.
Correcting a missed filing can be complex. Professional guidance is recommended to minimize risks and ensure the process is handled properly..
Why Dimov Tax
Dimov Tax is a tax clinic that aids customers, especially international clients, during the entire process of expatriation which includes, for instance;
- The filing of IRS Form 8854 that the patients with tax geometry need completed, relief filings and compliance reviews.
- Tactical steps that are explained include Exit tax that aims to limit excessive tax payments.
- Territory bounded with foreign tax defenders and financial strategists to comprise an estate.
Rely on our experienced team to give you all the support you need so you don’t make any mistakes, and exit the US tax system smoothly and legally. Contact us today.
FAQs
What happens if I don’t file Form 8854?
You’re treated as a covered expatriate by default, may owe exit tax, lose treaty benefits, and can be viewed as still subject to U.S. filing/reporting.
Can I file Form 8854 late?
Yes—late filings are generally accepted if complete and accurate, though penalties/interest may apply and prior returns may need amending.
Does not filing IRS Form 8854 make me a covered expatriate?
Yes—failure to certify five-year compliance on Form 8854 automatically triggers covered expatriate status.
Is there a penalty for not filing Form 8854?
Yes—informational return penalties and potential exit-tax exposure can apply, and treaty benefits may be unavailable until you comply.
How do I fix a missed Form 8854 filing?
File IRS Form 8854 ASAP, consider Streamlined Filing Compliance Procedures, and submit/ amend any required returns with professional help.