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Came home and renounced US citizenship - "Final" tax return sanity check.

Came home and renounced US citizenship - "Final" tax return sanity check.

Old Jan 20th 2016, 3:43 pm
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Default Came home and renounced US citizenship - "Final" tax return sanity check.

I have read at least 3 internet's worth of information on this subject but I just want a sanity check!

I was a US citizen for 6 years, living in Texas for 15 years total.
I returned home to the UK permanently last April.
I then renounced my US citizenship just 16 days later at the Embassy and then began working in the UK in May.
(Trust me, none of this was as easy - or even as easy a decision - as it sounds!).

However I'm now looking at my final tax return for the IRS - and it will be "final" since I'm nowhere near being a covered expatriate.

Since I clearly meet the substantial presence test for the US I understand that I will file the standard 1040 with my US income detailed up to the date I expatriated and a 1040-NR attached as the "statement" of my non-US income after that point.
Of course I've also got to file the usual FATCA, FBAR and the 8855 exit form.
Since I am filing as a "Resident Alien" I can claim all the usual deductions etc that I did when I was living in the US.
Correct? What am I missing?

I have seen reference to simply not disclosing the UK income at all on the basis that HMRC has no duty or inclination to disclose such income to the IRS or any other tax authority but since my income in the UK is significantly less than it was in the USA and the tax rates are generally higher I can't see that any tax would be due in the USA anyway.

Any thoughts, knowledge or experience would be much appreciated!

Thanks.
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Old Jan 20th 2016, 7:38 pm
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Default Re: Came home and renounced US citizenship - "Final" tax return sanity check.

Originally Posted by TexasPenguin
I was a US citizen for 6 years, living in Texas for 15 years total. I returned home to the UK permanently last April.
I then renounced my US citizenship just 16 days later at the Embassy and then began working in the UK in May.
(Trust me, none of this was as easy - or even as easy a decision - as it sounds!).
Congratulations. There are a few of us who do fully appreciate what you went through.

Originally Posted by TexasPenguin
However I'm now looking at my final tax return for the IRS - and it will be "final" since I'm nowhere near being a covered expatriate.

Since I clearly meet the substantial presence test for the US I understand that I will file the standard 1040 with my US income detailed up to the date I expatriated and a 1040-NR attached as the "statement" of my non-US income after that point.
I'm not sure what the substantial presence test has to do with anything. You were a US citizen, and therefore obligated to file a US return for the partial last year even if you left on January 3rd.

It's been questioned whether or not the 1040NR is really required, but it's a very grey area. My suggestion would be to file it anyway, what does it hurt. NOTE: if you have any US sourced income after expatriating, then the 1040NR may well be required.

Originally Posted by TexasPenguin
Of course I've also got to file the usual FATCA, FBAR and the 8855 exit form. Since I am filing as a "Resident Alien" I can claim all the usual deductions etc that I did when I was living in the US.
Correct? What am I missing?
I do not understand. You will be filing 1040NR (Non-Resident). You are not a "Resident Alien" during any part of your final year in the US. You may claim all normal deductions up to your date of expatriation (1040), in some cases pro-rated, but not on the 1040NR for the period after your expatriation. The 1040NR only includes US sourced income. It sounds as though yours will be full of lines with "$0".

Originally Posted by TexasPenguin
I have seen reference to simply not disclosing the UK income at all on the basis that HMRC has no duty or inclination to disclose such income to the IRS or any other tax authority but since my income in the UK is significantly less than it was in the USA and the tax rates are generally higher I can't see that any tax would be due in the USA anyway.
Again, I'm not sure I follow your line of thought.

You file a 1040 with the IRS for income arising in the period up to your date of expatriation, and nothing for any income arising after that date. You will theoretically not have any US source income from employment (in the UK) after that date. You pay the US any tax due that arises on that 1040 return. You owe the UK no tax for any US source income arising during this US period.

For the UK, you start with HMRC on the day you first arrive in the UK. HMRC will not tax you on any US sourced income arising while you were present in the US. You declare all income that is required to be reported to HMRC for this UK period.

I assume you'll be declaring that you have filed a US tax return for the 5 years previous to the year of expatriation on the 8854, Exit Tax form.

Edit to add: You are aware you need to file 2 copies of 8854, one to the IRS in Philadelphia (I think), and one with the final 1040 return.

Last edited by theOAP; Jan 20th 2016 at 7:53 pm.
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Old Jan 21st 2016, 12:09 pm
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Default Re: Came home and renounced US citizenship - "Final" tax return sanity check.

Hmmm...
My understanding based on all the literature I have read is that the filing status is based on what I was on December 31st of last year - IE an "alien" and the decision of whether to file a RESIDENT Alien or NON_RESIDENT Alien is the count of how many days I was in the USA for last year and the two previous years.
Then, if this substantial presence test shows I was a resident alien on December 31st I would file a 1040 with a 1040NR as the "statement" of non-US earnings and if the test shows I was a non-resident alien I would file a 1040NR with a 1040 as the statement of US earnings.
I know the distinction between those two is subtle but it does affect the allowed filing status (as far as I can determine). For example as a resident alien I can file "married filing jointly", as a non-resident alien I cannot.

My doubt is whether to put my UK earnings on the 1040 and claim the tax treaty or whether I even need to bother about that. (In any case there shouldn't be any tax payable on the UK earnings).
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Old Jan 21st 2016, 12:37 pm
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Default Re: Came home and renounced US citizenship - "Final" tax return sanity check.

Originally Posted by TexasPenguin
Hmmm...
My understanding based on all the literature I have read is that the filing status is based on what I was on December 31st of last year - IE an "alien" and the decision of whether to file a RESIDENT Alien or NON_RESIDENT Alien is the count of how many days I was in the USA for last year and the two previous years.
You were a citizen up to last April and a NRA after you renounced. So wouldn't you file a 1040 up to April and a 1040-NR for the rest of the year? and do something similar for your state taxes too.
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Old Jan 21st 2016, 2:16 pm
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Default Re: Came home and renounced US citizenship - "Final" tax return sanity check.

Originally Posted by TexasPenguin
Hmmm...
My understanding based on all the literature I have read is that the filing status is based on what I was on December 31st of last year
Bear with me, but we need to start at the beginning.

The filing status referred to concerns Married Filing Joint, Married Filing Separate, Single, or HoH. It does not relate to the situation you're discussing. IRS instructions are for those with normal circumstances. Your circumstances are not normal.

At 31 December, you were an NRA (non-resident alien) and theoretically do not have to file any US tax return for 2015, but up until May (say15th) you were a US citizen, which means you must file a tax return. The IRS wants a tax return for the period 01 Jan to May (15) filed since during this period you were a US citizen. All normal IRS rules (what's declared, what's exempt or deductible) apply during this period.

Originally Posted by TexasPenguin
- IE an "alien" and the decision of whether to file a RESIDENT Alien or NON_RESIDENT Alien is the count of how many days I was in the USA for last year and the two previous years.
Then, if this substantial presence test shows I was a resident alien on December 31st I would file a 1040 with a 1040NR as the "statement" of non-US earnings and if the test shows I was a non-resident alien I would file a 1040NR with a 1040 as the statement of US earnings.
No, this is incorrect for your situation. Have a read of the instructions again. Your situation is:
01 Jan. to (15) May - US Citizen. Therefore a 1040 is required, as is required of all US citizens, for this period.
(15) May to 31 Dec. - you renounced US citizenship on (15) May. You are no longer a US Person. You are now an NRA (non-resident alien), therefore you file a 1040NR for this period, listing only US source income you received during this period.

Originally Posted by TexasPenguin
My doubt is whether to put my UK earnings on the 1040 and claim the tax treaty or whether I even need to bother about that. (In any case there shouldn't be any tax payable on the UK earnings).
If the UK earnings you're describing were from the period (15) May to 31 Dec. - you do not report them to the IRS. You were an NRA during this period. The IRS don't want to know about any earnings during this period except US source earnings.

I understand the confusion when trying to make heads or tails of IRS publications. It's not easy. I'll have a look and try to locate accurate, step-by-step instructions from trusted sources. If I find them, I'll post again later.

Last edited by theOAP; Jan 21st 2016 at 2:18 pm.
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Old Jan 21st 2016, 3:02 pm
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Default Re: Came home and renounced US citizenship - "Final" tax return sanity check.

OK, I think I understand where the confusion may have come from. Phil Hogden is a very trusted source of information. On his blog, he has a situation detailed that involves the substantial presence test when filing a final return for expatriation. BUT: This relates to someone who has zero (NO) US source income at any time during their last year as a USC. If this is your case and you had NO US source income from 01 Jan to (15)May, or at any other time during the year, then follow Phil's advice. But note he also outlines other methods of filing for the last year.

HodgenLaw PC - International Tax

If you do have US source income at any time during the last year (especially 01 Jan to (15) May) prior to renouncing, then you have a different situation. Have a read of the following, but disregard the sentence in the first paragraph relating to mark-to-market regime. That is for "covered expatriates" only, although for 8854 you do need to have the full value of all assets and property to confirm you are not a covered expatriate. That includes the full value of any pension, either foreign or domestic, etc.

http://photos.state.gov/libraries/un...patriation.pdf

I'll keep looking for more information IF you confirm that you did have US source income during the period 01 Jan to (15) May.
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Old Jan 21st 2016, 9:07 pm
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Default Re: Came home and renounced US citizenship - "Final" tax return sanity check.

Thanks theOAP.
Your detailed explanation finally made sense of it all, and bizarrely you are only one day out on your expatriate on date!
I did have US earnings up to leaving the US and none afterwards so the 1040 will as you say, only cover up to that date and the 1040NR will basically list $0 for the rest of the year.
I guess all the stuff I was reading suggested that the final return was way more complex than what is actually pretty logical.
Of course the 8854 to two places, FATCA, FBAR, IRA,'s, 401(k) etc all conspire to make it a little more complex but they are not too tough to comply with.
Thanks again for taking so much time to help. I sincerely hope that this thread will put help others in what can't be an uncommon position.
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Old Jan 21st 2016, 9:32 pm
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Default Re: Came home and renounced US citizenship - "Final" tax return sanity check.

Originally Posted by TexasPenguin
Thanks theOAP.
Your detailed explanation finally made sense of it all, and bizarrely you are only one day out on your expatriate on date!
I did have US earnings up to leaving the US and none afterwards so the 1040 will as you say, only cover up to that date and the 1040NR will basically list $0 for the rest of the year.
I guess all the stuff I was reading suggested that the final return was way more complex than what is actually pretty logical.
Of course the 8854 to two places, FATCA, FBAR, IRA,'s, 401(k) etc all conspire to make it a little more complex but they are not too tough to comply with.
Thanks again for taking so much time to help. I sincerely hope that this thread will put help others in what can't be an uncommon position.
You won't believe this, but I've been reading on this on and off all evening and I almost arrived at a point where I agreed with you. Almost. I do understand how you arrived at your conundrum. It is complex.

Most renouncing file the final year as "dual status", but most of those have lived outside the US for a number of years so the substantial presence doesn't enter into it.

I kept away from Publication 519 since IRS publications often scramble the brain, but I did find this (on page 34 0f pub. 519) on dual status filing:

Nonresident at end of year.
You must file Form 1040NR or Form 1040NR-EZ if you are a dual-status taxpayer who gives up residence in the United States during the year and who is not a U.S. resident on the last day of the tax year. ...... Attach a statement to your return to show the income for the part of the year you are a resident. You can use Form 1040 as the statement, but be sure to mark “Dual-Status Statement” across the top.


That agrees with Phil Hogden's final conclusion in his (somewhat rambling) blog.

Be sure you comply with any rules for filing a dual status return and good luck with the return. As long as the US 1040 portion is accurate, I can't see the IRS creating any problems with the 1040NR since you have renounced.

I'm impressed as to how quickly you were able to find a date to renounce in London. Did you pay the old fee of $450 or the new fee of $2,350?

Last edited by theOAP; Jan 21st 2016 at 9:39 pm.
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Old Jan 21st 2016, 10:06 pm
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Default Re: Came home and renounced US citizenship - "Final" tax return sanity check.

TexasPenguin - I have PM'd you.
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Old Jan 26th 2016, 7:01 pm
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Default Re: Came home and renounced US citizenship - "Final" tax return sanity check.

Originally Posted by theOAP
Did you pay the old fee of $450 or the new fee of $2,350?
Whoaaaaa, $2,350 !!!!!!
That looks like another reason not to get my USC and stick with the GC.
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Old Jan 26th 2016, 11:46 pm
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Default Re: Came home and renounced US citizenship - "Final" tax return sanity check.

Good for you in renouncing your citizenship. I will be doing the same but at the moment I am in the dark as to what steps to take to get it done and what requirements I have to meet. Can you tell me where you found your information about how to go about it?

Tell me, did you have to hand back your passport or were you allowed the delightful pleasure of ripping it up and putting it in the trash?

Last edited by windsong; Jan 26th 2016 at 11:58 pm.
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Old Jan 26th 2016, 11:48 pm
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Default Re: Came home and renounced US citizenship - "Final" tax return sanity check.

Originally Posted by Disenchanted
Whoaaaaa, $2,350 !!!!!!
That looks like another reason not to get my USC and stick with the GC.
IMHO, I would never get citizenship. If you decide to go to another country the IRS follows you around forever to claim their tax on income earned elsewhere. I had to become a citizen because of my job, although I was young and didn't understand the full implications of it. Had I known, I would have resigned from the job.
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Old Jan 27th 2016, 1:07 pm
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Default Re: Came home and renounced US citizenship - "Final" tax return sanity check.

I took US citizenship because of work and to protect my rights to SS as back in the 1990s there was a rumor about limiting SS for non-citizens...it went no where.

Living in the US being a citizen makes things easier and I like being able to vote, but if I return to the UK I will give serious thought to renouncing if the financial and tax issues become a burden.....oops, there go my chances of getting a Security Clearance.
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Old Jan 27th 2016, 7:01 pm
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Default Re: Came home and renounced US citizenship - "Final" tax return sanity check.

My reasons were exactly in line with Nun.
Whilst we were in the US having citizenship made perfect sense.
It simply made things easier and although not required for my job, it (literally) opened doors that would otherwise have been closed (I sold stuff to electronics companies, including the military).

I knew about the worldwide income thing but never really appreciated what a pain in the *** it would be on coming "home" (which we originally planned to do only in retirement).
Back int he UK and being denied opportunity to (for example) take advantage of the 25% tax free lump sum on pensions, open ISA's, the simple fact of needing to either hire a CPA to do my taxes or work it out myself each year and risk a brain implosion, not to mention the FATCA,FBAR nonsense, made me stump up the $2,350 EACH (my wife and me) to divorce Uncle Sam.
I reckon it won't take all that long to recoup that investment (in blood pressure medicine alone!).

As to where you can get the information, the US Embassy has all the information you need.
The steps involved are pretty simple and the procedure in London is simply routine.
Try:https://uk.usembassy.gov/u-s-citizen...s-citizenship/
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Old Jan 28th 2016, 10:51 am
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Default Re: Came home and renounced US citizenship - "Final" tax return sanity check.

I see those statistics of number of people who've renounced reported here and there. But I wonder if the numbers who are born US citizens vs. the number who naturalised is known, or reported?
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