Expatriation form 8854
 

Its been a real journey, from Blighty to the Big Apple and back again. The tax and immigration help I received from the contributors to this forum, for the time I was in the US, was immensely instrumental in keeping me from going mad. I've been back in the UK for almost 3 years now and looking for help again, on what I hope will be the last leg of my US "adventure".

I filed form I-407, formerly abandoning my LPR in February and am now starting to look at filing form 8854 next year together with the final 1040 and 1040NR. I know I'll never be fully rid of the "shadow" that is the US tax system, but its nice to know that for the next few years (or ten) I'll be happy not have to think about US tax.

I'd be grateful for any help comments on completing form 8854. I'm fairly sure I'm not going to be a covered expatriate but I am struggling with some items in Schedule A on the Balance Sheet and Income Statement for Part V. I think I've found most of the online posts relating to the technicalities of form 8854 and articles related to calculating "Fair Market Value". However, determining the "US Adjusted Basis" for items such as "Cash/Bank Deposits", "Pensions from services performed in the United States" and "Pensions from services performed outside the United States" are not at all clear.

Too add to my confusion, Section 5E of the IRS Notice 2009-85 (Guidance for Expatriates Under Section 877A) states that the expatriation tax rules "do not apply to any deferred compensation item to the extent attributable to services performed outside the United States while the covered expatriate was not a citizen or resident of the United States."
As all my UK pensions were attributable to services performed outside the US before becoming a LPR so I'm not sure how to record that on form 8854?

Many thanks,

ZS.

Re: Expatriation form 8854
 

They're trying to work out your liability for notional CGT, and thus whether you qualify for the exemption from expatriation tax. Adjusted basis means the cost of it after expenses, so you subtract the cost from the FMV to achieve a capital gain. Effectively it's a deemed disposition, i.e. if you sold it today and bought it again immediately, what would the capital gain on that asset be?

The answer they're looking for is whether that total is over $699,000, which is the exemption limit.

Your UK pensions prior to becoming an LPR are exempt, so you don't put them anywhere on 8854. A SIPP for example does not meet the definition of a "specified tax deferred account". It's completely irrelevant to the deemed disposition calculation so they're not interested in that.

The adjusted basis for cash deposits would basically be from the exchange rate.

Re: Expatriation form 8854
 

Thanks very much for the reply Steve. Thats made things much clearer.
Just one followup Q. Even though the UK pensions are exempt from the CGT calculation (so effectively 100% adjusted basis) I assume their value must be included in the "Net Worth" calculation?

Thanks again.

ZS.

Re: Expatriation form 8854
 

No, they aren't included under the definition of asset, so they aren't included in net worth. You've already quoted the IRS guidance there.

Re: Expatriation form 8854
 

Awesome! Thanks again.

Re: Expatriation form 8854
 

Wow, that's interesting...I have been agonizing over my very small pension ( 7 years contributions), which I cannot access for another 12 years. This seems to indicate it plays no part on the expatriation form at all?

I will have 2 US based sources of income - Roth IRA's and the one thing that might have potential to push amounts up is a survivor annuity currently being processed by OPM. I have it in my head (correctly or incorrectly) they will be looking to see how much I am likely to receive over my lifetime, and that will be required to be listed to my net worth?

Re: Expatriation form 8854
 

The purpose of the exercise is to determine your liablity for notional capital gains tax from a deemed disposition on the date of expatriation - if whatever it is isn't subject to CGT then there's no point to putting it on the form, that's what they're getting at. The types of deferred tax accounts that could be subject to CGT are listed in page 6 of the instructions. Those have to be listed.

Frankly for 99% of people the likelihood you're going to hit the capital gains limit to be subject to the tax is zero, so it hardly matters. Had this question from a relative of mine, I did laugh for awhile, having some knowledge of the contents of his SIPP. :lol:

Re: Expatriation form 8854
 

After another look at the form, and whilst I get what you are saying about CGT, why would they ask you to declare bank account, cash etc? Surely my balance in my bank account wouldn't be subject to CGT?