Why the FBAR (late filed or never filed) is not a requirement for the Certification Requirement of Section 877(a)(2)(C) – (5 Years of Tax Compliance)
Myths abound about how and when the certification requirements must be satisfied under Section 877(a)(2)(C), in order to avoid “covered expatriate” status. See a previous post, Why “covered expat” (“covered expatriate”) status matters, even if you have no assets! The “Forever Taint”!
One common notion, is that if a USC or long-term LPR has not filed foreign bank account reports (“FBARs”) pursuant to Title 31, they will not be able to make the certification as required by the statute – Section 877(a)(2)(C), which causes an individual to be a “covered expatriate” if:
- (C) such individual fails to certify under penalty of perjury that he has met the requirements of this title for the 5 preceding taxable years or fails to submit such evidence of such compliance as the Secretary may require.
Importantly, the statutory reference to “this title” is a reference only to “Title 26, Internal Revenue Code,” i.e. the federal tax laws. It is not a reference to any other “Title” of the federal laws. The federal statutory laws are organized by “Titles“; e.g., Title 8 is “Aliens and Nationality” (i.e., immigration law) and Title 7 is “Agriculture”, etc.
Specifically, Section 877(a)(2)(C) of the tax law, does not also require the individual to be able to certify his or her compliance with any other title for the preceding 5 years, such as Title 31 Money and Finance: Treasury.
Title 31 is the law that creates the FBAR filing requirements and is known as the “Money and Finance: Treasury.”
Accordingly, someone who has not filed FBARs, i.e., and not complied with Title 31 or Title 7 (e.g., regarding “Agriculture”) will not be barred from being able to comply with the tax requirements of Section 877(a)(2)(C), if they have complied with “Title 26, Internal Revenue Code, i.e. the federal tax laws. See, Nuances of FBAR – Foreign Bank Account Report Filings – for USCs and LPRs living outside the U.S.
To put this into a concrete example, assume a USC living in Canada has filed complete and accurate U.S. federal income tax returns for the years 2008 through 2013; but never filed any FBARs regarding the Canadian corporate accounts over which the individual has had signature authority. Maybe this individual’s Canadian accounts also exceeded US$10,000 in at some point through the year? Nevertheless, if he or she renounces their U.S. citizenship in 2014, they should nevertheless, be able to avoid “covered expatriate” status by complying with Section 877(a)(2)(C), even though they failed to comply with Title 31 requirements.
As always, see Limitations.