Tax-Expatriation

Certification Requirement of Section 877(a)(2)(C) – (5 Years of Tax Compliance) and Important Timing Considerations per the Statute

Posted on June 5, 2014 Updated on June 5, 2014

People who cite to IRS forms, should have an appreciation that neither the form or its conditions may have the “force of law.”   This is particularly important, when the statute itself, regarding the Certification Requirement of Section 877(a)(2)(C) does not specific whether the certification has to be made “prior to” (or after) the date of loss of nationality?  See the relevant provision of the statute below – 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.

Consider the language of the instructions of IRS Form 8854, however, which expressly states that the certification must reflect you have ” . . . complied with all of your federal tax obligations for the 5 tax years preceding the date of your expatriation.”

Does this mean the IRS requires the compliance to have been satisfied prior to the expatriation/renunciation date?  That is what the instructions say.

See the bottom of page 2 of the Form 8854 instructions –

“If you expatriated after June 16, 2008, the expatriation rules apply to you if any of the following statements apply.

1. Your average annual net income tax liability for the 5 tax years ending before the date of your expatriation is more than the amount listed next . . .
2. Your net worth is $2 million or more on the date of your expatriation.
3. You fail to certify on Form 8854 that you have complied with all of your federal tax obligations for the 5 tax years preceding the date of your expatriation.”

In this case, the instructions to the form, say the former USC or LPR must ” . . . have complied with all of your federal tax obligations preceding the date of your expatriation. . . ”

If this statement were true, a taxpayer could not satisfy the rule by attempting to comply with all federal tax obligations after they have renounced their U.S. citizenship?

In other words, if such were true, attempting to comply with all provisions of the U.S. federal tax law for 5 years and then filing 8854, all after taking the oath of renunciation, would prohibit someone from avoiding “covered expatriate” status?

Importantly, the Treasury/IRS cannot create law by merely publishing a substantive rule in an IRS Form.  Indeed, there are no regulations to date; that have been issued by the Treasury; only a few notices.  See prior post, Does IRS Notice 2009-85 regarding expatriation have the “force of law”?

Of course, this does not mean the IRS will not challenge any former USC as not complying with Certification Requirement of Section 877(a)(2)(C) by not also complying with the condition set forth in the IRS own instructions?

This is an example of an important detail that any former USC will want to carefully consider prior to rushing off to take the oath of renunciation.

As always, see Limitations.