Penalties

What are the consequences of becoming a “covered expatriate” for failing to comply with Section 877(a)(2)(C)?

Posted on Updated on

Many lay pIRS Form 8854ersons are stumped as they try to understand the tax consequences of Sections 877 and 877A.  The language in the drafting of the statutes is not so clear.  Be careful to understate the meaning and how the IRS interprets the law.

One of the greatest risks for anyone who wants to self-diagnose their path towards becoming a former U.S. citizen, is Section 877(a)(2)(C).  To be blunt, anyone who renounces their citizenship at the Embassy or Consulate will find that process relatively easy.  However, no one at the U.S. Department of State will provide tax advice or try to interpret the meaning of Section 877(a)(2)(C).  Indeed, the Foreign Affairs Manual used to read to the person taking the oath, simply provides the standard overview language of “special tax consequences” arising form the renunciation.

Even the most economically modest individual, with little assets or income, can fall into this trap for the unwary – Section 877(a)(2)(C).  The statute is spelled out below –

  • This section shall apply to any individual if—
  • (A) the average annual net income tax . . . is greater than $124,000,
  • (B) the net worth of the individual as of such date is $2,000,000 or more, or
  • (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.
The provision is clear that anyone who does not satisfy it, will be a “covered expatriate” and hence subject to the taxation and reporting requirements under Sections 877 and 877A and 2801.
This is worth understanding well, before rushing off to take the oath at the U.S. Embassy or the U.S. Consulate.

This is a good article on NPR – Why More Americans Are Renouncing U.S. Citizenship

Posted on Updated on

This is put both in the Media section and elevated to a specific post – as it is a thoughtful article.

This radio article notes that Americans who live overseas are renouncing their U.S. citizenship in record numbers.  The renunciation has been a sudden spike from a domino affect from the following:
1.  UBS aided tax evasion scheme that broke in 2009;
2.  Congressmen believed that tens of billions could be collected;
3.  FATCA was adopted in 2010 – to identify all American account holders throughout the world;
4.  Foreign banks cancelled accounts throughout Europe; and
5.  The U.S. is unusual in that it taxes its U.S. citizens wherever they are in the world.

请点击这里查看本帖子的中文版本。 Please click here to view the above in Chinese.