Dual citizen: Become compliant, stay non-compliant, renounce?

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Dual citizen: Become compliant, stay non-compliant, renounce?


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Old 8th July 2019, 06:00 AM
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Default Dual citizen: Become compliant, stay non-compliant, renounce?

I believe that compared to others my situation is a relatively simple one. Apologies therefore if it has been discussed before. But I have searched the forum and many other resources online regarding this, and not found much information. Most of the advice I have found is about more complicated and niche cases.

I was born in the U.S. but my family moved to Australia when I was about five years old. Now I'm in my mid-twenties, a dual citizen, and have been working and earning money in Australia for a few years.

Recently I learned of my obligation to file tax returns, FBARs, etc. in the US. I've been doing a lot of research and from what I can tell, if I want to become compliant, the solution is relatively clear: I file tax returns and FBARs according to the Streamlined Filing Procedure.

Figuring out how to do this exactly has been a nightmare however (e.g. Superannuation), and I'm not so sure what the best course of action is for me. What I find particularly difficult is knowing which information and advice to trust.
  • Professional tax firms are more than happy to help, but charge extortionate fees. Furthermore their focus is obviously on becoming compliant and following everything the IRS wants.
  • Other sources however discuss that the decision to become compliant should not be taken lightly, as it puts you on the radar, which can have negative consequences further down the line.
  • Finally, I'm seriously considering renouncing my citizenship. It is unclear to me whether I need to become compliant first, or not, if I want to do this.

My overall tax situation is not too complicated. I have been earning money for a few years and I have had savings exceeding 10.000 USD for a few years now. There are no other sources of income or assets.

I would greatly appreciate some level-headed advice and opinions on how to weigh my options and possible paths to take. If anyone has been in a smiliar position and can share their story, that would be great as well. Thank you!

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Old 8th July 2019, 06:22 AM
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Your basic premises are all correct. Just remember to factor in one additional thing: renouncing your US citizenship cost $2350 and requires at least one, if not two visits to the consulate. If you're at any great distance from the Consulate in Oz, add transportation costs to that $2350 figure.

The decision regarding "to comply or not" requires an evaluation of your specific situation and a certain acknowledgment of some level of risk.

The main thing is your level of "exposure" financially back in the US - do you have financial accounts in the US that would be subject to seizure if the IRS should have reason to believe you were in flagrant violation of tax laws? (I.e. if you potentially owed big bucks in back taxes)

Also, are you eligible for US based "entitlements" like US social security or a fat inheritance from a rich family member back in the States? That could also trigger problems (though for a fat enough inheritance you could probably buy your way out <g>).

Then, consider whether you may or may not have the need or desire to relocate back to the US at some point in the future. (Though in that case, you could do Streamlined Compliance sometime just before your intended move.)

If you are still interested in renouncing, no, you don't actually have to be compliant, particularly if you reasonably believe that you wouldn't owe any back US taxes anyhow. Friend of mine renounced last year. She probably "should" have been filing, but because she didn't owe anything anyhow, simply hadn't bothered. There's a question asking if you're up to date on your filings, so she answered "yes" - the paperwork all went through and she's now an ex-US citizen, no questions asked.

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Old 8th July 2019, 07:27 AM
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Quote:
Originally Posted by horten View Post
Recently I learned of my obligation to file tax returns, FBARs, etc. in the US. I've been doing a lot of research and from what I can tell, if I want to become compliant, the solution is relatively clear: I file tax returns and FBARs according to the Streamlined Filing Procedure.

Figuring out how to do this exactly has been a nightmare however (e.g. Superannuation), and I'm not so sure what the best course of action is for me. What I find particularly difficult is knowing which information and advice to trust.
You don’t need to file US tax returns if you don’t owe US taxes. If you do file, you can claim foreign-tax credits for the AUS taxes you’ve paid, and in any case, if your income is all Australian, it’s Australia that has the taxing rights, not the US.

If you do choose to file US tax returns, you don’t need to go through any “disclosure” procedure, since from what you say, you don’t owe any back taxes. You can just start filing.

Quote:
I'm seriously considering renouncing my citizenship. It is unclear to me whether I need to become compliant first, or not, if I want to do this.
Renouncing is a good option if you don’t need or want the citizenship. It means you are no longer affected by FATCA.

You can renounce immediately. Contact the US Embassy and ask for an appointment to renounce, and they’ll tell you what documentation you need to bring (birth certificate, passports, etc) and which forms you need to fill in. You pay up front on the day you renounce. You’re a US citizen when you go in and you’re not a US citizen when you come out. You don’t need to file any US tax forms, unless you choose to. When I renounced, I opted to file the Expatriation form, just to notify the IRS that I was no longer tax-resident in the US. It’s not necessary, if you have no US income or assets.


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Old 8th July 2019, 09:39 AM
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I think that I am the resident Aussie on the list. Like you, I am a Seppo who moved here as a child - although some 30 years before you. But fundamentally I have been through your exact same thought processes fears and concerns.

Point one.. no need to rush anything, take your time with decision making. The IRS is not going to come knocking on your door. You won't be on any ones radar. State and Treasury do not share information in any meaningful way. Entering the US is not going to trigger a tax question. Renewing a US passport is not going to trigger awkward conversations.

Point two. Given your age, it is quite possible that you have never had enough income to have to have been required to file. Its quite conceivable that you have been at Uni, living at home and earning a bit on the side... So filing for the first time is not going to trigger any "why haven't you been filing" type questions. So if you do choose to start filing, don't worry about any prior years. Again, its not going to result in awkward questions.

Upshot of points 1 and 3... don't get scared into filing, don't get scared into renouncing. If you decide to file, then remember you close to12 months or so before the end of the next US filing season to get up to speed and make a well considered opinion on how you want to approach it all.

Point thee. Yes, super is complicated, but most of the information on the internet on the treatment of super has been published by the compliance industry. They have a vested interest in scare tactics.

The realities on Super is that there has been no formal guidance from the US Treasury Department on the treatment of superannuation, and the few private letter rulings that are out there ignore the employee perspective. All we have to go on is a Freedom of Information request that clearly indicated that internally, IRS counsel was confused. So the trick is to come up with a reasoned approach that is not at odds with US tax law and more importantly does not result in you owing US tax.

Yes, in future, the punitive tax treatment by the US of anything foreign can be problematic. But unless you are already considering investing in mutual funds etc, then it is probably something you can kick down the road.

I am not going to say you should or should not renounce. That is an entirely personal choice. My only counsel is to take your time making the choice that is right for you and don't let that choice be clouded by US tax compliance fears.

Feel free to PM me.
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Old 8th July 2019, 09:56 AM
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...don't get scared into filing, don't get scared into renouncing.
Hear hear.

There are obvious advantages to having US citizenship, and depending on circumstances and aims, there can be obvious advantages to being entitled to file US tax returns. A lot of people have made a lot of (entirely legitimate) money while filing 1040s.

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Old 8th July 2019, 03:44 PM
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And, as the earth rotates and I come into morning in my time zone, I'll agree with the previous.

Don't do anything right away, take your time. The worst choice is to begin filing, unless you are planning a move to the US soon or can somehow seek financial advantage from US tax compliance and citizenship (some apparently do, but I've never been sufficiently curious to figure out how).

Lifetime non-compliance is dead easy, with or without renunciation. The whole Super thing isn't complicated if you're not compliant, I assume.

I wouldn't rush off to renounce just yet. That's a decision to be made when career and education plans are perhaps more fully formed. There's no particular cost to keeping the citizenship if you're non-compliant and not troubled by FATCA (or banks overreacting to FATCA and making life difficult, which apparently is not an issue in Australia).

On that note, are your banks aware of your US citizenship? Have they asked the question, and if so, how have you answered? One view is that you are safe to answer truthfully as long as you won't be denied services (which happens in some countries) because the IRS won't do anything with the data reported since it has no collection mechanism for nor interest in small amounts of money in faraway lands. I prefer to answer untruthfully and conceal US citizenship, figuring it's better to take a small risk by lying to the bank if it prevents information about you from being sent to the US government.

One other thing, if in future you plan on travel to the US, and have a US birthplace, you may find yourself either obtaining a US passport (as US citizens are technically required to do) or risking a lecture by using an Australian passport, particularly if you've had to fill out an ESTA waiver thingy. But obtaining a US passport is pretty low risk, it doesn't mean the IRS will suddenly send you a tax bill. (The passport application asks for a Social Security Number but if you don't have one it's permissible to enter all zeroes.) Or just be sensible and come to Canada instead.

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Old 8th July 2019, 04:34 PM
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All of the replies above are options, but for the most part none are correct as per IRS law. Being an accountant I tend to take a conservative approach, but I personally would sleep better just filing properly and being up to date on your US taxes.

I would not rush into renouncing, perhaps give it a few years of filing the US returns to see how troublesome you find it and if it is worth giving up that US passport (if you renounce you should technically have the last five years of returns filed anyway).

It is also true that if you are just now making over the income threshold (roughly 10K if you are a single employee), your easiest option would be to just start filing returns and reporting your income. You can work with an expat accountant in the first year to make sure you are doing it correctly and then file on your own in the future as use the professionally prepared return as a guide. If you have been over the income thresholds for some time, you can use Streamlined to get caught up without risk of penalties.

In the future, if you decide to renounce, you will need to have the last five years of taxes filed and then also file Form 8854 with your final tax return. This is the formal exit from the US system.

In the end the choice is up to you, good luck!

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Old 8th July 2019, 05:32 PM
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All of the replies above are options, but for the most part none are correct as per IRS law. Being an accountant I tend to take a conservative approach, but I personally would sleep better just filing properly and being up to date on your US taxes.
Non-compliance is not "incorrect" per IRS law. It's simply choosing to ignore IRS law.

In your professional experience, have you ever encountered a non-compliant US person with no US assets or income - i.e. someone completely out of the US tax and financial systems - who has been proactively contacted by the IRS on the basis of FATCA reporting, passport renewal or any other type of information somehow supplied to or obtained by the US government?

As things currently stand, I think the future risks from attempted compliance greatly exceed the future risks of continued non-compliance, for a dual citizen with no US ties.

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Old 8th July 2019, 05:35 PM
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Renouncing is a good option if you donít need or want the citizenship. It means you are no longer affected by FATCA.

You can renounce immediately. Contact the US Embassy and ask for an appointment to renounce, and theyíll tell you what documentation you need to bring (birth certificate, passports, etc) and which forms you need to fill in. You pay up front on the day you renounce. Youíre a US citizen when you go in and youíre not a US citizen when you come out. You donít need to file any US tax forms, unless you choose to. When I renounced, I opted to file the Expatriation form, just to notify the IRS that I was no longer tax-resident in the US. Itís not necessary, if you have no US income or assets.
Though you can certainly renounce immediately, I should have added that thereís no need to do so. You can take your time and consider carefully all your options.

If eventually you decide to renounce, you can then proceed.

Once youíve sworn the Oath of Renunciation, youíre no longer a US citizen. If you need to pay US tax on income received during the part-year preceding renunciation, you can file a 1040NR, attaching a statement to list the US-taxable income you need to pay tax on.

If you donít need to pay US tax, you neednít file the 1040NR.

You can also file the Expatriation form, if you choose. It doesnít affect the validity of your renunciation in any way, if you choose not to file it.

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Old 8th July 2019, 05:36 PM
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In the future, if you decide to renounce, you will need to have the last five years of taxes filed and then also file Form 8854 with your final tax return. This is the formal exit from the US system.
The final exit from the US tax system different from the loss of US citizenship. One may renounce without ever having been compliant. Certainly it seems to be an increasingly popular option now (based on survey of other forums). People spend the $2350 to be rid of US citizenship and its associated FATCA problems, but if they were never in the US tax system, they ignore the tax compliance business. (Technically this means that one is still a US person for tax purposes, but so what?)
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