Part F – A “U.S. citizen” cannot use a “tax treaty tie breaker” to break U.S. “tax residence”. How then does a “U.S. citizen” cease to be a “U.S. tax resident”?

1. I am a U.S. citizen. I do not live in the United States. I live in Canada. I am a Canadian citizen. How do I stop being subject to the all of the FBAR and other reporting rules, tax rules (including PFIC),  life restrictionsand inability to effectively invest and plan for retirement imposed by the Internal Revenue Code?
   
2. Yourelinquish U.S. citizenship. Please note that a “renunciation” is one form of “relinquishment”. In general, the date of relinquishment of U.S. citizenship is more important than the form of relinquishment of U.S. citizenship. A Certificate of Loss of Nationality (“CLN”) may or may not (depending on the date of relinquishment) be necessary to cease to be subject to U.S. taxation.
3. In simple terms, where do I get information about the process of renouncing U.S. citizenship?
4. You can start here.
5. What are the tax consequences of relinquishing or renouncing U.S. citizenship?
6. The Internal Revenue Code describes the tax consequences of relinquishing/renouncing U.S. citizenship. See Internal Revenue Code S. 877A (the “Exit Tax” rules).

Part G – How a “permanent resident” of the U.S. – AKA “Green Card Holder” – ceases to be a U.S. tax resident

1. I understand that IF I am a U.S. “tax resident” then I may be able to use a “tax treaty tie breaker” to NOT be treated as a U.S. “tax resident”. But, how do I cease being a U.S. tax resident period?
2. The definition of “residence” for tax purposes is NOT the same as the definition of “residence” for immigration purposes. In fact it is possible to have lost the right to live permanently in the United States, but still be treated as a “resident for tax purposes.” “Residence for tax purposes” is defined in Sec. 7701(b) of the Internal Revenue Codeand is discussed in the Topsnik case. Most “lawful permanent residents of the United States” cease to be “tax residents” of the United States by either (1) Filing Form I-407 or (2) Filing a “tax treaty election”. You are advised to seek professional advice on the best way to proceed.

ATTENTION!! A permanent resident of the United Sates AKA “Green Card Holder” does NOT cease to be a U.S. “tax resident” by simply moving from the United States to another country. One must take specific steps to sever “tax residency” with the United States.

Part H – Are you, or have you ever been a U.S. citizen or Green card holder? Sometimes it’s not what it seems.

1. Are you a “U.S. Person” for FATCA purposes?

A “U.S. citizen” is a “U.S. Person” for tax purposes.

1. What kinds of “past acts” result in a relinquishment of U.S. citizenship; and
2. The relationship between a relinquishment of U.S. citizenship for nationality purposes and ceasing to be a U.S. citizen for purposes of taxation.

Part I – “Relinquishments of U.S. citizenship and loss of U.S. citizenship for tax purposes

This is an extremely complex area. See the post referenced in the following tweet which makes it clear that: “Renunciation is one form of relinquishment – It’s not the form of relinquishment, but the time of relinquishment”

Part J – Beware! You don’t sever “Tax Residency” From Canada or the United States without being subject to massive “Exit/Departure Taxes!” – You may have to buy your freedom!

It is extremely important to understand that “severing” tax residency with an increasing number of countries requires that you pay taxes on the value of your assets. Note that these are taxes triggered by and only by severing “tax residency”. THERE IS NO SPECIFIC REALIZATION EVENT THAT WOULD OTHERWISE TRIGGER THESE ASSETS. This appears to be a consequence of increasing disparities in wealth coupled with the increased mobility of capital. A comprehensive discussion of how these taxes work is beyond the scope of this post. At a bare minimum you must be aware that:

1. The United States imposes very punitive “Exit taxes” on the assets (including foreign pensions) of certain U.S. citizens who relinquish U.S. citizenship or “long term residents” (Green Card holders) who cease to be “residents”of the United States.
2. How the U.S. S. 877A “Exit Taxes” operate most punitively on U.S. citizens living abroad and their non-U.S. assets
3. Canada imposes significant “Departure Taxes” on people who sever tax residency with Canada.
4. How the U.S. S. 877A Exit Taxes differ from Canada’s “Departure Taxes”.

Conclusion …

The receipt of a FATCA or “CRS” letter is a frightening thing. Take a deep breath. Deal with it rationally and logically.

Have questions? Contact John Richardson.

(Part 4 In 4 Part Series, Click To Part 3)