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The Internal Revenue Code Versus The IRS Form: Noncovered Expatriate Status And Form 8854



John Richardson

 For Whom The IRS Form Tolls

I would not want the job that the IRS has to create forms given there are many “information reporting requirements” in the Internal Revenue Code. The IRS has the job (sometimes mandatory “shall” and sometimes permissive “may”) of having to create forms that reflect the intent of the Internal Revenue Code. The forms will not necessarily reflect how the IRS interprets the text and intent of the Code. Once created, the “forms” become a practical substitute for the Code. If you look through your tax return you will find “form” after “form” after “form” how the various provisions of the Internal Revenue Code are “given meaning” (if the meaning can be determined).

Every “form” is the result of one or more sections of the Internal Revenue Code. For example, Form 8833 is describes as:

Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b)

Taxpayers use this form to make the treaty-based return position disclosure required by Internal Revenue Code section 6114. Dual-resident taxpayers use this form to make the treaty-based return position disclosure required by Regulations section 301.7701(b)-7.

Form 8833 reflects how the IRS understands Internal Revenue Code sections 6114 and 7701(b) and how it attempts to give effect to those sections. Imagine having the job the job of creating forms for the Internal Revenue Code. In most cases the IRS has done an admirable job. In some cases, the IRS form may not accurately reflect the language and intent of the statute.

This post is about certain (but not all) aspects of IRS Form 8854. This Form is familiar to most who relinquish U.S. citizenship or abandon their green card. In July 2014, the “American College of Trust and Estate Counsel” write the IRS an extensive submission describing discrepancies between Internal Revenue Code S. 877A and IRS Form 8854. The purpose of this post is restricted to a discussion of the relationship between Internal Revenue Code S. 877A and the “balance sheet” found in Part V or IRS Form 8854.

Internal Revenue Code Sections: 6039G, 877A, 877(a)(2) and Form 8854 …

Form 8854 has been designed to do the work of the above three sections of the Internal Revenue Code.

26 U.S. Code § 6039G – Information on individuals losing United States citizenship

Includes in part:

(a) In general Notwithstanding any other provision of law, any individual to whom section 877(b) or 877A applies for any taxable year shall provide a statement for such taxable year which includes the information described in subsection (b).

(b) Information to be provided Information required under subsection (a) shall include—

  • the taxpayer’s TIN,
  • the mailing address of such individual’s principal foreign residence,
  • the foreign country in which such individual is residing,
  • the foreign country of which such individual is a citizen,
  • information detailing the income, assets, and liabilities of such individual,
  • the number of days during any portion of which that the individual was physically present in the United States during the taxable year, and
  • such other information as the Secretary may prescribe.

The 6039G requirement applies to those who are “covered expatriates” under the rules of Internal Revenue Code 877A (and under 877(b). This means that the requirement to report “(5) information detailing the income, assets, and liabilities of such individual,” applies ONLY to those who are “covered expatriates”. Therefore, the part of Form 8854 which requires “(5) information detailing the income, assets, and liabilities of such individual,” applies ONLY to those who are “covered expatriates”.

The Form 8854 balance sheet is found in Part V of the current version of Form 8854.

Notably, the balance sheet requires the disclosure of very significant information about the complete scope of an “expatriate’s assets”. The balance sheet requires:

  • the identification of all assets
  • in the case of property sufficient information to determine any deemed capital gains
  • in the case of “Foreign Pensions” the present value on the date of expatriation
  • significant information about “specified tax deferred accounts”
  • significant information about “granter trusts”
  • valuation of controlled foreign corporations
  • more …

It is the most intrusive “asset inquisition” known to man.

Form 8854 appears to require this asset disclosure:

  • whether the “expatriate” is a “covered expatriate” (and is therefore subject to the S. 877A Exit Tax) or whether the person is NOT a “covered expatriate” (and is therefore NOT subject to the S. 877A Exit Tax); and
  • whether income and assets is even relevant to a determination of whether someone is a “covered expatriate”.
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The Reality of U.S. Citizenship Abroad

My name is John Richardson. I am a dual citizen. I am a lawyer – member of the Bar of Ontario. This means that, any counselling session you have with me will be governed by the rules of “lawyer client” privilege. This means that:

“What’s said in my office, stays in my office.”

I am also a member of the American Citizens Abroad Professional Tax Advisory Council (PTAC). This is an advisory panel focused on assisting American Citizens Abroad in an FBAR and FATCA world.

The U.S. imposes complex rules and life restrictions on its citizens wherever they live. These restrictions are becoming more and more difficult for those U.S. citizens who choose to live outside the United States.

FATCA is the mechanism to enforce those “complex rules and life restrictions” on Americans abroad. As a result, many U.S. citizens abroad are renouncing their U.S. citizenship. Although this is very sad. It is also the reality.

One thought on “The Internal Revenue Code Versus The IRS Form: Noncovered Expatriate Status And Form 8854

  1. Avatar John Dundon says:

    GrEAt post. Thank you #EnrolledAgent

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