More and more people are expatriating, or thinking of expatriating from the United States. BS&P’s Senior Accountant Katie Kriner answers our most commonly asked questions about what’s required from a tax and reporting perspective. If you’re thinking of expatriating from the U.S. or know someone who is, Katie’s guide breaks down the facts so you can decide what’s right for you.
How do I expatriate from the U.S.?
Your options for determining how you can expatriate from the U.S. will depend on whether you are a U.S. citizen or a Lawful Permanent Resident. In either circumstance, it is recommended to consult with an immigration attorney and a tax advisor before proceeding.
Renouncing U.S. Citizenship
Individuals who wish to renounce their U.S. citizenship are required to make an appointment with a U.S. consular or diplomatic officer in a foreign country. This typically occurs at a U.S. Embassy or Consulate. At the appointment, individuals will make a formal declaration of the intention to renounce citizenship, will learn what the implications of renunciation are, and will sign an oath of renunciation. The payment of a fee is also required.
Various documents are required to be brought to the appointment for the purpose of proving U.S. citizenship. These documents include, but are not limited to, Certificates of Citizenship; evidence of name changes, such as a marriage certificate; U.S. Consular Report of Birth Abroad, if applicable.
Abandonment of Lawful Permanent Resident Status
Individuals who hold a Green Card are considered to be Lawful Permanent Residents. Those who wish to give up their Green Card and abandon the Lawful Permanent Resident status must complete form I-407, Record of Abandonment of Lawful Permanent Resident Status, and submit it to the U.S. Citizenship and Immigration Services. It is also required to formally surrender their Green Card, as well as other USCIS booklets and cards, if applicable.
How am I taxed on my final U.S. individual tax return? Are there additional reporting requirements?
Whether an individual is giving up their Green Card or renouncing their U.S. citizenship, they will be required to file a dual-status income tax return in the year of expatriation. This means that an individual would file a 1040NR (non-resident return) with a 1040 statement. Worldwide income earned before the expatriation date is included on form 1040 and is taxable in the U.S. The 1040NR would include only U.S. source income earned after the date of expatriation. For example, a U.S./Canadian citizen living in Canada renounces on July 1st, 2024. On their 2024 income tax return, all U.S., Canadian, and other sources of income earned before July 1st are taxable on the U.S. return on the 1040 statement. Only their income from U.S. sources earned on or after July 1st is taxable on their U.S. return and is reported on the 1040NR.
U.S. expatriates may also be subject to taxation under IRC Section 877A – tax responsibilities of expatriation. This is also known as the “Exit Tax.” For individuals considered to be a covered expatriate in the year of expatriation, they are subject to income tax on the net unrealized gain on their property as if the property was sold for its fair market value one day preceding the expatriation date. This is known as a “mark-to-market” regime. For lawful permanent residents, they are only subject to the exit tax if they are considered to be a long-term resident.
In addition to the above discussion of taxation, there are additional reporting requirements. Form 8854, Initial and Annual Expatriation Statement, is required to be attached to the tax return for individuals renouncing their U.S. citizenship, as well as those considered to be long-term residents giving up their Green Card. Form 8854 requires some basic information such as: address, details on citizenship, country of residence, U.S. tax liability for the prior five years, etc. It also requires that a personal balance sheet as of the date of expatriation be included. Assets such as bank and investment accounts, cars, and properties, as well as liabilities such as a mortgage must be included. For individuals who are subject to the exit tax, there are additional sections of the form that must be completed.
What information will my tax preparer need from me?
Individual circumstances for those expatriating will vary, but here are some items that you should expect to provide to your tax preparer:
- Date of expatriation—provide a copy of your Certificate of Loss of Nationality (CLN) or Record of Abandonment of Lawful Permanent Resident Status
- Information regarding your current and previous citizenship/immigration status
- A listing of worldwide assets as of the date of expatriation
- Days spent in the U.S. in the current tax year as well as preceding two years
- Detail on income earned before/after expatriation
Are there any other important tax items to note?
Yes, it is important to note the following in addition to the points discussed above:
- Dual-status returns cannot be e-filed—they must be paper filed.
- If you are required to file an FBAR (Foreign Bank and Financial Accounts Report), this filing is still reported on a full calendar year in the year of expatriation.
Conclusion
Expatriating from the U.S. has both legal and tax implications. It is important to consult with the appropriate professionals to help navigate through the process. At BS&P, we work with a variety of clients globally who need assistance with international tax reporting. If you have any questions on expatriating from the U.S. or other international tax topics, please reach out to us for assistance.
