If you are thinking about relinquishing your US citizenship or Green Card, you may be subject to an Expatriation Tax and will need to complete four steps:
- US tax return, Form 1040, for the part of the year that you were a US citizen or Green Card holder
- FBAR (Report of Foreign Bank and Financial Accounts, FinCen 114) for the part of the year that you were a US citizen or Green Card holder
- US tax ‘statement’, Form 1040NR, for the part of the year that you were not a US citizen or Green Card holder
- Expatriation Statement Form 8854
Steps 1 and 3 are the most challenging. Your tax return will be completed as usual but will only reflect income earned until you relinquished your citizenship or Green Card which needs to be done before an official from the US State Department.
The US tax ‘statement’ will reflect income earned for the remainder of the tax year. It does not create a tax liability, but the IRS will confirm that you did not receive a significant payment, potentially demonstrating that you are attempting to avoid or minimize your tax burden by relinquishing. This somewhat onerous requirement is a part of the process though.
Expatriation Statement Form 8854 is used to report on any future income and assets, above a defined threshold, that would have been taxed by the US, if you had not renounced your citizenship or given up your Green Card.
You need to be aware the possibility exists that once you have relinquished your citizenship, you may not be allowed to reenter the US, even as a tourist under a different citizenship. The Reed Amendment, which contains this stipulation, has not become law, but continues to be introduced.
If you do decide to relinquish your citizenship or Green Card, I would suggest that you complete the process during the first or last week of the year to avoid the completion of either step 1 or 3.