Expatriation – Tax Reporting Form 8854

A covered expatriate must file an information return on IRS Form 8854 in each tax year he is subject to the mark-to-market tax. (IRC Section 6039G; IRS Notice 2009-85).

IRS Form 8854 is used to provide notice that the individual has relinquished their U.S. citizenship or long-term residency status. Form 8854 is filed in addition to any other requirement for filing a tax return.

A covered expatriate with eligible deferred compensation items must annually file Form 8854 to certify either that no distributions have been received or to report distributions that have been received. There is no time limit on this obligation.

Under T.R. Section 1.6012-1(b): a covered expatriate with taxable income (i.e., eligible deferred compensation , or distribution from non-grantor trusts) for which taxes are not fully withheld at the source, must file a tax return on Form 1040 NR.

If the covered expatriate elects to defer payment of the mark-to-market tax, he must also file an annual tax Form 8854, through the year that the deferred tax and all interest is paid.

IRS Notice 2009-85 (2009-45 I.R.B. 598) (Oct. 15, 2005), confirms that certification of 5-year tax compliance (the “Certification Test”) must be made on Form 8854 and filed on or before the due date of the tax payor’s return for the year of expatriation. For U.S. citizens (or long-term residents) who fail to certify the 5-year tax compliance (upon expatriation) they will be treated as covered expatriates, even if they fail the income tax liability or net worth tests at the date of expatriation.

IRS Notice 2009-85 confirms that the date of cessation of lawful permanent residence, by a long-term resident who “tie breaks” his residence to a foreign country, occurs when the individual’s foreign residence “commences” for tax treaty purposes (under an applicable U.S. income tax treaty). The date of expatriation is not the date that notice of such expatriation is provided to the IRS (under IRS forms: 8833, 8854), filed with the individual’s tax return for the year of expatriation (which frequently occurs as many as 18 months after the foreign residence “commencement date”).

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