This alert covers the expatriate transitional rules for Form 8854, Initial and Annual Expatriation Information Statement. Although the deadline for the transition relief was June 15, 2005, the alert provides valuable information.
New Transition Rules for Expatriation Reporting Requirements
Need to File by June 15, 2005
IRS and Treasury have provided transition/implementation guidance in IR-2005-49 and Notice 2005-36; 2005-19 IRB 1, regarding the revised Form 8854, Initial and Annual Expatriation Information Statement, filing requirements which include the American Jobs Creation Act of 2004 (AJCA) tax and reporting changes for individuals who lose their U.S. citizenship or long-term resident status after June 3, 2004. IR-2005-49, Notice 2005-36, the revised Form 8854 and the Form 8854 instructions can be found on the IRS Web site.
Notice 2005-36 provides special rules for individuals who file the revised Form 8854 by June 15, 2005. Treasury and the IRS recognized in this recent guidance that until the revised Form 8854 was released, individuals who lost U.S. citizenship or terminated long-term resident status after June 3, 2004 did not know how to meet the new notification and information reporting requirements imposed by AJCA.
Accordingly, Notice 2005-36 provides that if an individual who loses U.S. citizenship or terminates long-term resident status after June 3, 2004 files the revised Form 8854 by June 15, 2005, the individual will be treated as having met his or her reporting obligations on the date on which the taxpayer provided the required notice to the Department of State or the Department of Homeland Security.
The new Form 8854 has been expanded so that it functions as both the initial and the annual expatriation information statements required by AJCA for former citizens and long-term residents. Form 8854 and its instructions are available at the agency Web site, but will no longer be obtainable from U.S. embassies or consulates abroad. If overseas, individuals may contact the IRS at (215) 516-2000.
In addition, see the below AICPA summary of the important new form changes (along with the new form and instructions). The AICPA Tax Division's Expat Task Force is also developing a detailed analysis of the new law changes that should be available to members by the summer.
Revised Form 8854, Initial and Annual Expatriation Information Statement, incorporates disclosure changes made by the American Jobs Creation Act of 2004 that apply to individuals who expatriated or terminated their residency after June 3, 2004.
Revised Expatriation Information Statement
Now Includes 2004 Act Changes
IRS has issued revised Form 8854, Initial and Annual Expatriation Information Statement, incorporating the American Jobs Creation Act of 2004 disclosure changes regarding Section 877. These changes apply to individuals who expatriated or terminated their residency after June 3, 2004. Form 8854 is used to provide information required by section 6039G, (1) establishing the fact of one's expatriation or termination of residency; and (2) certifying compliance with all U.S. federal tax obligations for the five years preceding the date of expatriation or termination of residency.
Important changes include:
- Form 8854 must be filed for expatriation or termination of residency to be effective for tax purposes.
- The U.S. tax and net worth thresholds for determining who is subject to section 877 are changed so that now if the thresholds have been exceeded, the taxpayer is subject to section 877 unless certain limited exceptions apply. The prior law presumption of tax avoidance if the thresholds were exceeded is repealed. Also, taxpayers can no longer request a private letter ruling to avoid the application of section 877.
- If the taxpayer is subject to section 877, Form 8854 must be filed for the year of expatriation or termination of residency and, for each remaining tax year of the 10-year post-expatriation period, whether or not tax is owed under section 877.
- Form 8854 is now filed with the Internal Revenue Service in Philadelphia and if an income tax return is required to be filed for the year, a copy must be attached to the return.
- Failure to file Form 8854 may result in a $10,000 penalty for each failure, unless it is shown that such failure is due to reasonable cause and not willful neglect.
- If an expatriate returns to the U.S. for more than 30 days in a year during the 10-year period in which the expatriate is subject to section 877, the expatriate will be treated for that tax year as a U.S. citizen or resident for all purposes of the Internal Revenue Code, despite the legal termination of their citizenship or permanent resident status under the Immigration and Nationality Act.
View Form 8854 (revised March 2005)
View Instructions for Form 8854