To renounce your U.S. citizenship without facing additional tax burdens, you must certify – under penalty of perjury – that you have complied with all U.S. tax obligations for the five tax years preceding the year of expatriation. This is done on Form 8854, which is required as part of the renunciation process.

Being tax-compliant means:

• Filing all required tax returns (Forms 1040, 8938, 114, etc.) for the past five years
• Accurately reporting worldwide income
• Paying all taxes due
• Addressing any past non-compliance through corrective filings if necessary

Why Is Tax Compliance So Important?

If you fail to certify full tax compliance for the five years prior to renunciation, the IRS will classify you as a covered expatriate, regardless of your net worth or average tax liability. Covered expatriates may be subject to the exit tax, a deemed sale of their worldwide assets on the day before expatriation, potentially triggering substantial tax liabilities.

Other consequences of being a covered expatriate include:

• Potential U.S. taxation on certain gifts or bequests to U.S. persons
• Continued IRS scrutiny and reporting burdens

Key Forms to Know

• Form 8854: Required for all expatriates to report assets, certify tax compliance, and determine whether the individual is a covered expatriate
• Form 1040: Annual income tax return (including for the partial year in which you renounce)
• Form 8938: For reporting specified foreign financial assets (under FATCA)
• FBAR (FinCEN Form 114): For reporting foreign bank and financial accounts
• Form 5471, 8865, 8858, 8621: For reporting non-U.S. entities

This is a list of some of the most commonly required forms; however, there may be additional forms applicable to your specific circumstances.

Steps to Ensure You’re Compliant

1. Review Your Filing History: Check that all tax returns for the past five years have been submitted and are accurate.
2. File Amended Returns If Needed: If you’ve discovered errors or omissions, you may need to file amended returns (Form 1040-X).
3. Address Foreign Asset Reporting: Ensure you’ve submitted Forms 8938 and FBARs as required.
4. Settle Outstanding Tax Debts: Pay any outstanding tax balances, including penalties and interest.
5. Consult a Tax Professional: Particularly if you have foreign income, assets, or previous compliance issues, professional help is essential.

Timing Matters

It’s vital to ensure your compliance before you renounce – not after. Once you’ve expatriated, it becomes far more difficult to resolve past issues, and the consequences of failing to comply may already be locked in. If you’re behind, you may need to consider IRS amnesty programmes such as the Streamlined Filing Compliance Procedures before moving forward with renunciation.

Final Thoughts

Renouncing U.S. citizenship may simplify your financial and tax life in the long term, but only if it’s done properly. Being fully tax-compliant for the five years preceding renunciation is not only a legal requirement, it’s your best protection against punitive tax outcomes.

The information in this blog post is for general informational purposes only and does not constitute professional tax advice. We strongly recommend consulting a qualified tax professional before making any decisions. US Expat Tax Advisor is not liable for any actions taken based on this content.

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