U.S. Expatriation Tax and Form 8854: Planning Ahead for Exit Tax Compliance

At a glance

• The main takeaway: The individual U.S. expatriation tax is for long-term residents who have been green card holders in at least eight of the prior 15 years and U.S. citizens who are formally relinquishing their citizenship or green card through immigration.
• Impact on your business: Planning ahead of your expatriation enables you to have a smooth transition on your exit out of the U.S. and leaves room for possible worst-case scenarios should they arise.
• Next steps: Aprio’s Global Mobility consultants can give proactive advice and support your needs when you are considering relinquishing your green card or US citizenship. We can help you with completing Form 8854 and your final US tax return should you need it when the time comes.

Schedule a consultation

The full story:

The individual U.S. expatriation tax is for U.S. citizens or green card holders. This is for long-term residents who have been green card holders for a minimum of eight of the prior fifteen years and U.S. citizens who are formally relinquishing their citizenship or green card through immigration. They must file an expatriation tax and complete Form 8854 with their final U.S. tax return. Once completed, it will determine if they have to pay any expatriation tax on their way out. The expatriation tax encompasses their total worldwide assets including cash properties, 401(k) plan assets, investments, and pensions.

What does being an expatriate mean?

An expatriate is a person who leaves their home country to work or live in another country. The arrangement is usually temporary and for work-related reasons. Expatriates can live overseas for a certain period and completely renounce their home country citizenship to become a citizen of the other.

The Internal Revenue Service (IRS) may impose an expatriation tax on individuals who do so, and this is based on certain criteria as mentioned below. However, only certain expatriates are required to file a Form 8854.

If an individual relinquishes their citizenship or green card status in 2024, they have to complete Form 8854 with the filing of their 2024 tax return in 2025. Should the individual fail to complete the form, they will still be technically liable to continue filing U.S. tax returns even though they have relinquished their citizenship or green card. Citizens and green card holders have to file U.S. tax returns indefinitely, whether they live in the U.S. or not.

What is the Form 8854?

The Form 8854 is a tax form filed by long-term residents who plan to relinquish their green card status and U.S. citizens renouncing their citizenship. You are considered a long-term resident if you have held a green card for at least eight of the last 15-tax-years before the year of expatriation.

Filing for a Form 8854

Filing a Form 8854 is a crucial step in giving up your U.S. citizenship or green card because it notifies the IRS not to expect any more tax returns from you moving forward and helps ensure compliance with U.S. tax laws. Other key purposes include:

• Determining if an individual is considered a “covered expatriate,”
• Calculating exit tax if applicable, and
• Certifying that you have complied with all U.S. federal tax obligations for the five years preceding the year of your expatriation.

What does a “covered expatriate” entail?

An individual is considered a “covered expatriate” if they have expatriated after June 16, 2008, and if they meet any one or more of the following criteria:

• Their average annual net income tax liability for the five tax years ending before the date of expatriation is greater than $201,000 (for expatriations occurring in 2024 – indexed annually for inflation).
• Their net worth was $2 million or more on the date of their expatriation.
• They fail to certify on Form 8854 that they have complied with all federal tax obligations for the five tax years preceding the date of their expatriation.

A 5-year tax compliance rule is also in effect: this requires U.S. citizens and long-term residents who expatriate to certify that they have been compliant with their U.S. tax obligations for the five years before their year of expatriation.

When should I file my Form 8854?

Individuals must attach their Form 8854 to their final U.S. income tax return in the year that includes their expatriation date and file their return by the due date of their tax return (including extensions). A copy of the Form 8854 marked “Copy” will also be sent to the IRS.

An annual Form 8854 must be filed if the individual expatriated before 2023 and meets any of these criteria:

• Deferred the payment of tax
• Reported an eligible deferred compensation item
• Are a beneficiary of a nongrantor trust

The bottom line

Planning ahead of your expatriation enables you to have a smooth transition on your exit and leaves room to hedge against possible worst-case scenarios should they arise. If you’re thinking about expatriating, reach out to Aprio. We can help you navigate the planning, compliance, and completion of the Form 8854 on your exit. We can also help ensure you have severed your ties to the U.S. on a tax basis, not just an immigration basis.

Aprio’s Global Mobility consultants can give proactive advice and support you need when going on an international assignment. We can help you with your Form 8854 should you need it when the time comes.

Related Resources/Assets/Aprio.com articles/pages

Aprio’s Global Mobility Service Page