5 Key Facts About IRS Form 8854 All Taxpayers Must Know

5 Things to Know About IRS Form 8854 

Form 8854 can be a very complicated form for certain U.S. taxpayers who have to file it. Under most circumstances, the form is required by taxpayers who fall into two categories of tax filers: U.S. citizens and long-term lawful permanent residents. The 8854 Form is required to be filed for the tax year in which the taxpayer formally expatriates from the United States by either renouncing their US citizenship or terminating their lawful permanent resident status. For example, if a person formally expatriates from an immigration standpoint in 2024, then in 2025 when they father 2024 tax return, they will include a Form 8854. If the taxpayer turns out to be a covered expatriate, then they may also become subject to an exit tax, and then the form preparation can become infinitely more complicated depending on the cross-section of U.S. and foreign assets that the taxpayer owns. Let’s look at five (5) key facts about IRS Form 8854.

Form 8854 is Not Only Covered Expatriates

One of the biggest misconceptions we find with Form 8854 is that some taxpayers believe it is only required for covered expatriated, but that is not accurate. Form 8854 is required by any U.S. citizen or Long-Term Lawful Permanent Resident (LTR). Some taxpayers who may otherwise be covered expatriates or subject to exit tax may qualify for an exception or an exclusion, but that does not negate having to file the actual form.

IRS Form 8854 is Due When the Tax Return is Filed

Form 8854 is due with the final tax return following the expatriating act. For example, if a taxpayer submits Form I-407 in 2024, then they will file Form 8854 in 2025 along with their 2024 tax return. Some taxpayers are being misguided by inexperienced counsel, leading them to believe that they are to file Form 8854 in the same actual year that they expatriated, but most of the time the form will not even be available for that tax year.

Before Filing Form 8854 You Need 5 Years of Tax Compliance

there are three main ways that a person could be considered a covered expatriate, but some taxpayers would only be considered a covered expatriate because they cannot certify under penalty of perjury that they are tax compliant for the five prior years. Therefore, the taxpayer must be in tax compliance before doing the expatriation process such as renouncing US citizenship or filing a form I-407 to terminate their US person status.

Annual Reporting for Deferred Compensation Owners

Even after Form 8854 is filed in the year of expatriation, some taxpayers may have an ongoing Form 8854 filing requirement if they still maintain certain deferred compensation such as a 401K. To avoid this nuisance, some taxpayers will simply withdraw their 401K in entirety at the time they expatriate and pay tax at the time.

Failure to File Form 8854 Leads to Additional 1040 Returns

Until a person follows form 8854, the IRS is unaware that the taxpayer has formally expatriated. That’s because expatriation is a two-pronged process that includes both immigration and tax. Unless the Taxpayer files Form 8854, the IRS would not be aware that the taxpayer has already completed the immigration portion by either renouncing or terminating their status until the taxpayer files Form 8854 which requires the taxpayer to identify which date they formally expatriated from an immigration standpoint. If Form 8854 goes un-filed, the taxpayer may become subject to additional Form 1040 returns, which include worldwide income reporting and taxation.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.