Form 8854
IRS, Initial and Annual Expatriation Statement
The form that closes out US tax status after renouncing citizenship or giving up a long-term green card, and sets whether the exit tax applies.
What is Form 8854?
Renouncing US citizenship ends future US tax obligations only once the tax side is completed as well. Form 8854 is that step. It certifies past compliance and decides whether the person leaves as a covered expatriate, which is what brings the exit tax into play.
Leaving the US tax system on paper
Covered expatriate status turns on three tests.
The first is net worth of $2 million or more on the expatriation date. The second is average annual net income tax over the prior five years above $206,000. The third is failing to certify on Form 8854 that all US tax obligations were met for the five years before expatriation. Failing the third test alone makes someone covered, whatever their wealth.
A covered expatriate is treated as selling worldwide assets the day before expatriating, with gain above $890,000 taxed. Deferred compensation, certain tax-deferred accounts and interests in non-grantor trusts follow their own rules, often withholding on later payments. The same status also brings a separate US tax on gifts and bequests the person later makes to US citizens and residents. There are narrow exceptions for certain dual citizens from birth and for some who renounce as minors.
The initial Form 8854 is filed with the final return for the year of expatriation, often a dual-status return. Long-term green card holders, as the Code defines them, are within the same rules when they give up residence. Some covered expatriates must also file annually afterwards, for example where they have elected to defer tax or hold deferred compensation items. Certifying five years of compliance usually means bringing earlier returns and FBARs up to date first.
At a glance
- $2 million or more on the expatriation date
- Net worth test
- Average above $206,000 over five years
- Tax liability test
- Gain up to $890,000 under mark-to-market
- Exclusion
- The final return for the expatriation year
- Attached to
Figures are for the tax year stated in the official instructions linked below.
How we handle it
- Expatriation
Tax planning and Form 8854 filing for people giving up US citizenship or a long-held green card, including covered expatriate testing.
- IRS Streamlined Filing
Catch-up filing under the IRS Streamlined Filing Compliance Procedures for people whose missed US returns and FBARs were non-wilful.
- Estate & Trust Planning
Wills, trusts and estate planning for families with US and UK connections, including foreign trust reporting and the inheritance tax position.
- Individual Tax Returns
US federal returns for Americans living in the UK and British nationals with US income, prepared with the UK figures in view.
Where people go wrong
The Form 8854 errors we correct most often.
Who files it
- US citizens who have renounced or relinquished citizenship
- Long-term green card holders giving up US residence
- Covered expatriates with deferred items or a deferral election
- Dual citizens from birth claiming one of the narrow exceptions
01
Renouncing before the prior five years of returns are in order
02
Assuming modest wealth means the exit tax cannot apply
03
Overlooking UK pensions and deferred items that follow special rules
04
Treating the loss of nationality certificate as the end of US filing
Why US UK Tax Returns
Every form is prepared against the official instructions, and every position on it is one we can point to in the Code, the treaty or HMRC's guidance.
One File
US and UK returns prepared in the same engagement and reconciled line by line.
Primary Sources
Every position traced to the Code, the treaty, IRS instructions or HMRC guidance.
Scope First
Returns, forms, years and fee agreed in writing before work begins.
The Same People
The team that files this year carries the elections and credits into the next.
Questions we are asked
I have very little money. Can I still end up as a covered expatriate?
Yes. The certification test is separate from the wealth and tax tests. If you cannot certify on Form 8854 that you met all US tax obligations for the five years before expatriating, you are covered regardless of net worth. In practice that means bringing returns, FBARs and information returns up to date before renouncing, and then checking whether the dual-citizen exception is available.
What happens to my UK pension if I am a covered expatriate?
Pension interests are treated as deferred compensation or tax-deferred items under the expatriation rules, depending on the scheme. Some are taxed as if distributed on the day before expatriation, while others are taxed through withholding when payments are later made. The treatment depends on the type of scheme and the elections available, so it should be worked out before the expatriation date is fixed.
Once I renounce at the embassy, am I finished with the IRS?
Not quite. The consular process ends citizenship, but tax expatriation needs a final return and Form 8854 for the year you leave, which is usually a dual-status year. If you are a covered expatriate with deferred items, annual filings may continue. An FBAR may also still be due for the year of expatriation.
Primary sources
What this page says is drawn from the official material below. Read it yourself; we would rather be checked than trusted.
Last reviewed
From the Blog
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