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Taxes Today...

Form 8854 and its consequences for American residents in Panama

by Deloitte & Touche

Probably your family, job and all your belongings are already in Panama. However, for tax purposes, you may very well be in the United States. For American residents or expatriates filling form 8854 is a requirement to stop being, for tax purposes, a US resident.

The American Job Creation Act (2004) has profoundly amended Section 877 of the Internal Revenue Code ("IRC"), which provides for an alternative tax regime for certain expatriated individuals. Due to these changes, the IRS has just issued revised Form 8854.

Among the changes form 8854 has had are the following:

1. Form 8854 must be filed for expatriation or termination of residency to be effective for tax purposes.

In addition, the Department of State or the Department of Homeland Security must be notified regarding the expatriating act or the termination of residency. The date of expatriation or termination of residency will be the later of the date the taxpayer notifies the relevant agency or the date the Form 8854 is filed.

2. Taxpayers can no longer request a private letter ruling to avoid the application of section 877.

3. If the taxpayer is subject to section 877, Form 8854 must be filed for each remaining tax year of the 10-year post-expatriation period, whether or not tax is owed to the US treasury.

4. 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.

5. If an expatriate returns to the US 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 US citizen or resident for all purposes, despite the legal termination of their citizenship or permanent resident status under the Immigration and Nationality Act.

This means that the individual will be subject to US income tax on worldwide income earned in any such year.

The provision set by the American Jobs Creation Act will apply to individuals who expatriated or terminated their residency after June 3, 2004.

For your convenience we've included the following link containing form 8854: http://www.irs.gov/pub/irs-pdf/f8854.pdf.

Deloitte & Touche conduct their Panama operations from the 20th and 21st floors of the Bank Boston Building on Via España in the banking district.

Also in this section:
The Embera basket business
Change in US tax laws affects many America expats
Protests continue against Clayton development
Business & Economy Briefs