U.S. Individual Income Tax Return

2010

Instructions for Form 8854

Department of the Treasury
Internal Revenue Service

Initial and Annual Expatriation Statement
Section references are to the Internal Revenue Code unless
otherwise noted.

General Instructions
Purpose of Form

Expatriation tax provisions apply to U.S. citizens who have
relinquished their citizenship and long-term residents who
have ended their residency (expatriated). Form 8854 is used
by individuals who have expatriated on or after June 4,
2004.
The date on which you are considered to have
expatriated determines which Parts of the form you must
complete. You are considered to have expatriated on the
date you relinquished your citizenship (in the case of a
former citizen) or terminated your long-term residency status
(in the case of a former U.S. resident). If you expatriated
after June 3, 2004, and before June 17, 2008, complete
Parts I, II, and V. If you expatriated after June 16, 2008, and
before January 1, 2010, complete Parts I and III. If you
expatriated in 2010, complete Parts I, IV, and V.
Expatriation. Expatriation includes the acts of relinquishing
U.S. citizenship and terminating long-term residency.
Date of relinquishment of U.S. citizenship. You are
considered to have relinquished your U.S. citizenship on the
earliest of the following dates.
1. The date you renounced your U.S. citizenship before
a diplomatic or consular officer of the United States
(provided that the voluntary renouncement was later
confirmed by the issuance of a certificate of loss of
nationality).
2. The date you furnished to the State Department a
signed statement of your voluntary relinquishment of U.S.
nationality confirming the performance of an expatriating act
(provided that the voluntary relinquishment was later
confirmed by the issuance of a certificate of loss of
nationality).
3. The date the State Department issued a certificate of
loss of nationality.
4. The date a U.S. court canceled your certificate of
naturalization.
Date of termination of long-term residency. If you
were a U.S. long-term resident (LTR), you terminated your
lawful permanent residency on the earliest of the following
dates.
1. The date you voluntarily abandoned your lawful
permanent resident status by filing Department of Homeland
Security Form I-407 with a U.S. consular or immigration
officer, and the Department of Homeland Security
determined that you had, in fact, abandoned your lawful
permanent resident status.
2. The date you became subject to a final administrative
order for your removal from the United States under the
Immigration and Nationality Act and you actually left the
United States as a result of that order.
3. If you were a dual resident of the United States and a
country with which the United States has an income tax
treaty, the date you commenced to be treated as a resident
of that country and you determined that, for purposes of the
treaty, you are a resident of the treaty country and gave
notice to the Secretary of such treatment. See Regulations

section 301.7701(b)-7 for information on other filing
requirements if you are such an individual.
Long-term resident (LTR) defined. You are an LTR if
you were a lawful permanent resident of the United States in
at least 8 of the last 15 tax years ending with the year your
status as an LTR ends. In determining if you meet the
8-year requirement, do not count any year that you were
treated as a resident of a foreign country under a tax treaty
and did not waive treaty benefits applicable to residents of
the country.
Lawful permanent resident. You are a lawful
permanent resident of the United States if you have been
given the privilege, according to U.S. immigration laws, of
residing permanently in the United States as an immigrant.
You generally have this status if you have been issued an
alien registration card, also known as a “green card.”

Expatriation After June 3, 2004,
and Before June 17, 2008
The rules in this section apply to persons who are
considered to have expatriated after June 3, 2004, and
before June 17, 2008.

Date of Tax Expatriation
For purposes of filling out Part I, the date of your
expatriation is the later of the date you notified the relevant
agency of your expatriating act or the date Form 8854 was
first filed in accordance with these instructions. Apply the
rules of section 7502 to determine the date on which this
form is filed. Generally, the postmark date is the filing date.
Until you file Form 8854 and notify the Department of
State or the Department of Homeland Security of
CAUTION
your expatriating act, your expatriation for
immigration purposes does not relieve you of your obligation
to file U.S. tax returns and report your worldwide income as
a citizen or resident of the United States.

!

Who Must File
You must file Form 8854 to:
• Establish that you have expatriated for tax purposes; or
• Comply with the annual information reporting
requirements of section 6039G, if you are subject to tax
under section 877.
Note. If you were a naturalized citizen, but lost your
citizenship because a federal court revoked your
naturalization under section 340 of the Immigration and
Nationality Act, you do not need to complete this form if,
after the revocation, you hold the status under the
Immigration and Nationality Act of an alien lawfully admitted
for permanent residence. You must complete this form,
however, if you were a naturalized citizen and you gave up
your citizenship by expatriation under section 349 of the
Immigration and Nationality Act.

Taxation Under Section 877
You are subject to taxation under section 877 if you are a
former U.S. citizen or former LTR and any one of the
following applies to you.
1. Your average annual net income tax liability for the 5
tax years ending before the date of your expatriation is more
than the amount listed next.
a. $124,000 if you expatriated in 2004.
b. $127,000 if you expatriated in 2005.

Cat. No. 24874E

c. $131,000 if you expatriated in 2006.
d. $136,000 if you expatriated in 2007.
e. $139,000 if you expatriated in 2008.
2. Your net worth is $2 million or more on the date of
your expatriation.
3. You fail to certify on Form 8854 that you have
complied with all of your federal tax obligations for the 5 tax
years preceding the date of your expatriation.

3. You fail to certify on Form 8854 that you have
complied with all federal tax obligations for the 5 tax years
preceding the date of your expatriation.
Covered expatriate. You are a covered expatriate if you
meet (1), (2), or (3) above.
Exception for dual-citizens and certain minors.
Dual-citizens and certain minors (defined next) are not
subject to the expatriation tax even if they meet (1) or (2)
above. However, they still must provide the certification
required in (3) above.
Certain dual-citizens. You may qualify for the
exception described above if you meet the following
requirements.
• You became at birth a U.S. citizen and a citizen of
another country and you continue to be a citizen of, and are
taxed as a resident of, that other country.
• You were a resident of the United States for not more
than 10 years during the 15-tax-year period ending with the
tax year during which the expatriation occurred. For the
purpose of determining U.S. residency, use the substantial
presence test described in chapter 1 of Pub. 519.
Certain minors. You may qualify for the exception
described above if you meet the following requirements.
• You expatriated before you were 181/2.
• You were a resident of the United States for not more
than 10 tax years before the expatriation occurs. For the
purpose of determining U.S. residency, use the substantial
presence test described in chapter 1 of Pub. 519.

If you are subject to tax under section 877, you are no
longer taxed as a citizen or resident on your worldwide
income. However, you must compute your tax as a
nonresident according to the special rules of section 877.
These rules expand the categories of income and gain on
which you owe tax. You are also subject to special rules for
gift and estate tax purposes that differ from those applicable
to other nonresident aliens.
Tax consequences of presence in the United States
after expatriation. If, for any tax year during the 10-year
period in which you are otherwise subject to section 877,
you are present in the United States for more than 30 days
in a calendar year ending in such tax year, you will be
treated as a U.S. citizen or resident for that tax year. You
will be subject to U.S. tax on your worldwide income unless
the following exception applies.
Exception. You can be present in the United States for
up to 60 days without being treated as a U.S. citizen or
resident if you are performing personal services in the
United States for an employer who is not related (within the
meaning of sections 267 and 707) to you and you meet
either of the following requirements.
• You were a U.S. citizen and, within a reasonable period
following your expatriation, you became a citizen or resident
fully liable to tax in the country in which you, your spouse, or
either of your parents was born; or
• For each year in the 10-year period ending on the date of
expatriation, you were physically present in the United
States for 30 days or less.

Taxation Under Section 877A
If you are a covered expatriate in the year you expatriate,
you are subject to income tax on the net unrealized gain in
your property as if the property had been sold for its fair
market value on the day before your expatriation date
(“mark-to-market tax”). This applies to most types of
property interests you held on the date of your expatriation.
But see Exceptions below.
Gains from deemed sales are taken into account without
regard to other U.S. internal revenue laws. Losses from
deemed sales are taken into account to the extent otherwise
allowed under U.S. internal revenue laws. However, section
1091 (relating to the disallowance of losses on wash sales
of stock and securities) does not apply. The net gain that
you otherwise must include in your income is reduced (but
not below zero) by $627,000.
Exceptions. The mark-to-market tax does not apply to the
following.
1. Eligible deferred compensation items.
2. Ineligible deferred compensation items.
3. Specified tax deferred accounts.
4. Interests in nongrantor trusts.

See Pub. 519, U.S. Tax Guide for Aliens, for details
about what constitutes a day of presence in the United
States.

When To File
If you are required to file Form 1040NR, U.S. Nonresident
Alien Income Tax Return, attach this form to your timely filed
Form 1040NR and send a copy to the address under Where
To File below. If you are not required to file Form 1040NR,
send this form to the address under Where To File below by
the due date for filing Form 1040NR.

Where To File
If you are present in the United States following your
expatriation and are subject to tax as a U.S. citizen or
resident, file Form 8854 with your Form 1040 and send a
copy to the address below.

Instead, items (1) and (4) are subject to withholding at
source. In the case of item (2), you are treated as receiving
the present value of your accrued benefit as of the day
before the expatriation date. In the case of item (3), you are
treated as receiving a distribution of your entire interest in
the account on the day before your expatriation date. See
paragraphs (d), (e), and (f) of section 877A for more
information.
Deferral of payment of mark-to-market tax. You can
make an irrevocable election to defer payment of the
mark-to-market tax imposed on the deemed sale of
property. If you make this election, the following rules apply.
1. You make the election on a property-by-property
basis.
2. The deferred tax on a particular property is due on the
return for the tax year in which you dispose of the property.
3. Interest is charged for the period the tax is deferred.
4. The due date for the payment of the deferred tax
cannot be extended beyond the earlier of the following
dates.

Department of the Treasury
Internal Revenue Service
Philadelphia, PA 19255-0549

Expatriation After June 16, 2008
The rules in this section apply to persons who are
considered to have expatriated after June 16, 2008.

Who Must File
If you expatriated after June 16, 2008, the expatriation rules
apply to you if any of the following statements apply.
1. Your average annual net income tax for the 5 tax
years ending before the date of expatriation is more than
$145,000 ($139,000 for 2008).
2. Your net worth was $2 million or more on the date of
your expatriation.

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Line 3

a. The due date of the return required for the year of
death.
b. The time that the security provided for the property
fails to be adequate. See item (6) below.
5. You make the election in Part IV, Section C.
6. You must provide adequate security (such as a bond).
7. You must make an irrevocable waiver of any right
under any treaty of the United States that would preclude
assessment or collection of any tax imposed by section
877A.

Enter the country of which you are considered a resident for
tax purposes if it is different from the country in which your
principal foreign residence is located.

Line 4
Your expatriation date is the date you relinquish citizenship
(in the case of a former citizen) or terminate your long-term
residency (in the case of a former U.S. resident). See Date
of relinquishment of U.S. citizenship or Date of termination
of long-term residency on page 1.

Line 5

When To File

If you are a person who expatriated between June 3, 2004,
and June 17, 2008, and you have not yet notified the
Secretary of State or Secretary of Homeland Security in
connection with your expatriating act, you must file an
amended Form 8854 stating the date on which such
notification occurs.
Citizen. Check this box if you are a former U.S. citizen, and
enter the date on which you gave notice of your expatriation
to the Department of State.
Long-term resident. Check this box if you are a former
LTR, and enter the date on which you gave notice of
termination of your lawful permanent resident status to the
Department of Homeland Security.
Long-term resident with dual residency. Check this box
if you are an LTR with dual residency in a treaty country,
and enter the date you commenced to be treated for tax
purposes as a resident of the treaty country (see Date of
termination of long-term residency on page 1).
If you are a person who expatriated after June 16, 2008,
you expatriated as of the date that you commence to be
treated for tax purposes as a resident of the treaty country.
But you must notify the IRS by filing a Form 8833 and a
Form 8854 to avoid penalties.

If you expatriated after June 16, 2008, file this form by the
due date of your income tax return (including extensions). If
you are not required to file Form 1040 or Form 1040NR,
submit this form by the due date for filing Form 1040NR. For
most individuals, the due date before extensions will be
June 15, 2011.

Where To File
Attach Form 8854 to your Form 1040 or Form 1040NR and
send a copy of Form 8854 to the address below. If you are
not otherwise required to file a U.S. tax return, send Form
8854 to:
Department of the Treasury
Internal Revenue Service
Philadelphia, PA 19255-0549
.

Specific Instructions

See Chart A to determine which Parts of Form 8854 you
must complete.

Line 6

Chart A. Which Parts To Complete
IF your expatriation date is:

Enter the number of days or parts of days you were
physically present in the United States during the year.

THEN you must complete the
following Parts.
I

II

After June 3, 2004, and
before June 17, 2008

ú

ú

After June 16, 2008, and
before January 1, 2010

ú

During 2010

ú

III

IV

If you expatriated between June 4, 2004, and June
16, 2008, and were physically present in the United
CAUTION
States for more than 60 days during the tax year,
you will be taxed as a U.S. citizen or resident for that tax
year. For more information, see Tax consequences of
presence in the United States after expatriation on page 2.

V

!

ú
ú
ú

Line 7

ú

List all countries (other than the United States) of which you
are a citizen and the date on which you became a citizen.

Identifying number. Generally, this number is your U.S.
social security number. An incorrect or missing identifying
number may result in a continued obligation to file U.S. tax
returns as a citizen or resident of the United States for
persons expatriating after June 3, 2004, and before June 17,
2008, and/or a penalty of $10,000. If you were never issued
a social security number, please attach a statement
explaining the reason.

Line 8
If you are a former U.S. citizen, indicate how you became a
U.S. citizen.

Part II—For Persons Who
Expatriated After June 3, 2004, and
Before June 17, 2008

Part I — General Information
This section is to be completed by all filers.

Line 1

Line 1

Check the “No” box if you expatriated after June 3, 2004,
and before June 17, 2008, and have not previously filed
Form 8854. You must complete Form 8854 for the year in
which you expatriated for immigration purposes before you
can file Form 8854 for the current year. You can download
Form 8854 for 2007 and 2008 at IRS.gov. For years before
2007, get Pub. 1796, IRS Tax Products DVD. For
information on how to get Pub. 1796, see Quick and Easy
Access to Tax Help in the 2010 Instructions for Form 1040
or the 2010 Instructions for Form 1040A, or Other Ways to
Get Help in the 2010 Instructions for Form 1040EZ.

If you have a P.O. box, enter your box number instead of
your street address only if your post office does not deliver
mail to the street address.

Line 2
Enter the information in the following order: street address,
city, province or state, and country. Follow the country’s
practice for entering the postal code. Do not abbreviate the
country name.

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Part IV—For Persons Who
Expatriated During 2010

Check the “Yes” box if you completed Form 8854 for any
period after June 3, 2004, and before June 17, 2008. Enter
the tax year for which you first filed Form 8854 and go to line
2.

Section A—Expatriation Information

Line 2

This section must be completed by all individuals who
expatriated in 2010.

If you were physically present in the United States more
than 30 days but not more than 60 days during the tax year,
complete lines 2a and 2b. If you answer “No” to either
question, you will be taxed as a U.S. citizen or resident and
must file Form 1040 for the current tax year. If you answer
“Yes” to both questions, you remain subject to section 877
for the tax year.

Line 2
You can use the balance sheet on page 5 of the form to
arrive at your net worth.

Line 5
Check the “Yes” box if:
• You expatriated before you were 181/2, and
• You have been a resident of the United States for not
more than 10 tax years before you expatriated. For the
purpose of determining U.S. residency, use the substantial
presence test described in chapter 1 of Pub. 519.

Part III—For Persons Who
Expatriated After June 16, 2008,
and Before January 1, 2010

You must file Part III if you:
1. Deferred tax on any property on your 2008 or 2009
Form 8854;
2. Reported an eligible deferred compensation item on
your 2008 or 2009 Form 8854; or
3. Reported an interest in a nongrantor trust on your
2008 or 2009 Form 8854.

Line 6
Check the “Yes” box if you have complied with your tax
obligations for the 5 tax years ending before the date on
which you expatriated, including but not limited to, your
obligations to file income tax, employment tax, gift tax, and
information returns, if applicable, and your obligation to pay
all relevant tax liabilities, interest, and penalties. You will be
subject to tax under section 877A if you have not complied
with these obligations, regardless of whether your average
annual income tax liability or net worth exceeds the
applicable threshold amounts.

Line 1
Use the information from Part B, line 8, of your 2008 Form
8854, or Part IV, line 9, of your 2009 Form 8854, to
complete columns (a), (b), and (c).

Section B—Property Owned on Date of
Expatriation

If you disposed of any property in 2010 on which you
deferred tax on a previous return, also complete column (d).
You must report the gain or loss from the property disposed
of on the appropriate line (or schedule) of Form 1040NR.

Complete Section B only if you are a covered expatriate
(see Covered expatriate on page 2). If you need additional
space for the description of property, or if you need
additional entry lines, attach a continuation statement.

You must pay the deferred tax, plus interest, on any
property you disposed of, no later than the due date
CAUTION
(without extensions) of your 2010 Form 1040NR.
See Satisfying your deferred tax liability on page 7 for
information on arranging payment.

!

Line 7
None of the amounts checked on line 7 are subject to the
mark-to-market tax. Do not include them on line 8.
Some of these amounts may be otherwise taxable or
subject to income tax withholding at source. You
must provide Form W-8CE to the payer of the
relevant items. See paragraphs (d), (e), and (f) of section
877A for more information.
Line 7a. Generally, a deferred compensation item is one of
the following.
1. Any interest in a plan or arrangement described in
section 219(g)(5). This includes a qualified pension,
profit-sharing (including 401(k)), annuity, SEP, and SIMPLE
plan.
2. Any interest in a foreign pension plan or similar
retirement arrangement or program.
3. Any item of deferred compensation. This is any
amount of compensation if, under the terms of the plan,
contract, or other arrangement providing for such
compensation, the following conditions were met.
a. You had a legally binding right on your expatriation
date to such compensation,
b. The compensation has not been actually or
constructively received on or before the expatriation date,
and
c. The compensation is payable on or after the
expatriation date.
Examples of items of deferred compensation include: a
cash-settled stock appreciation right, a phantom stock
arrangement, a cash-settled restricted stock unit, an
unfunded and unsecured promise to pay money or other
compensation in the future (other than such a promise to
transfer property in the future), and an interest in a trust

Line 2

TIP

Check the “Yes” box if you received any distributions of
eligible deferred compensation items in 2010. Enter the part
of the distribution that you would include in gross income if
you continued to be subject to tax as a U.S. citizen or
resident. Also enter the total amount of tax withheld by the
payer(s) of any eligible deferred compensation items.
Do not enter the part of any payment that is
attributable to services performed outside the United
CAUTION
States before or after the expatriation date while you
were not a citizen or resident of the United States.

!

Line 3
Unless the exception below applies, check the “Yes” box if
you received any direct or indirect distributions of property
(including money) from a nongrantor trust in 2010. Enter the
part of the distribution that you would include in gross
income if you continued to be subject to tax as a U.S. citizen
or resident. Also enter the total amount of tax withheld by
the payer(s) of any distribution.
Do not include any distribution from a trust if your
interest in the trust was treated in 2008 or 2009 as a
CAUTION
deferred compensation item or part of a specified tax
deferred account.

!

Exception. Do not check the “Yes” box if you elected on
your 2008 or 2009 Form 8854 to be treated as having
received the value of your entire interest in the trust as of
the day before your expatriation date.

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described in section 402(b)(1) or (4) (commonly referred to
as a secular trust).
4. Any property, or right to property, that you are entitled
to receive in connection with the performance of services to
the extent not previously taken into account under section
83 or in accordance with section 83. Examples of these
items include, but are not limited to, restricted stock,
stock-settled stock appreciation rights, and stock-settled
restricted stock units.

value, if ascertainable, of your interest in the trust as of the
day before the expatriation date by following the procedures
set forth in Rev. Proc. 2010-4, 2010-1 I.R.B. 122, available
at www.irs.gov/irb/2010-01_IRB/ar09.html. You must make
this election by checking the box under line 7d of this form
and attaching a copy of the letter ruling both to this form and
to your timely filed tax return (including extensions for the
2010 tax year). Until you obtain the valuation letter ruling
and provide a copy of such letter ruling to the trustee of the
nongrantor trust together with certification, under penalties
of perjury, that you have paid all tax due as a result of your
election, any taxable distributions that you receive from the
trust will be subject to 30% withholding.
Note. If you have an interest in more than one nongrantor
trust, you must attach a statement to the form that
separately identifies each nongrantor trust and includes one
of the following statements for each interest.
1. “I waive any right to claim any reduction in withholding
on any distribution from such trust under any treaty with the
United States.” or
2. “I elect under section 877A(f)(4)(B) to be treated as
having received the value of my entire interest in the trust
(as determined for purposes of section 877A) as of the day
before my expatriation date. I attach a copy of my valuation
letter ruling issued by the IRS. ”

For more information, see section 5B of Notice 2009-85,
2009-45 I.R.B. 598, available at www.irs.gov/irb/
2009-45_IRB/ar10.html.
Eligible deferred compensation item means any deferred
compensation item with respect to which: (i) the payer is
either a U.S. person or a non-U.S. person who elects to be
treated as a U.S. person for purposes of section 877A(d)(1)
and (ii) the covered expatriate notifies the payer of his or her
status as a covered expatriate and irrevocably waives any
right to claim any withholding reduction on such item under
any treaty with the United States. Special guidance will be
issued providing a procedure for a payer who is a non-U.S.
person and wishes to be treated as a U.S. person for
purposes of section 877A(d)(1).
Note. If you have more than one eligible deferred
compensation item, you must attach a statement to the form
that separately identifies each eligible deferred
compensation item and includes the following language for
each item. “I irrevocably waive any right to claim any
reduction in withholding for this eligible deferred
compensation item under any treaty with the United States.”
Line 7b. Ineligible deferred compensation item means any
deferred compensation item that is not an eligible deferred
compensation item.
Note. If you have more than one ineligible deferred
compensation item, you must attach a statement to the form
that separately identifies each ineligible deferred
compensation item and provides the present value of such
ineligible deferred compensation item as of the day before
your expatriation date.
Line 7c. A specified tax deferred account includes:
1. An individual retirement plan (except those described
in section 408(k) or 408(p)),
2. A Coverdell education savings account, or
3. A health savings account or an Archer medical
savings account.

Line 8
Column (a). An interest in property includes money or
other property, regardless of whether it produces any
income or gain. In addition, an interest in the right to use
property will be treated as an interest in such property.
However, do not list the following.
1. Deferred compensation items.
2. Specified tax deferred accounts.
3. Interests in nongrantor trusts.
You are considered to own any interest in property that
would be included in your gross estate for federal estate tax
purposes under Chapter 11 of Subtitle B of the Code if you
died on the day before the expatriation date as a citizen or
resident of the United States. Whether property would be
included in your gross estate will be determined without
regard to sections 2010 through 2016. For this purpose, you
are considered to own your beneficial interest(s) in each
trust (or portion of a trust), other than a nongrantor trust
subject to section 877A(f), that would not be included in your
gross estate as described in the preceding sentences. Your
beneficial interest(s) in such a trust shall be determined
under the special rules set forth in section III of Notice
97-19, which is on page 40 of Internal Revenue Bulletin
1997-10 at www.irs.gov/pub/irs-irbs/irb97-10.pdf.
Column (b). Use the fair market value (FMV) on the day
before your expatriation date. FMV is the price at which the
property would change hands between a buyer and a seller
when both have reasonable knowledge of all the necessary
facts and neither has to buy or sell. If parties with adverse
interests place a value on property in an arm’s-length
transaction, that is strong evidence of FMV.
Column (c). Generally, the cost or other basis in this
column cannot be less than the fair market value of the
property on the date you first became a U.S. resident.
However, you can make an irrevocable election to
determine basis without regard to this restriction. Print
“(h)(2)” after any entry for which you make this election.
Column (e). Before you complete column (e), you must
allocate the exclusion amount to the gain properties on a
separate schedule. Attach a copy of the separate schedule
to this form. To allocate the exclusion amount, determine the
gain of each gain property listed in column (a) and enter that
gain in column (d). If the total gain of all the gain properties
exceeds the exclusion amount ($627,000), then allocate the
entire exclusion amount to the gain properties by multiplying

Note. If you have more than one specified tax deferred
account, you must attach a statement to the form that
separately identifies each specified tax deferred account
and provides the entire account balance of each specified
tax deferred account on the day before your expatriation
date.
Line 7d. A nongrantor trust is the portion of any trust,
whether domestic or foreign, of which you were not
considered the owner on the day before your expatriation
date. You are considered a beneficiary of such trust if:
1. You are entitled or permitted, under the terms of the
trust instrument or applicable local law, to receive a direct or
indirect distribution of trust income or corpus (including, for
example, a distribution in discharge of an obligation);
2. You have the power to apply trust income or corpus
for your own benefit; or
3. You could be paid from the trust income or corpus if
the trust or the current interests in the trust were terminated.
Unless you elect to be treated as having received the
value of your interest in the trust, as determined for
purposes of section 877A, as of the day before your
expatriation date, you may not claim a reduction in
withholding on any distribution from the trust under any
treaty with the United States. Before you can make the
election, you must get a letter ruling from the IRS as to the

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the exclusion amount by the ratio of the gain determined for
each gain property in column (d) over the total gain of all
gain properties listed in column (d). After you have allocated
the exclusion amount to the gain properties, subtract the
exclusion amount allocated to each gain property from the
gain reported for that property in column (d), and enter the
resulting amount of gain in column (e). If the total gain of the
gain properties in column (d) is less than the exclusion
amount (but greater than -0-), then you must use the total
gain amount as the exclusion amount, and you must
allocate the exclusion amount, as adjusted, to the gain
properties under the method described above. The
exclusion amount allocated to each gain property may not
exceed the amount of that gain property’s built-in gain.

deferral in Section C, line 14, is $575,000. You must go
back to Section B, line 8, column (g), to allocate the deferred
tax among the individual properties.

!

CAUTION

See the instructions for Section C and Notice 2009-85,
section 3E, for more information on deferring tax.
Reporting gain or loss. You must report and recognize
the gain (or loss) of each property reported in line 8, column
(a), on the relevant form or schedule of your Form 1040 for
the portion of the year that includes the day before your
expatriation date. The return to which you attach your form
or schedule will depend on your status at the end of the
year. See Pub. 519, chapter 1, to determine which form you
should file. The gain from column (e) or loss from column (d)
attributable to each property is reported in the same manner
as if the property had actually been sold. For example, gain
recognized from the deemed sale of a rental property that
has been depreciated is reported on Form 4797 as if it had
been sold. Gain recognized from the deemed sale of
personal property (such as stock or a personal residence) is
reported on Schedule D as if it had been sold. Capital gain
retains its character as capital gain; ordinary gain retains its
character as ordinary income.

See Notice 2009-85, section 3B, for more information.
Example. X, a covered expatriate, renounced his
citizenship on Date 2. On Date 1, the day before X’s
renunciation of his citizenship, X owned three assets, which
he had owned for more than one year. Asset A is business
property and assets B and C are personal property. As of
Date 1, Asset A had a fair market value of $2,000,000 and a
basis of $200,000, Asset B had a fair market value of
$1,000,000 and a basis of $800,000, and Asset C had a fair
market value of $500,000 and a basis of $800,000. X must
allocate the exclusion amount as follows:
Step 1: Determine the built-in gain or loss of each asset
by subtracting the basis from the FMV of the asset on Date
1.
Basis
Asset A
Asset B
Asset C

$200,000
$800,000
$800,000

FMV

Section C—Deferral of Tax
Use lines 12 through 15 to figure the amount of tax you can
defer. Before completing lines 12 through 15, you must fill
out two hypothetical individual income tax returns using
Form 1040. The first return includes all income, including the
section 877A(a) gain and loss. The second return includes
all income except the section 877A(a) gain and loss. Attach
both returns to this Form 8854.

Built-in Gain/Loss

$2,000,000
$1,000,000
$500,000

$1,800,000
$200,000
($300,000)

Step 2: Allocate the exclusion amount to each of the gain
properties by multiplying the exclusion amount ($627,000)
by a ratio of the deemed gain attributable to each gain
property over the total gain of all the gain properties deemed
sold.

Line 11
If you are not electing to defer tax on the gain reported on
line 8, column (e), report on the appropriate schedule or
form the gain amount attributable to each particular property
as listed in line 8, column (e), and report the loss amount
attributable to each particular property as listed in line 8,
column (d). If you are electing to defer tax, go to line 12.

$1,800,000
× $627,000 = $564,300
$2,000,000
$200,000
Asset B:
× $627,000 = $62,700
$2,000,000
Asset A:

Line 12
Enter on line 12 the amount of tax on line 60 of the first
return.

Step 3: Figure the final amount of deemed gain on each
asset by subtracting the exclusion amount allocated to each
asset.
Asset A:
Asset B:

You must attach a computation to show how you
figured the tax attributable to each property.

Line 13
Enter on line 13 the amount of tax on line 60 of the second
return.

$1,800,000 − $564,300 = $1,235,700
$200,000 − $62,700 = $137,300

Line 15

Column (f). Complete this column in order to list the
schedule or form on which you reported each gain or loss
amount for each property listed in column (a) (for example,
Schedule D (Form 1040) or Form 4797).

This is the amount of tax you elect to defer. If you are
deferring tax on all properties, enter the amount from line
14. If you are electing deferral on only certain properties, go
to Section B, line 8, column (g), to show how much deferred
tax is allocated to each property. Attach a computation.

Column (g). Complete this column only for those
properties for which you are electing to defer tax. First,
complete Section C to line 14. On a separate attachment,
allocate the amount of tax eligible for deferral among all gain
properties listed in line 8. The tax attributable to a particular
property is determined by multiplying the amount on Section
C, line 14, by the ratio of the gain for that property entered in
line 8, column (e), over the total amount of gain of all gain
properties of line 8, column (e). On line 8, column (g), enter
the tax attributable to each property for which you are
electing to defer tax. Then enter the total deferred tax for
those properties from line 10, column (g), on Section C, line
15.

Procedure for deferral of payment. In order to defer any
portion of the mark-to-market tax, you must enter into a tax
deferral agreement with the IRS and provide adequate
security. Notice 2009-85 contains a sample agreement
(Appendix A). Adequate security can be either:
1. A bond that is furnished to, and accepted by, the IRS,
that is conditioned on the payment of tax (and interest
thereon), and that meets the requirements of section 6325;
or
2. Another form of security (including letters of credit)
that is acceptable to the IRS.

Example. Line 8 lists four assets, each resulting in a
deemed gain in column (d). The amount of tax eligible for

You must contact the following office in order to make the
appropriate arrangements for providing security.

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Line 5a

Internal Revenue Service
SBSE Advisory Office
7850 SW 6th Court
Mail Stop 5780
Plantation, FL 33324-3202
Telephone: (954) 423-7344

List the appropriate amount in each column for all
nonmarketable stock and securities issued by foreign
corporations that would be controlled foreign corporations if
you were still a U.S. citizen or resident. Note that these
amounts are already included on line 5. Do not include
amounts on this line in the total on line 20.

You can pay any tax deferred, together with interest, at
any time. However, the time for payment of tax attributable
to a particular deferral asset can be extended only until a)
the year the asset is ultimately disposed of or b) the year of
death.

!

CAUTION

Line 8
List the total value of all your partnership interests. If you
hold an interest in one or more partnerships, you must
attach a statement to Form 8854 that lists each partnership
separately. Include the employer identification number
(EIN), if any, for each partnership. Describe the assets and
liabilities (using the categories on the balance sheet on page
5 of Form 8854) from your interest in each partnership.

You must file Form 8854 annually for years up to and
including the year in which the full amount of
deferred tax and interest is paid.

Waiver of treaty benefits. As a further condition to
making the election to defer payment of tax on a particular
asset, you must waive any right under any U.S. tax treaty
that would preclude the assessment or collection of the tax.
Satisfying your deferred tax liability. If you entered into
an agreement for the deferral of tax with the IRS Advisory
Office and dispose of one or more assets for which you
elected to defer tax, you must contact that office to make
arrangements to satisfy your tax liability. The address for the
Advisory Office is shown above.

Line 9
List the total value of all assets held by trusts that you are
considered to own for tax purposes. You must attach a
statement to Form 8854 that lists each trust separately.
Include the EIN (if any) for each trust. Describe the assets
and liabilities (using the categories on the balance sheet on
page 5 of Form 8854) from your interest in each trust.
Note. To determine if you are an owner of a trust, see
sections 671 through 679.

Line 10

Part V—Balance Sheet and Income
Statement

List the total value of all assets held by nongrantor trusts in
which you are considered to have a beneficial interest. You
must attach a statement to Form 8854 that lists each trust
separately. Include the EIN (if any) for each trust. Describe
the assets and liabilities (using the categories on the
balance sheet on page 5 of Form 8854) from your interest in
each trust.
Note. To determine if you are a beneficiary of a nongrantor
trust, you must allocate the property interests of the trust
based on all relevant facts and circumstances. To determine
the value of your beneficial interest, use the valuation
principles under section 2512. See Section III of Notice
97-19 for examples of how the property interests of a
nongrantor trust should be allocated to the beneficiaries of
the trust.

The financial information in Part V is required under section
6039G.

Who Must Complete
Section 877. If you checked the “Yes” box in Part II, line 1,
you must complete Part V.
Section 877A. If you expatriated in 2010, you must
complete Part V.

Schedule A—Balance Sheet
Note. If there have been significant changes in your assets
and liabilities for the period that began 5 years prior to your
expatriation and ended on the date that you first filed Form
8854, you must attach a statement explaining the changes.
Also, attach a similar statement if you expect significant
changes in the 10-year period after expatriation or
termination of residency.

Lines 11 and 12
Intangible property includes any of the following items that
have substantial value independent of the services of any
individual.
• Patent, invention, formula, process, design, pattern, or
know-how.
• Copyright, literary, musical, or artistic composition.
• Trademark, trade name, or brand name.
• Franchise, license, or contract.
• Method, program, system, procedure, campaign, survey,
study, forecast, estimate, customer list, or technical data.
• Any similar item.

Columns (a) and (b)
List the fair market value (in U.S. dollars) of each class of
assets and your U.S. adjusted basis (in U.S. dollars) in the
class of assets. You can use good faith estimates of fair
market value and basis. Formal appraisals are not required.

Column (c)

Line 19

Subtract the amounts in column (b) from the amounts in
column (a) and show the gain or (loss) in column (c). Enter
negative amounts in parentheses.

Attach a statement describing and listing the total value of
any other assets you have that are not included on lines 1
through 18.

Column (d)

Line 20

If you are a former U.S. LTR, it may benefit you to complete
column (d). For more details, see section 877(e)(3)(B) or
section 877A(h)(2). Only former U.S. LTRs should complete
column (d).

Combine lines 1 through 5 and 6 through 19, not including
any amounts on line 5a. The amounts on line 5a are
included in determining the amounts on line 5.

Line 23

Enter in column (d) the fair market value of each asset on
the date you first became a U.S. resident for tax purposes.
Note. The date you first became a U.S. resident for tax
purposes is not always the same as the date you first
became a U.S. lawful permanent resident. For details on
U.S. residency (including the substantial presence test), see
Pub. 519.

Attach a statement describing and listing the total value of
any other liabilities you have that are not included on lines
21 and 22.

Schedule B–Income Statement
Schedule B is required to satisfy the requirements of section
6039G(b)(5). You must complete Schedule B without regard

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to whether you have income subject to tax under section
877 or section 877A for the tax year.
Note. If you are subject to section 877 for all or a portion of
the tax year, and you have income subject to tax under
section 877 for the tax year, you are liable for tax on that
income as provided in section 1 or section 55, if the tax
computed under such sections exceeds the tax that would
be imposed on you under section 871. This generally means
that you must report all income subject to tax under section
877 on Form 1040NR, whether or not it is effectively
connected with the conduct of a trade or business in the
United States, and you are not permitted to exclude certain
types of income, such as portfolio interest or capital gains,
which normally would be exempt from tax in the hands of a
nonresident alien.
Treaty residents. Most U.S. tax treaties do not prevent the
United States from continuing to tax former citizens and
former LTRs under domestic law. Unless the treaty prevents
it, you will be subject to the rules of section 877.
If you deferred tax under section 877A(b), you waived
any right under a treaty that would prevent assessment or
collection of any tax imposed because of section 877A. If
you are a covered expatriate (see Covered expatriate on
page 2) and had eligible deferred compensation items or an
interest in a nongrantor trust as of the day before your
expatriation date, you waived any right under a treaty that
would reduce the rate of withholding tax on the payment of
such income item or trust distribution, unless you elected to
be treated as receiving the value of your entire interest in a
nongrantor trust as of the day before your expatriation date.

to enter into a gain recognition agreement with the IRS
deferring the gain, attach a copy of the agreement to your
Form 1040NR. If you dispose of any property covered by a
gain recognition agreement during the tax year, also list the
gain realized on this line. See Section V of Notice 97-19 for
additional information on exchanges and gain recognition
agreements.

Line 7
If, during the 10-year period beginning on the date of your
expatriation, or during the 5-year period prior to your
expatriation, you contributed U.S.-source property to a
foreign corporation that would be a controlled foreign
corporation had you remained a U.S. citizen or LTR, any
income or gain on that property received or accrued by the
foreign corporation during the tax year is treated as received
or accrued by you. See Section VI of Notice 97-19 for
additional information.

Line 8
Add lines 1f through 7 to report your total income from U.S.
sources.

Line 9
List the total amount of all other income or gain for the tax
year.

Penalties
If you are subject to section 877 or section 877A and
required to file Form 8854 for any tax year, and you fail to
file or do not include all the information required by the form
or the form includes incorrect information, you will owe a
penalty of $10,000 for that year, unless it is shown that such
failure is due to reasonable cause and not willful neglect.

Line 1
Include all U.S. source gross income that is not effectively
connected with the conduct of a U.S. trade or business on
lines 1a through 1e.

Signature

Form 8854 is not considered valid unless you sign it. If you
have someone else prepare Form 8854, you are still
responsible for its correctness.
Paid preparers. Generally, anyone you pay to prepare
Form 8854 must sign it in the space provided and fill in the
Paid Preparer Use Only area. The preparer must give you a
copy for your records. Someone who prepares Form 8854
but does not charge you a fee should not sign it.

Lines 3 Through 6
Lines 3 through 6 require reporting income that, but for the
application of section 877(d), would be income from sources
outside the United States. If you report income on these
lines, you also must report this income as taxable income on
Form 1040NR.

Line 5
If you owned (within the meaning of section 958(a) or (b)) at
any time during the 2-year period ending on the date of your
expatriation, more than 50% of the vote or value of a foreign
corporation, income or gain you receive from the foreign
corporation during the tax year will be treated as from
sources within the United States, to the extent such income
or gain is not more than the earnings and profits from such
stock that were earned or accumulated before the date of
your expatriation while such ownership requirements were
met.

Paperwork Reduction Act Notice. We ask for the
information on this form to carry out the Internal Revenue
laws of the United States. You are required to give us the
information. We need it to ensure that you are complying
with these laws and to allow us to figure and collect the right
amount of tax.
You are not required to provide the information requested
on a form that is subject to the Paperwork Reduction Act
unless the form displays a valid OMB control number. Books
or records relating to a form or its instructions must be
retained as long as their contents may become material in
the administration of any Internal Revenue law. Generally,
tax returns and return information are confidential, as
required by section 6103.
The average time and expenses required to complete
and file this form will vary depending on individual
circumstances. For the estimated averages, see the
instructions for your income tax return.
If you have suggestions for making this form simpler, we
would be happy to hear from you. See the instructions for
your income tax return.

Line 6
If, during the current tax year, you exchanged any property,
and (a) the gain would not (but for this paragraph) be
recognized on such exchange in whole or in part, (b) income
derived from such property was from sources within the
United States (or, if no income was so derived, would have
been from such sources), and (c) income derived from the
property acquired in the exchange would be from sources
outside the United States, then the property will be treated
as sold for its fair market value on the date of the exchange,
in accordance with Section V of Notice 97-19. The removal
of appreciated property with an aggregate fair market value
in excess of $250,000 from the United States is an
exchange of property covered by this provision.
Enter on line 6 the total amount of gain resulting from any
such exchanges during the tax year and, if you have elected

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