IRS Form 8854: Reporting Rules When You Give Up U.S. Citizenship

Walking away from U.S. citizenship—or giving up a green card you’ve held for years—may feel like closing one chapter of your life. But before you pack your bags and toast to a tax-free future, there’s one final piece of paperwork standing between you and freedom: IRS Form 8854.

This form decides whether the U.S. considers you a “covered expatriate,” and if so, whether the infamous exit tax comes knocking. In other words, even as you wave goodbye, Uncle Sam wants to know if you’ve settled the bill.

What is IRS Form 8854?

IRS Form 8854, officially called the Initial and Annual Expatriation Statement, is the tax form U.S. persons must file when they give up U.S. citizenship or end their long-term resident status. It’s not just paperwork—it’s how the Internal Revenue Service (IRS) keeps tabs on your departure and decides whether you’ll face additional tax obligations.

The form serves three main purposes:

• Declaration of expatriation: It notifies the IRS that you’ve officially given up your U.S. status, whether as a citizen or a lawful permanent resident.
• Asset disclosure: It requires you to list assets at their fair market value, which is crucial in determining whether you owe an exit tax.
• Compliance check: It confirms you’ve met your U.S. tax filing requirements for the five tax years leading up to your expatriation.

Filing requirements are strict. You’ll typically attach Form 8854 to your final U.S. income tax return—Form 1040 if you were a U.S. resident through expatriation, or Form 1040-NR if you’ve transitioned to nonresident status for that tax year. Missing it isn’t an option: without Form 8854, the IRS may classify you as a covered expatriate by default, with all the tax law consequences that entails.

Who needs to file Form 8854?

Form 8854 isn’t optional paperwork you can quietly ignore—it’s the document that determines how the IRS categorizes your exit from the U.S. tax system. Whether you owe exit tax or not, the form establishes your status and locks in your tax obligations.

Here’s who must file:

• U.S. citizens who have formally renounced or relinquished citizenship at a U.S. embassy or consulate.
• Lawful permanent residents (green card holders) who have held that status for at least 8 of the last 15 tax years, even if they no longer live in the U.S.
• Covered expatriates, which include those who either fail the compliance test (not up to date on the last five years of tax returns) or cross certain thresholds for net worth or average annual net income tax liability.

Even if you don’t owe the exit tax, failing to file Form 8854 automatically makes you a covered expatriate—which comes with hefty consequences for gifts, inheritances, and future U.S. tax connections.

Who is considered a covered expatriate?

Not everyone who gives up U.S. citizenship (or long-term green card status) is treated the same way. The IRS reserves the label “covered expatriate” for taxpayers who meet certain thresholds or fail compliance requirements. And that label matters—because it can trigger the dreaded exit tax and long-term reporting rules.

You’re considered a covered expatriate if you:

• Have a net worth of $2 million or more on the date of expatriation, calculated using fair market value.
• Show an average annual net income tax liability above the IRS threshold (adjusted each year; for 2025, it’s just over $206,000).
• Fail the compliance test by not certifying—under penalties of perjury—that you filed accurate and complete U.S. tax returns for the five years before expatriation.

For dual citizens or minors, some exceptions may apply, but most expats who hit one of these triggers fall squarely into “covered” territory.

What is the exit tax?

For covered expatriates, giving up U.S. citizenship (or long-term green card status) can feel like triggering a financial booby trap: the exit tax. Under this rule, the IRS pretends you sold all your worldwide assets at fair market value the day before the date of your expatriation.

Here’s how it works:

• Taxable gains above the annual exclusion amount (about $890,000 for 2025, adjusted each year) are subject to U.S. capital gains tax.
• Assets included: investments, real estate, certain distributions, and retirement accounts.
• Special rules apply to deferred compensation, pensions, and trust interests, which are often taxed differently or deemed immediately taxable.

This tax ensures the U.S. gets a final cut before you sever ties with the system.

Filing requirements and deadlines

If there’s one thing that catches new expatriates off guard, it’s the paperwork. Filing Form 8854 isn’t just a formality—it’s the step that finalizes your break with the U.S. tax system. Miss it, and the IRS will treat you as a covered expatriate by default, even if you wouldn’t have qualified otherwise.

• When to file: Attach Form 8854 to your final federal tax return (Form 1040 or 1040-NR) for the year of expatriation.
• Where to file: A signed copy must also be mailed separately to the IRS at the designated mailing address listed in the instructions.
• Due date: Same as your income tax return—generally April 15 of the following year—with extensions available if you extend your return.
• Documentation: Complete the financial schedules on Form 8854 and attach the form to your final return. Also mail the required copy to the IRS at the address in the instructions.

How to complete IRS Form 8854

Form 8854 isn’t the kind of paperwork you can scribble through on autopilot. Each section ties directly into whether the IRS considers you a covered expatriate, so accuracy matters as much as timeliness. Here’s what to expect when working through it:

• Part I – General Information: Enter your identifying details, including Social Security Number, date of your expatriation, and a brief record of your residency history.
• Part II – Assets and Liabilities: List all assets and liabilities at fair market value to calculate your net worth. This step is central to determining if you meet the $2 million threshold.
• Part III – Tax Compliance Certification: Certify, under penalties of perjury, that you’ve met your U.S. tax obligations for the five years prior to expatriation.
• Part IV–V – Exit Tax Calculations: Report mark-to-market gains, deferred income, and any special rules for pensions, trusts, or other distributions.

The IRS expects consistency with prior filings, so double-check that your numbers line up with earlier returns and foreign asset reporting. A single mismatch can raise red flags you don’t want at this stage.

Penalties for non-compliance

The IRS doesn’t take kindly to missing or incomplete Form 8854 filings. Even if you don’t meet the income or net worth thresholds, skipping the form can land you in “covered expatriate” territory by default. That label carries consequences you probably don’t want.

• Automatic covered expatriate status: Failing to file or filing an incomplete return makes you covered, regardless of your actual tax situation.
• Exit tax liability: You could owe expatriation tax even if you fall below the thresholds for net worth or average annual tax liability.
• Enforcement measures: The IRS may impose extra penalties, extend statutes of limitation, and, in willful cases, pursue criminal penalties.

Closing the chapter on U.S. taxes

Form 8854 isn’t just another piece of paperwork—it’s the IRS’s way of making sure you’ve squared away your tax obligations before you officially leave the U.S. system behind. File it correctly, and you can move forward knowing you won’t be blindsided by exit tax surprises or future reporting headaches.

At Bright!Tax, our CPAs specialize in helping expats and expatriates navigate complex reporting requirements—from lifetime gift tracking to the final steps of giving up U.S. citizenship. If Form 8854 is on your horizon, let us guide you through the process so you can close this chapter with confidence.

Frequently Asked Questions