IRS Form 8854 – IRS Forms, Instructions, Pubs 2026 – If you’re considering renouncing your U.S. citizenship or terminating your long-term residency, navigating the tax implications is crucial. IRS Form 8854, known as the Initial and Annual Expatriation Statement, plays a key role in this process. This form helps ensure compliance with U.S. tax laws during expatriation and can trigger potential exit taxes for certain individuals. In this comprehensive guide, we’ll break down what Form 8854 is, who needs to file it, the associated tax rules, and step-by-step filing instructions. Whether you’re a dual citizen, green card holder, or high-net-worth expat, understanding these requirements can help you avoid penalties and plan effectively.
What Is IRS Form 8854 and Its Purpose?
IRS Form 8854 is a required filing for U.S. citizens who relinquish their citizenship or long-term residents who end their U.S. residency status. It serves two main functions: certifying that you’ve met all federal tax obligations for the five tax years preceding your expatriation and providing ongoing annual reporting if applicable. The form applies to individuals who expatriate on or after June 4, 2004, but the modern expatriation tax rules under Internal Revenue Code (IRC) Section 877A kick in for those expatriating on or after June 17, 2008.
Expatriation refers to formally giving up U.S. citizenship or terminating long-term residency (typically after holding a green card for at least 8 out of the last 15 tax years). Without filing Form 8854, you may remain subject to U.S. taxation on worldwide income, even after leaving the country. The form also helps the IRS enforce the “exit tax” on covered expatriates, which treats certain assets as sold the day before expatriation.
For the latest version, download the PDF from the IRS website: https://www.irs.gov/pub/irs-pdf/f8854.pdf. As of 2026, the form and instructions reflect updates for tax year 2025, including inflation-adjusted thresholds.
Who Needs to File IRS Form 8854?
Not every expat must file Form 8854—only those meeting specific criteria. Here’s a breakdown:
- U.S. Citizens Renouncing Citizenship: If you relinquish U.S. citizenship, you must file an initial Form 8854 with your final U.S. tax return (Form 1040 or 1040-SR).
- Long-Term Residents Terminating Status: Green card holders who have been lawful permanent residents in at least 8 of the last 15 tax years must file if they abandon their status (e.g., via DHS Form I-407) or switch to treaty-based foreign residency without waiving U.S. tax benefits.
- Covered Expatriates: If you qualify as a covered expatriate (see below), you’ll need to provide detailed asset information and may owe an exit tax.
- Annual Filers: Those who expatriated before the current year and have deferred tax obligations, eligible deferred compensation, or interests in nongrantor trusts must file annually for up to 10 years or until obligations are resolved.
Dual citizens who became U.S. citizens at birth and remain citizens of another country may qualify for exceptions to certain covered expatriate tests, but they still must certify tax compliance. Minors expatriating before age 18½ with limited U.S. residency may also be exempt from some thresholds.
If you fail to file, you could face a $10,000 penalty, and the IRS may continue treating you as a U.S. taxpayer.
What Is a Covered Expatriate? Key Tests and Exceptions
A “covered expatriate” faces the full brunt of expatriation tax rules, including the mark-to-market exit tax. You are considered covered if any of the following apply on your expatriation date:
- Income Tax Liability Test: Your average annual net income tax liability for the five tax years before expatriation exceeds $206,000 (for 2025 expatriations).
- Net Worth Test: Your net worth is $2 million or more.
- Certification Test: You fail to certify (under penalties of perjury) that you’ve complied with all U.S. tax obligations for the five preceding years, including filing income, gift, and information returns.
Exceptions exist for certain dual citizens and minors, but only for the income and net worth tests—they must still pass the certification test. Recent guidance also addresses Section 2801, which imposes taxes on U.S. recipients of gifts or bequests from covered expatriates.
Expatriation Tax Rules: The Exit Tax Explained
For covered expatriates, Section 877A imposes an “exit tax” by deeming a sale of worldwide assets at fair market value (FMV) the day before expatriation. Gains are taxed as ordinary income or capital gains, with losses allowed (except wash sales). Key details:
- Exclusion Amount: For 2025, net gains are reduced by $890,000 (adjusted annually for inflation).
- Deferred Compensation: Eligible items (e.g., qualified plans) are subject to 30% withholding; ineligible items are taxed on present value.
- Tax-Deferred Accounts: Entire interest (e.g., IRAs) is included in income.
- Nongrantor Trusts: Distributions are taxed with 30% withholding unless elected otherwise.
- Deferral Option: You can defer tax on specific assets by posting security, paying interest, and waiving treaty benefits.
Non-covered expatriates avoid the exit tax but must still file the initial Form 8854 to certify compliance.
How to Fill Out IRS Form 8854: Step-by-Step?
Form 8854 has three main parts. Use the instructions (available at https://www.irs.gov/pub/irs-pdf/i8854.pdf) for detailed guidance.
Part I: General Information
- Provide your identifying number (SSN or ITIN), address, expatriation date, and citizenship details.
- Check if this is an initial or annual statement.
Part II: Initial Expatriation Statement (For Those Expatriating in the Current Year)
- Section A: Report five-year tax liability, net worth, and exception qualifications.
- Section B: Balance sheet listing assets (e.g., cash, real estate, pensions) and liabilities at FMV and basis.
- Section C: For covered expatriates, list property subject to mark-to-market, calculate gains/losses, and apply the $890,000 exclusion.
- Section D: Elect tax deferral if desired, including hypothetical tax calculations.
Part III: Annual Expatriation Statement (For Prior-Year Expatriates)
- Report dispositions of deferred property, distributions from deferred compensation, or trusts.
Attach required statements for assets, exceptions, and computations. File with your tax return by the due date (including extensions) to the IRS address in the instructions.
Recent Updates and Changes to Form 8854
As of 2026, key updates include:
- Inflation adjustments: $206,000 income threshold and $890,000 exclusion for 2025.
- Enhanced guidance on Section 2801 for gifts/bequests.
- No major structural changes, but the IRS continues to emphasize accurate asset reporting to avoid audits.
Penalties and Tips for Compliance
Failing to file or providing incomplete information can result in a $10,000 penalty per year, plus continued U.S. tax liability. To stay compliant:
- Consult a tax professional experienced in expatriation.
- Gather records for five prior years’ taxes.
- Consider relief procedures if you’re not a covered expatriate but face challenges.
Renouncing U.S. citizenship or residency is a significant step with lasting tax effects. By properly filing IRS Form 8854, you can minimize risks and ensure a smooth transition. For personalized advice, visit IRS.gov or speak with a qualified advisor.