IRS Instruction 8854 – IRS Forms, Instructions, Pubs 2026 – Relinquishing U.S. citizenship or terminating long-term residency comes with significant tax responsibilities. IRS Form 8854, known as the Initial and Annual Expatriation Statement, plays a crucial role in ensuring compliance with U.S. tax laws during and after expatriation. This form helps expatriates certify their tax obligations and report relevant financial information. In this article, we’ll break down the IRS instructions for Form 8854, including who needs to file, key deadlines, and step-by-step guidance on completing the form. Whether you’re a U.S. citizen expatriating abroad or a green card holder ending your residency, understanding these requirements can help avoid costly penalties.
What Is IRS Form 8854?
IRS Form 8854 is an information statement required for individuals who expatriate from the United States. It serves two main purposes: certifying that you’ve met your federal tax obligations for the five years preceding expatriation and fulfilling ongoing reporting requirements under Internal Revenue Code Section 6039G. The form applies to U.S. citizens who relinquish their citizenship and long-term residents (green card holders) who end their U.S. residency status.
Expatriation tax rules, often referred to as the “exit tax,” were updated under the Heroes Earnings Assistance and Relief Tax (HEART) Act of 2008. These provisions apply to those who expatriated on or after June 17, 2008, and Form 8854 is the primary tool for compliance. For earlier expatriations (after June 3, 2004, but before June 17, 2008), a modified version of the form may be used if not previously filed.
Who Must File IRS Form 8854?
Not every expatriate needs to file Form 8854, but the requirements are strict for those who do. Here’s a breakdown:
Initial Expatriation Statement (Parts I and II)
You must file the initial Form 8854 if you:
- Relinquished your U.S. citizenship in 2025.
- Terminated your long-term residency (LTR) in 2025.
LTR status applies if you’ve been a lawful permanent resident (green card holder) in at least 8 of the last 15 tax years ending with the year you cease to be treated as a U.S. resident. This excludes years where you were treated as a resident of another country under a tax treaty without waiving U.S. treaty benefits.
Annual Expatriation Statement (Parts I and III)
File the annual Form 8854 if you expatriated before 2025 and meet any of these conditions:
- You deferred tax payments on certain property.
- You have eligible deferred compensation items.
- You’re a beneficiary of a nongrantor trust.
Even if you’re not a “covered expatriate” (more on this below), you may still need to file the initial form to notify the IRS of your expatriation. Failure to file can result in continued treatment as a U.S. taxpayer until the form is submitted.
When and How to File Form 8854?
Timing is critical to avoid penalties. Attach the initial Form 8854 to your income tax return (Form 1040, 1040-SR, or 1040-NR) for the year that includes your expatriation date, and file by the return’s due date (including extensions). If no tax return is required, send Form 8854 directly to the IRS by the date the return would have been due.
For the annual statement:
- Attach it to your Form 1040-NR (or 1040/1040-SR if required).
- Send a copy marked “Copy” to the IRS.
- If no return is needed, submit by the hypothetical due date.
Mail originals and any tax deferral agreements to: Internal Revenue Service, 3651 S IH35 MS 4301 AUSC, Austin, TX 78741. The expatriation date is key—it’s the earliest date of official relinquishment, such as renouncing citizenship before a consular officer or filing Form I-407 for green card abandonment.
Step-by-Step Instructions for Completing Form 8854
Form 8854 is divided into three parts. All filers complete Part I, while Parts II and III depend on your situation.
Part I: General Information
This section is mandatory for everyone. Provide:
- Your identifying number (SSN; attach a statement if none).
- Address (use P.O. box if no street delivery).
- Country of tax residency (may differ from your physical residence).
- Expatriation details, including date, citizenship history, and permanent residency dates.
Part II: Initial Expatriation Statement (for 2025 Expatriates)
- Section A: Expatriation Information – Report your average annual net income tax for the prior 5 years (threshold: $206,000 for 2025). Include net worth via a balance sheet (threshold: $2 million). Note any exceptions for dual citizens or minors.
- Section B: Balance Sheet – List assets and liabilities at fair market value (FMV) in U.S. dollars on the day before expatriation. Categories include cash, securities, pensions, partnerships, trusts, and intangibles. Attach statements for trusts.
- Section C: Property Owned on Expatriation Date (for covered expatriates) – Detail FMV, basis, gains/losses, and exclusions (up to $890,000 for 2025). Handle deferred compensation, accounts, and trusts separately.
- Section D: Deferral of Tax – Elect to defer tax on specific property. File hypothetical returns to calculate the deferred amount, provide security, and waive treaty benefits.
Part III: Annual Expatriation Statement (for Pre-2025 Expatriates)
Report dispositions of deferred property, distributions from deferred compensation, and nongrantor trust distributions. Pay any tax and interest due by the return’s due date.
Tax Implications for Covered Expatriates
A “covered expatriate” faces the exit tax if they meet any of these tests:
- Average annual net income tax over $206,000 for the 5 prior years.
- Net worth of $2 million or more on the expatriation date.
- Failure to certify tax compliance for the prior 5 years.
Covered expatriates are subject to mark-to-market taxation on worldwide assets, treated as sold at FMV the day before expatriation. Gains over the $890,000 exclusion are taxable. Special rules apply to deferred compensation, IRAs, and trusts.
| Threshold | Amount for 2025 | Description |
|---|---|---|
| Average Annual Net Income Tax | $206,000 | For determining covered expatriate status based on income. |
| Net Worth | $2,000,000 | Minimum for net worth test. |
| Exclusion for Unrealized Gains | $890,000 | Amount subtracted from net gains before taxation. |
Penalties for Not Filing Form 8854
Failing to file Form 8854, or providing incomplete/incorrect information, can lead to a $10,000 penalty per year if you’re subject to Section 877A. This penalty may be waived if due to reasonable cause, not willful neglect. Additionally, non-filers may remain liable for U.S. taxes until the form is submitted.
Recent Updates for Tax Year 2025 and Beyond
The 2025 instructions include:
- Increased thresholds: $206,000 for income tax liability and $890,000 for gain exclusion.
- New guidance on Section 2801 (tax on gifts/bequests from covered expatriates).
- Simplified deferral processes: No need to contact IRS for security; appoint a U.S. agent and use Rev. Proc. 2025-1 for valuations.
Always check IRS.gov for the latest developments, as legislation can change.
Conclusion: Navigate Expatriation Taxes with Confidence
Filing IRS Form 8854 is a vital step in the expatriation process, ensuring you sever U.S. tax ties properly while minimizing liabilities. If you’re considering expatriation, consult a tax professional familiar with international tax rules to determine if you’re a covered expatriate and to complete the form accurately. By staying compliant, you can focus on your new life abroad without lingering U.S. tax worries. For the most current forms and instructions, visit the official IRS website.