The Final Tax Return: What Year of Departure Actually Looks Like

For the year in which you renounce citizenship, you file a US tax return covering income from January 1 through your date of expatriation. Income earned after the date of renunciation by a former citizen who is not a US resident is generally not subject to US income tax — with the significant exception of US-source income subject to withholding, and the deferred compensation and trust provisions that apply to covered expatriates.

If you renounce on September 15, your return covers January 1 through September 15. US-source income earned after that date — dividends from US stocks, interest from US accounts, rental income from US property — may still be subject to US withholding tax depending on the applicable treaty provisions. This is why the structure of your assets at the time of renunciation affects your post-departure tax exposure, and why asset repositioning before the renunciation date can have lasting consequences.

Form 8854 must be filed with the departure-year return. It serves two functions: it is the administrative notification to the IRS that you have expatriated, and it is the mechanism through which covered expatriates calculate and report the exit tax. For non-covered expatriates, it is a shorter form — primarily the certification statement and basic identifying information. For covered expatriates, it includes the full mark-to-market gain calculation, the property-by-property asset schedule, and the net unrealized gain computation.

The certification on Form 8854 is made under penalties of perjury. It states that you have been compliant with all federal tax obligations for the five years preceding expatriation. If this is not true — if there are unfiled returns, unpaid taxes, or unresolved foreign account reporting failures — you cannot make the certification correctly, and making it incorrectly while knowing it is false is a federal crime separate from any civil tax liability. The certification is not a formality. It requires that the prior five years be clean before you sign it.

The departure-year return requires a preparer who handles expatriation returns regularly — not a general-practice CPA, not a tax software package, not an international tax firm that handles inbound foreign nationals. The return involves covered expatriate determination, dual-status analysis, exit tax calculation, deferred compensation treatment under Section 877A, and in many cases the intersection with a second country's tax system through a bilateral treaty. These are specialized competencies.

The most common errors involve the covered expatriate determination — preparers who do not run the five-year income average against the threshold, or who assess net worth only against US assets rather than worldwide assets. A covered expatriate who is filed as non-covered by a preparer who did not run the correct analysis has an incorrect return on file. The Form 8854 is wrong. The certification may be wrong. The statute of limitations does not protect against this because the form required to start the limitations period was filed incorrectly.

The second most common error is the FBAR and Form 8938 for the departure year. Both are still required through the date of expatriation, and the account balances during the transition period — when foreign accounts have been funded in preparation for departure — are often the highest they will ever be. A preparer who does not ask about foreign account balances during the departure year, or who assumes you already know to file separately with FinCEN, will miss the FBAR obligation entirely.

The departure-year return cannot be correct if the five preceding years are not correct. The income test lookback is five years. The certification of compliance covers five years. The Streamlined Filing Compliance Procedures for addressing prior-year failures require filing three years of amended returns. The departure-year return is the capstone of a six-year compliance window, not a standalone document.

This is why departure preparation, done correctly, begins well before the intended departure date. Americans who begin thinking about the final return in the year they intend to file it have, in many cases, already foreclosed the options that would have changed what is on that return. The prior-year income average that determines the income test is fixed by the time you pick up the pen on the departure return. The net worth on the day you walk into the consulate is determined by decisions made long before that day.