Form 8854: what it is and who needs to file

Published on August 20, 2025

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What is IRS Form  8854 and when do you need to file it

Form 8854 is formally called the Initial and Annual Expatriation Statement. If you’re giving up US citizenship or formally ending your long‑term Green Card status, you must file it. Even if the exit tax doesn’t apply to you, the IRS still needs to know you’ve officially expatriated.

This is required under IRC section 6039G.

You file Form 8854 in the year you expatriate, usually along with your final US tax return. Skipping it can leave the IRS treating you as a US person, which may have tax implications down the road.

Who must file: US citizens and long‑term residents explained

You must file Form 8854 if you are:

A US citizen who renounces your citizenship, or
A long‑term lawful permanent resident who relinquishes their Green Card.
- This doesn’t apply to all LT permanent residents, it only applies when they give up the Green Card.

A long‑term resident is someone who held a Green Card for at least 8 of the past 15 tax years, up to the year they relinquish or return their Green Card.

Even if you don’t meet the financial tests for a “covered expatriate” (net worth under US$2 million, average annual US tax under the IRS threshold, and certification of five years of tax compliance), filing is still required. That’s the only formal way to terminate your US tax status.

If you don’t file when you need to, the IRS may automatically treat you as a covered expatriate by default. That can trigger the exit tax or other complications even if you didn’t meet the actual criteria.

Failing to file Form 8854 when required can bring a penalty of up to US$10,000, unless you can show you had a good reason for not filing, like misunderstanding requirements.

Covered expatriate status and calculating your exit tax triggers

When you file Form 8854, one of the biggest things the IRS looks at is whether you qualify as a “covered expatriate.” This is important because it decides whether the US exit tax might apply to you.

You’re considered a covered expatriate if any of the following apply at the time you give up your US citizenship or long-term green card:

Your net worth is over US$2 million
Your average annual US tax liability over the last five years is above a set amount (this threshold changes each year; for 2025, US$206,000)
- If you’re a dual citizen by birth then the US$2m and average annual liability thresholds don’t apply.
You haven’t certified that you were fully compliant with your US tax filings for the past five years

If you meet any of these, you’re considered a covered expatriate. That doesn’t automatically mean you owe tax, but it does mean you need to go through the exit tax calculation.

Here’s how that works: The IRS assumes you sold all of your worldwide assets the day before you expatriated. This is often called the “mark-to-market” rule. You calculate the gain as if everything was sold at its fair market value, and if the total gain is more than a certain amount, the excess is taxed.

For 2025, the exclusion amount is US$890,000. So, if your calculated gains are less than that, you may not owe anything. But anything over that could be subject to tax.

There are special rules for deferred compensation, pensions, and retirement accounts. Some of those get taxed differently or may have separate forms of reporting.

What Form 8854 requires: assets, liabilities, deferred compensation, and annual filing requirements

Form 8854 isn’t just a one-pager. It asks for quite a bit of detail, especially if you’re a covered expatriate. Here’s what the form includes:

Part I covers your personal details, like your name, citizenship status, and the date you gave up your citizenship or long-term residency.
Part II asks whether you’ve been in full compliance with US tax obligations for the five years before you expatriated. If you can’t honestly say yes, you may automatically be treated as a covered expatriate.
Part III is where you list your assets and liabilities. This part is key for calculating whether your net worth exceeds the US$2 million threshold. You also report any deferred compensation, retirement accounts, and trusts.

If you have deferred compensation, like a foreign pension or a stock option plan, you’ll need to complete additional schedules. The IRS wants to know how those assets will be taxed over time.

Also, if you’re a beneficiary of a trust, you’ll have to provide information about that too. And here’s something many people don’t realize: If you have deferred compensation or trust interests, you may have to keep filing Form 8854 every year until the money is fully distributed or your interest in the trust ends.

So even after you’ve expatriated, the IRS might expect ongoing updates from you, depending on your financial setup.

📣 Note! The ongoing trust reporting on Form 8854 only applies if you are a covered expatriate.

If you’re not a covered expatriate, you generally file Form 8854 just once for the year you give up citizenship or long-term residency, and you don’t have the continuing obligation for trust or deferred compensation reporting.

For a covered expatriate who’s a trust beneficiary, the IRS wants annual updates until the trust interest ends or is fully distributed, because the US exit tax rules can still apply to later distributions.

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Penalties for not filing or certifying compliance

If you’re supposed to file Form 8854 and don’t, the IRS can hit you with a penalty of up to US$10,000. That’s a flat fee for not filing the form when it’s required. And it doesn’t matter whether you owed tax or not, the penalty applies simply because you didn’t file the form.

The US$10,000 penalty for not filing Form 8854 applies to anyone who’s required to file it, not just covered expatriates.

So, even if you’re not a covered expatriate, failing to submit it when required can trigger that fine.

But there’s more to it than just the fine. If you don’t file Form 8854, the IRS doesn’t officially know you’ve left the US tax system. So they keep treating you like a US taxpayer. That means, even after giving up your citizenship or long-term green card, you could still be expected to file Form 1040 and pay US tax on your worldwide income. In practice, that means they’ll still expect annual Form 1040 filings and worldwide income reporting until they receive a properly completed 8854 confirming you’ve exited.

Until the IRS gets a properly completed Form 8854, your name stays in the system. That can bring unnecessary problems for years, especially if you’re trying to stay compliant while living in another country.

Step-by-step filing guide and planning tips for US expats

If you’re planning to expatriate, filing Form 8854 the right way is a key part of the process.

Make sure your last five years of tax filings are done
Before you expatriate, check that you’ve filed US tax returns for the past five years. This is important because it helps you avoid being classified as a “covered expatriate,” which could bring exit tax and extra reporting.
Get professional help
This is one of those times when working with a cross-border tax advisor makes sense. Someone who understands both US and international tax rules can help you calculate your net worth, confirm whether you meet the thresholds, and guide you through the whole filing process.
Value your assets carefully
If your total net worth is close to or over US$2 million, you’ll need accurate valuations of your assets. That includes property, investments, retirement accounts, and any business interests. You’ll also want to check the latest income tax liability threshold and the current exclusion amount for calculating any potential exit tax.
Know your deadline
Form 8854 is usually due when you file your final Form 1040 for the year you expatriated. If you’re not filing a 1040 that year, you still need to submit Form 8854 separately by that same deadline (including any extensions you may have filed).