Form W-8CE: Notice of Expatriation & Waiver of Treaty Benefits: The Form W-8CE Notice of Expatriation & Waiver of Treaty Benefits form is very important for covered expatriates facing the exit tax as a result of expatriation — especially when it involves eligible deferred compensation, such as a 401-K. The W-8CE timing issue is especially crucial. for eligible deferred compensation, such as the 401-K. That is because to avoid a deemed distribution of the current value of your 401K, you (U.S. Citizens and Long-Term Residents) must be sure that you timely update the U.S. Plan administrator about your new expatriate status by submitting form W-8CE.
The failure to timely report the W-8CE with the firm administrator can impact your immediate tax liability.
The Form W-8CE is the Notice of Expatriation and Waiver of Treaty Benefits. The purpose of the form is to notify payers of investments such as deferred compensation and/or deferred tax plans that you, the filer (you), are subject to the covered expatriate rules.
Unlike the mark-to-market election on non-realized gain, certain items are deemed distributed or if not deemed distributed (401K), subject to certain limitations (treaty benefits) and mandatory 30% withholding at the time of future distribution.
Who Must File the Form?
Certain covered expatriates are required to file the form. As provided in the instructions:
- Covered expatriates are required to give Form W-8CE to the payer if they had any of the items identified in Boxes 1 through 4 on the day before their expatriation date.
- In addition, all expatriates must file Form 8854 with the Internal Revenue Service
Common disclosure assets, include:
- Eligible Deferred Compensation Item.
- Ineligible Deferred Compensation Item
- Nongrantor Trust
When to File the Form W-8CE?
The Form W-8CE is filed on the earlier of:
(a) the day before the first distribution on or after the expatriation date, or
(b) thirty (30) days after the expatriation date for each specified tax deferred account, item of deferred compensation, or interest in a nongrantor trust.
*In almost all conceivable situations, the earlier date will be 30 days after the expatriation date.
Practice Pointer: File the Form within 30-days after expatriation
What Must the Payer Do with the Information on the W-8CE?
The responsibilities of the Payer is determined by the type of asset or investments.
As provided by the IRS:
Eligible Deferred Compensation
You must withhold 30% on any taxable payment to the covered expatriate
Ineligible Deferred Compensation
You must advise the covered expatriate within 60 days of receipt of this form of the present value of the individual’s accrued benefit in the deferred compensation item on the day before the expatriation date.
Specified Tax Deferred Account
You must advise the covered expatriate within 60 days of receipt of this form of the individual’s entire interest in the account on the day before the expatriation date
If the covered expatriate elects to be treated as receiving the value of his interest in the nongrantor trust on the day before his expatriation date, you must provide the covered expatriate within 60 days of receipt of this form with the information needed to calculate the value of his interest in the trust as of the day before the expatriation date.
This information includes the following:
A copy of the trust deed document.
● A list of assets held by the trust on the day before the expatriation date and the values of such assets.
● Relevant information about the interests of the other beneficiaries.
● Any other relevant information.
If you do not provide such documents and information to the covered expatriate, then the election is not valid and you must withhold 30% on any taxable distributions from the trust. If the covered expatriate makes the election, you must withhold 30% on any taxable distribution from the trust until you receive (a) a copy of the valuation letter ruling issued by the IRS and (b) the covered expatriate’s certification under penalties of perjury that he has paid any tax due on the value of the trust that he is treated as receiving.
Why do Covered Expatriates have to File the Form W-8CE?
This is because if the covered expatriate does not notify the payer, then the payer will not know it must provide the information to the taxpayer in order for the taxpayer to complete the Form 8854 expatriation statement. In addition, the IRS wants to ensure the plan administrator is aware that the filer cannot claim treaty benefits.
What is the Waiver of Treaty of Benefits?
The general withholding rate for non-residents is 30%. So, in the case of the 401K which is not per se deemed distributed, the filer will receive payments at a future date.
The IRS wants to ensure that the filer cannot, at a later date, claim treaty benefits as a non-U.S. person and get the 30% withholding reduced.
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