The official rules are here:

Expatriation tax | Internal Revenue Service

The expatriation tax provisions apply to U.S. citizens who have renounced their citizenship and long-term residents who have ended their residency, if one of the principal purposes of the action is the avoidance of U.S. taxes.

www.irs.gov

The problem is that the US considers you to be "tax resident" in the US up to the date when you actually renounce your citizenship at the consulate.

i cant cross of that i have not been a us residence for more than 10 of the last 15 years

I believe your tax adviser may be confusing/confounding the notion of renouncing your citizenship with that of being a Green Card holder (i.e. permanent resident). I know there is a thing for Green Card holders who have been resident in the US for more than 10 of the last 15 years, but I don't believe there is a similar thing in there for citizens who have renounced US citizenship.

In the reference I gave you above, you'll note that immediately under the rules for citizens, there is a paragraph that starts with "For long-term residents, as defined in IRC 7701(b)(6), a long-term resident ceases to be a lawful permanent resident if:..." This is strictly for "lawful permanent residents" which means someone who was living in the US with a Green Card (i.e. resident permit). This stuff does NOT apply to you.

Something less that 50% of all renunciants simply don't bother to file the 8854. If you can fill it out yourself, I would just "round down" the amounts on the balance sheet to fall under the limit and call it a day. In the instructions it says that the balance sheet values can be "good faith estimates" and don't need to have formal appraisals to them.

 

... I assumed that i was not a covered expatriate since i had two citizenships at birth and that the only time i have lived in the us since i was six weeks old was a two year period about 15 years ago. However, when filling out my 8854, my tax preparer tells me that i am considered a resident until i gave up my us citizenship, meaning i cant cross of that i have not been a us residence for more than 10 of the last 15 years (which together with my two citizenships would give me an exemption for being a covered expatriate).

Your preparer is simply wrong on this. From Form 8854 instructions:

Certain dual-citizens.
You can qualify for the exception described above if you meet both of the following requirements.

• You became at birth a U.S. citizen and a citizen of another country and, as of your expatriation date, you continue to be a citizen of, and are taxed as a resident of, that other country.
• You were a resident of the United States for not more than 10 years during the 15-tax-year period ending with the tax year during which you expatriated. For the purpose of determining U.S. residency, use the substantial presence test described in chapter 1 of Pub. 519.

Based on what you wrote, you are nowhere near ing the "substantial presence test" for even a single year, never mind ten of the past fifteen years.

I have argued this but she is standing her ground that i am a resident, which will leave me as a covered expatrate ...

Assuming you meet the (pointlessly bureaucratic) requirement of being "taxed as resident of" your non-US citizenship country, you are right and she is wrong. Quote IRC 877A(g)(1)(B)(i)(II), then immediately fire her and find someone else who will handle your situation correctly. If she cannot get this right, she cannot be relied on in other areas either.

As for how bad is "covered expatriate", it varies. Could be negligible; could be catastrophic. It is however something to avoid no matter what, because even if it may pose no current threat or any actual exit tax liability, who knows what may happen in future. For an idea, look at the (failed, happily) attempt to the "Ex-PATRIOT act", an effort to permanently ban covered expatriates from ever entering the US in future. In other words, exile.

 

You need a new tax preparer. This one is trying to pad the billing by filling out more forms.

You do have the option of simply ignoring your final return and Form 8854 and all that, but if you've been filing then possibly better to close things cleanly.

 

Thank you all for confirming my suspicion. I am a bit reluctant to find a new tax preparer now that i am no longer a citizens (and potentially find out i did everything wrong in the past), but it is something i will look into. Any tip on preparer is welcomed, i have about 15 PFIC and pay about 700$ for the normal return (tax preparer made me aware of the PFIC trouble last year, luckily i had not owned them for very long), I use the person that comes up when you google this in my country. Is it an option to simply send in the 8854 yourself and get the tax preparer to send the normal tax form for the full year? It does look like the 8854 needs to be sent with the return itself.

 

Form 8854 is not terribly complicated, for what it's worth.

 

I am a bit reluctant to find a new tax preparer now that i am no longer a citizen (and potentially find out i did everything wrong in the past), but it is something i will look into. ...

Conventionally, a final US tax return after renouncing is a 'dual status' one, slightly more fiddly even than the usual 1040. Is your current preparer familiar with this process? If not, that's another reason to ditch them, and find a better one. Or even tackle it yourself; with care and a bit of persistence it's entirely doable.

Is it an option to simply send in the 8854 yourself and get the tax preparer to send the normal tax form for the full year? It does look like the 8854 needs to be sent with the return itself.

As mentioned upthread, form 8854 isn't difficult. Just answer some simple questions and then list some values for your assets. As you won't be a 'covered expat', there's no need to be especially accurate on valuations. Rough guesses will be fine where you don't have complete information. For non-covered expats, the actual values on here are entirely immaterial.

Form 8854 does form part of your final 1040 - actually a 1040-NR with 1040 attachment under 'dual status' - but you could (worst case) get a preparer to do all but that form, and then send you the paper copies to which you attach the 8854 you've done and then send all that off. Note that in this case you'd also have to send a separate copy of just the 8854 to a different IRS office. The IRS insists that you do their own internal communication for them here. See form instructions for details.

All a huge PITA then - of course, because this is the US - but once done then provided you arrange your finances well away from any direct with the US financial or tax system you'll never again have to think about the IRS. A huge weight off. Congratulations on renouncing, and welcome to the free world!