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Accidental Americans and the IRS

 

In this video we spoke with Keith Redmond, expat advocate, about what "Accidental Americans" are and if they should comply with the US tax code. We talk about what Accidental Americans should do when confronted with a FATCA (Foreign Account Tax Compliance Act) letter. This includes, but is not limited to, entering into an offshore voluntary disclosure program. We also discuss the fear many in the US tax compliance industry generate.

 

What is an accidental American?

An Accidental American is a feature of the birthright citizenship of the US. It is the law that states anyone who is born in the US  (even if they are born to a non US-person) is automatically a US citizen. The exemption is for foreign diplomats; their children do not automatically become US citizens.

 

What does Accidental American citizenship status confer?

The consequences of being a US citizen, accidentally or not, means one is subjected to the universal taxation requirements of the IRS. Income made anywhere is subject to US taxes. This is true even if someone doesn't speak English, even if an Accidental American has no other connection to the US.  This is a significant problem for people who have no relationship with the US aside from being born in the US years ago.

 

Should Accidental Americans comply with the IRS?

The tax profession is littered with those who market on fear, claiming that Accidental Americans are at risk of prosecution and extradition. We find such claims dubious, but as tax attorneys we are bound to advice compliance — even in cases where we otherwise do not recommend entering into the US.

 

FATCA letters that spark fear: Am I really an American?

With the implementations of FATCA, Accidental Americans are under new pressure and are being put in a difficult position. Moving forward, doing any kind of business they will be identified as a US-person. Access to financial products becomes limited. Some of the problems they may have are:

  • Closed bank accounts
  • Cannot access investment accounts

  • Pension denials
  • Mortgage denials
  • Employment denials

 

Keith's advice on responding to a FATCA letter

Some of the letters allow Accidental Americans to self-certify they are in US tax compliance, despite not being in compliance. This is advice a tax attorney like myself can't give, but for Accidental Americans, the risk of criminal prosecution by the US is incredible small. And if the US attempted to bring charges against someone, there would be significant blow-back from their home country. Sometimes banks won't accept a self-certification.

 

The other two options are becoming tax compliant and then renouncing citizenship. There is significant cost, not just to the IRS but also to a tax professional. One of Keith's suggestions is to to apply for social security to satisfy their bank and then do nothing else. Again, Keith's suggestions are his, and not what we are allowed to recommend as tax attorneys.

 

Getting help

If you are an accidental  American and you have been told that you must enter into an expensive and onerous Offshore Disclosure program, our advice would be the share your story in Keith's American Expatirates Facebook group to get an idea of what others are doing. If you think you are at enhanced risk of prosecution, or if you are an Accidental American who has or wants to have future ties with the US, contact us to schedule a free, confidential consultation. We can discuss the Streamlined Disclosure process with you.