“Accidental Americans” and their tax obligations

First published on 10 September 2019
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  • US Tax News

As one of the country’s acknowledged experts on US tax, M&S Accountancy and Taxation gets a lot of questions from “Accidental Americans” - often those who are uncertain/unaware of their status as US citizens.  Many do not realize they have to file a US tax return even if they don’t live in the US and are looking for our help to bring their tax affairs up-to-date. Usually these are individuals born in the US who now live overseas and do not intend to return, or those who obtained US citizenship through a relative but have never actually lived in the US. It’s not uncommon in our experience for people in these situations to want to give up their US citizenship. 

However, you need to be aware that expatriation tax can be payable on giving up citizenship. One reason for this would be if you fail to meet your US tax compliance requirements for the five years prior to giving up your citizenship. 

Streamlined Filing Procedures…

We have had the Streamlined Filing procedures for a number of years now and M&S has helped many “Accidental Americans” to comply with the necessary requirements so they can then give up their citizenship. However, the Streamlined Filing procedures could only be used once an individual has a US social security number and many “Accidental Americans” do not have one.  Moreover, even with a social security number, you would still have to pay any US tax which was due for the previous five years and the year of expatriation.   

…and the new procedure that will help Accidental Americans

On Friday, the IRS announced a new procedure for such individuals and this is detailed in the link below:

https://www.irs.gov/individuals/international-taxpayers/relief-procedures-for-certain-former-citizens

The main benefits over the Streamlined Procedures are:

  • That if you plan to, or already have, relinquished your citizenship you no longer have to obtain a US social security number and do not need to pay any US tax if the total amount due for the year of expatriation and the five prior years does not exceed a total of $25k.  
  • Under this new system, the IRS will send you a letter advising of the outcome.  They don’t do this under the streamlined procedures. 

Please note: this new procedure won’t apply to everyone.  For example, if you have previously filed US tax returns as a citizen or resident or if you have net assets totalling at least $2m at the date of expatriation then I’m afraid you can’t use this new method. 

Catherine Sinclair, Director, M&S Accountancy and Taxation Limited

 

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