Part I – Summary of post:
The proposals for Americans abroad include:
1. A provision to (and presumption of) heighten enforcement of the 877A exit tax through changes in the Internal Revenue Code
2. A possible “carve out” from the 877A exit tax for certain Americans abroad with limited ties to the United States (under rules prescribed by the Treasury Secretary)
3. NO RELIEF whatsoever from U.S. citizenship taxation and the way that the rules apply to Americans abroad. This assumes a continuation of U.S. citizenship taxation with no evidence of change.
In other words: Either comply or renounce!
While being an American citizen comes with many privileges, it also comes with a host of tax obligations. This is where things get tricky for accidental Americans – people unaware of their U.S. citizenship. In recent years, the issue of accidental Americans has garnered attention due to the increasing global mobility and their potential to face significant financial consequences in the United States.
In this article, we will explore the challenges they are facing and discuss strategies for avoiding the tax implications of accidental citizenship.
Who Is an Accidental American?
An accidental American is a term used to describe someone who holds dual citizenship in the United States and another country, but is unaware of their U.S. citizenship status. They may have acquired U.S. citizenship even if they have never lived in the States or have only spent a limited amount of time in the country. For many accidental Americans, the discovery of their citizenship comes as an unpleasant surprise – often through a realization of the tax filing obligations to the United States.
The post was written by Kasia Strzelczyk of the 1040 Abroad Team.
It doesn’t come as a surprise that the IRS will be filling the budget hole in 2023 by cracking down on non-compliant U.S. citizens living abroad. Even expats that didn’t know about their debt may face some serious penalties and fines. To address your tax issues and take control of the situation – start learning about Tax Amnesty Programs the IRS offers. These procedures can help you come clean about your U.S. taxes while escaping all undesirable consequences.
What is a tax amnesty program?
The IRS is aware that many American Expats don’t know about their filing obligation to the U.S. The tax amnesty programs can be seen as a way to “clean the slate” and start fresh with regard to tax compliance. It allows delinquent taxpayers to pay their debt in exchange for avoiding severe tax penalties, and interest too.
Most expats who find themselves in the position of not having satisfied their U.S. tax obligations may feel as if fixing the situation is daunting. Contrary to popular belief, the financial consequences of your failure to file before may not be as severe as one might expect.
On September 6, 2019, the Internal Revenue Service (IRS) announced a new procedure which allows certain non-compliant US citizens who relinquished their US citizenship to become US tax compliant.
This procedure is geared towards ‘Accidental Americans’ who were unaware of their US tax obligations. As well, under this procedure, no US social security number is required.
The main eligibility points include:
1. Prior compliance failures were non-willful.
2. Past tax liability is not in excess of $25,000 for the six years of returns to be filed.
3. Less than $2 million in net assets as of expatriation date.
4. Expatriated after March 18, 2010. Must expatriate prior to filing under this procedure.
5. It is limited to individuals only.
6. The taxpayer has no tax filing history as a US citizen or resident.
7. Must include a copy of approved form DS-403, Certificate of Loss of Nationality with the filing.
Stop the presses, hold the phones, drop everything you are doing! The Internal Revenue Service announced “Relief Procedures for Certain Former Citizens” on September 6th, 2019. If you are an “Accidental American” and planning on renouncing your U.S. Citizenship, you should be reading this.
Let’s dig back a bit and refresh our memories: The United States Constitution provides through the 14th Amendment that “all persons born or naturalized in the United States” are citizens of the USA. A person born abroad to a U.S. citizen parent or parents acquires U.S. citizenship at birth if the parent or parents meet conditions as specified in § 301 and following sections of the U.S. Immigration and Nationality Act.
Those who have acquired U.S. citizenship in such a manner may not be aware of the obligations and consequences of this status. As you my dear readers already know from my blog, that by law, U.S. citizens regardless of where they live have to report and possibly pay tax on their world-wide income to the Internal Revenue Service.