Accidental Americans still denied exemption from FATCA reporting

Published:  13 Feb at 6 PM
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Tagged: USA, Citizenship
Accidental Americans overseas still being denied FATCA relief.

The plight of Accidental Americans – those unfortunates who were born in the USA of expat parents and are considered US citizens as a result – is that even although they don’t live or work in the country they’re forced to comply with FATCA. Some were born prematurely whilst their parents were on holiday, others were children of expats on temporary assignments, and the vast majority have lived their entire lives outside the USA.

Since the introduction of FATCA, American expats have been subject to dual taxation based on nationality rather than residency. They’re forced to declare their overseas incomes on which they’ve already paid local taxes and are then taxed again by the USA’s Internal Revenue Service. In addition, the forms and details provided are complicated and unclear, and worldwide banks are now closing US expats’ accounts in fear of the swingeing penalties due should they not report their expat clients’ financial affairs in full.

Accidental Americans overseas are not designated as expats by the IRS even although they may have left the USA within weeks of their birth, and are forced to submit their tax returns and pay up. The only option is to renounce US citizenship, an expensive and complicated process only a minority of those affected have completed to date. In a recent response to overseas US expat organisations, the IRS has conceded relief to those who can meet its requirements, but has offered no such plan to Accidental Americans.

The new rules exempt US citizens overseas from FATCA compliance provided they’ve not willfully avoided tax filing via inadvertence, negligence, mistake or even misunderstanding of the law in good faith. The requirements for exemption are huge, beginning with the need to have renounced US citizenship since March 18, 2010 and not breached the average annual tax threshold of $124,000 in the five years since renunciation. In addition, applicants for exemption must have had less than $2million net worth at the time of renunciation, a total tax liability of $25,000 or less over the five previous years and must file their tax returns for the six years prior to their renunciation.

The rules regarding Accidental Americans start with a lack of awareness of any individual’s tax status and also include those individuals born overseas to US expat parents and who believe they are nationals of their actual country of birth. Others affected are those born in the USA but who’ve lived overseas since childhood, those who believe taking up citizenship in another country cancels out US citizenship and those who’ve let their passports lapse. Any expat who suspects he or she might be an Accidental American is urged to contact a professional tax adviser as to their legal position.
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