Tax filing is on the way for Accidental Americans but those who hoped for some FATCA relief face disappointment.
The US Internal Revenue Service has announced American expats can expect to avoid the controversial Foreign Account Tax Compliance Act – but only if certain circumstances apply.
Unfortunately, Accidental Americans are not classed as expats by the IRS even if they have lived outside the USA all their lives.
So who qualifies for FATCA relief and who doesn’t?
The exemption covers taxpayers who have not avoided tax filing wilfully.
Wilful conduct covers negligence, inadvertence, mistake or conduct that led to misunderstanding tax law in good faith and have also:
- Given up US citizenship since March 18, 2010a
- Not filed taxes as a US national or resident
- Not gone over the average annual net income tax threshold of $124,000 in the five taxable years immediately before giving up US citizenship
- A net worth of no more than $2 million at the time of giving up their US citizenship
- A total tax liability of less than $25,000 in the five tax years leading up to giving up citizenship
- Agree to file tax returns for the six years before giving up citizenship
Who are Accidental Americans?
Accidental Americans are excluded.
An Accidental American is a US citizen living overseas who is unaware of their tax status.
Examples of Accidental Americans are:
- Someone born to US parents in another country who believes they are a national of that country and not the USA
- Someone born in the USA who moved to another country while a child
- Someone taking up citizenship in another country who believed their US citizenship had ended
- A US national who never renewed their passport
When does someone lose US citizenship?
Under US law, someone remains a US citizen until the State Department issues a certificate of loss of nationality
Until then, Accidental Americans must comply with tax filing laws in the USA.
Under US law, citizens must file a tax return declaring their worldwide income with the IRS by April 15 each year.
FATCA requires foreign financial institutions to give the IRS information about US citizens who control bank accounts or investments outside the USA. The IRS pairs this data with tax filings to make sure individuals are paying the correct amount of tax.
Anyone who suspects that they might be an Accidental American should discuss their position with a professional tax adviser.