Thousands of Accidental Americans living around the world could be freed of the US tax burden that goes with their passport.
President Donald Trump has hinted that he may sign an executive order that would scrap the law that automatically makes anyone born on American soil a US citizen.
With that birth right comes a tax burden.
As the US tax system is based on citizenship rather than residence, any American expat must pay income and capital gains taxes based on their worldwide income to the Internal Revenue Service.
This includes Accidental Americans who may never have set foot in the US but have American parents.
The move by Trump is in the early stages – his administration team is reportedly in talks with lawyers about if such an executive order would have the desired result.
Some experts claim the order would not be enough to change the law as the birth right is granted by the US constitution, which would need a new amendment to register the new measure.
Meanwhile, tax and legal experts have identified how US expats can face taxes on pension savings and capital gains under the controversial Foreign Account Tax Compliance Act (FATCA).
Western Australia MP Mike Nahan is taking the IRS to task for demanding hundreds of thousands of dollars in tax based on the value of his pension fund, which is not recognised as a retirement saving package by the US.
FATCA and double taxation
Nahan is a US citizen by birth, but has lived in Australia for 40 years and has Australian citizenship as well.
He wants to renounce US citizenship, but can only do so by paying an exit fee and settling any outstanding tax bills.
“He thinks he’s going to negotiate out of it, but it won’t happen because that’s the law according to the US and that hasn’t been changed. The only thing that has been changed is the reporting requirement. So, that’s the potential downfall for anyone who has any connection at all to the US,” said financial expert Chris Ketsakidis.
Tax advisers Moodys Gartner went on to explain a tax treaty between the US and Australia does not tackle the issue of double taxation of superannuation pension funds in Australia.