Worried About Becoming An Accidental American?

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If you were born in the USA or closely related to someone who lived in America, you could owe the Internal Revenue Service thousands of dollars without even knowing as an Accidental American.

You may have paid your taxes in the country where you now live without giving your US nationality a second thought, but the IRS is busy tracking down expat taxpayers who have no idea that they could owe Uncle Sam a large sum of money.

The problem is the unique way the US tax system works.

Most countries tax the worldwide income of their residents, but the USA is different. Instead, Washington taxes citizens on their worldwide income wherever they live.

What are Accidental Americans?

The tool the IRS is using to track down Accidental Americans is FATCA – the Foreign Account Tax Compliance Act.

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An Accidental American is a citizen of another country other than the USA who is or could become a US citizen under US nationality law, but who is unaware of their status.

Most Accidental Americans were born after a parent emigrated from the USA or were born in the USA while their parents were living their temporarily.

The IRS demands foreign financial institutions, like banks, finance houses and investment funds, reports the status of any accounts controlled by anyone with American citizenship. Banks that do not obey FATCA face hefty sanctions, so either dump US clients or follow the rules.

The IRS ties up the account data from banks with tax filings.

What should Accidental Americans do about FATCA?

Taxpayers who do not tell the IRS about all their financial affairs face big fines, so lying low and hoping for the best is not a good strategy.

The IRS reckon nearly 70,000 taxpayers have come forward to update their tax filings following the start of FATCA in 2014.

Those in the worst position are not tax dodgers, but ordinary people with a minor American connection who may never have filed a tax return in the US simply because they never knew that they should do so.

The best move is not to wait for the IRS to get in touch but to speak to a tax professional to find out how to minimise the blow of becoming an Accidental American.

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