To not want to pay tax as an "Accidental American."

[budinbloom]

Help! Is anyone facing/has faced this recently?

DH is a dual UK/US national from birth. (English Dad, American Mum, born in the US but left for the UK as a baby and never lived or worked there since). He received what we now know is a "FATCA" letter recently and after copious googling and increasing panic, it looks like he is supposed to file tax returns to the US and potentially pay tax on the funds he holds in his ISA. Luckily, they aren't threatening to close his account....yet but the internet says that is what's happening in other countries!

We're still flapping but becoming resigned to the fact that, we have to pay to enter a foreign tax system in the first place before we can exit and renounce his US citizenship if we are to even plan for our future retirement. We're still at the going backwards & forwards stage - should we/shouldn't we? It's so unfair? What do we do? How would they know? We can't lie/nor do we want to? At the same time, we don't want to pay ANY tax to a foreign government on our already taxed UK income. He's always been PAYE here! Is the final solution renouncement but this process which will involve backfiling tax returns which we should never have to do, in the first place and will costs thousands (yes, we've got a few general quotes for the work).

We really want to keep hold of his stocks and shares ISA. Do we only really need to sell the funds in them but keep the actual direct company shares? No-one seems to admit to having anything other than cash ISAs but is that because they have already sold them in advance of filing for the first time? No idea what to do without paying even more for expensive legal/tax advice.

Good luck budinbloom. I can understand the need to vent. Regardless of what you decide to do, the topic is something most people have to spend time looking into to make the decision. That's time that could be used to do something else!

"Luckily, they aren't threatening to close his account....yet but the internet says that is what's happening in other countries!"

That's one thing you don't need to worry about. There are two different versions of the FATCA IGA. The UK, like most of the rest of Europe, signed the IGA Model 1 version, in which the banks are protected from the 30% withholding threat and are required to report "refractory" accounts but not close them.

Some governments signed Model 2, which does not protect the banks from the 30% withholding threat. Banks in those countries have to send reports directly to the IRS, so they naturally don't want any USC accounts unless the accountholder shows they're compliant.

Good luck - hope you find a solution you both feel is tge right one for you.

TalkinPeece
Well, DH has changed his mind again about complying. No data means they have nothing to assess nor to enforce against an overseas resident with zero US assets. It's a vicious circle of debate!

The email covers if you're a UK citizen AND not a US citizen for tax purposes too. It's that specific! Yes, we're thinking of just filling in the W9 and return (which we need to do to prevent account restrictions) and nothing more.

The issue is that we know that he already faces difficulty applying for new financial products and we want to remove that restriction going forwards. The CNL will resolve this and we don't want to live under Damocles' sword however unlikely it is due to IRS incompetency/poor resources in real life.

He's emailed the local MP & all the regional MEPs in protest (much to my alarm!)

It's good that he has emailed the MP and the MEPs. The more letters the MPs get, the more letters the Chancellor gets.

Many MEPs are backing the Accidental Americans' cause. There's to be a debate in a Plenary session in July, and a vote on a Resolution. See www.emeeting.europarl.europa.eu/committees/download.do?docUrl=http%3A%2F%2Fwww.europarl.europa.eu%2Fmeetdocs%2F2014_2019%2Fplmrep%2FCOMMITTEES%2FPETI%2FRE%2F2018%2F05-16%2F1151349EN.pdf
for the Resolution, and www.europarl.europa.eu/sides/getDoc.do?pubRef=-%2F%2FEP%2F%2FNONSGML%2BCOMPARL%2BPE-622.251%2B01%2BDOC%2BPDF%2BV0%2F%2FEN
for Amendments to the Resolution. It will make you feel better.

I don't think becoming an agitator is in keeping with staying under the radar - well, at least until he actually decides what to do or not to do or something inbetween.

We did turn to each other and laughed - it's an absolute farce!

Rest assured - there's no radar. And your husband hasn't done anything wrong by not knowing about CBT and FATCA.

And writing to your representatives doesn't make you an agitator. You're paying for their flippin salaries, and they deeply want your vote.

Having read the answers on this thread multiple times, thank you to all that have replied. I hesitate to say that I have suddenly seen the light/grasping at straws but underfall's reasoning certainly makes sense to me. Food for thought indeed.

Lisette 40. Absolutely not true. You can renounce without being compliant.

Budinbloom. Believe me, he doesn’t need to lie or tick a box or anything else in order to renounce. Just pay the 2350. $ fee. My DW recently renounced in 2017 without any mention of the IRS or taxes.
His CLN will arrive a few weeks later. Bob’s your uncle.
No need to file tax returns as he has no connection to the US . No need for alawyer, or accountant.

Portland
Yes, I've reached that conclusion a few hours ago after looking at all the actual forms required for renunciation thanks to MN pointers. DH needs to digest the info himself tomorrow but personally, it's a weight off my mind.

Well done.

I have a friend who went through this, and learned that there is a very important exemption from the so-called "exit tax", but securing that exemption may require jumping through the hoops and paying the accountants and lawyers a few thousand dollars. This is probably relevant for anyone who lives in London and owns a house that has appreciated in value since they bought it, but has not yet sold the house.

The exemption helps any US citizen who
-is a dual national (for instance, US and UK)
-resides in the second country (for instance, UK)
-is a taxable resident of the second country of citizenship on the expatriation date
-has lived outside of the USA for at least 10 of the past 15 years.
However, I believe this exemption only applies if all of the tax returns are filed and the "I am in compliance" box is also ticked. Hence the value to doing that, even where no tax is owed.

This exemption is potentially very important because without it, the expatriating citizen could be treated as selling everything, including their home, on the day of expatriation, and subject to US capital gains tax on that fictitious gain. Whereas with the exemption, there is no such exit tax.

One way to avoid that is, I suppose, to be out of the system, renounce, and either not get noticed or not get pursued due to lack of IRS resources. My guess is, that works for most people.

But, for anyone with enough assets to make this potential tax liability substantial (=probably anybody with a house in London or a sizeable accumulated, unrealised gain in a stocks/shares account), it may well be worth paying the accountants and lawyers as a sort of "insurance" to secure this exemption.

The IRS are absolute CFs because this exemption is not mentioned on their page about expatriation tax
www.irs.gov/individuals/international-taxpayers/expatriation-tax

... But it's in the law
www.law.cornell.edu/uscode/text/26/877A
search for "became at birth" and you will find it.

I assume that BoJo did not qualify for this exemption against his house sale because he actually sold his house and realised a gain in the 5 years before expatriating. Whereas, if he'd figured this out and expatriated before selling, assuming he was born a UK and US citizen, he should have qualified for this exemption.

YankeeDad. You are 100% correct. Those who meet the criteria you list ( born dual citizens, live in another country, have not lived in the US & file 5 yrs. of US tax returns). are exempt from the mark to market exit tax. The exemption is outlined in the instructions to the exit tax form 8854.
The OPs husband would meet the criteria. However he would be better off to save the time trouble and cost and to not file anything. Do not enter the system. There is bugger all they can do.
BoJo should have told them to get lost but presumably he needed to keep selling his book. By taking on his current post he relinquished US citizenship if he had not already renounced.
The Duchess of Sussex , American citizen, will be interesting to watch. We will see if the IRS has the nerve to confront her over taxes.

Are some of you saying that, so long as you have never owed US tax, even if you never filed the paperwork, you can still renounce (assuming you've acquired another citizenship?) You don't have to pay an accountant to file the paperwork going back 5 years establishing this?

"One way to avoid that is, I suppose, to be out of the system, renounce, and either not get noticed or not get pursued due to lack of IRS resources. My guess is, that works for most people."

Important to understand that the right to expatriate / renounce citizenship in accordance with the law is not just some dodgy workaround which might or might not succeed. It's US law. There's nothing to be pursued about, and no need to be scared.

People with unfinished US tax business, US assets, an ongoing connection with the US, might indeed need to file final forms including Form 8854, having first prudently taken steps to make sure they can do so without being liable for the exit tax. Some may qualify for the dual-citizenship exemption.

The OP's husband is in a different cohort - having unwanted US citizenship as an accident of birth; having no US assets/income; never having lived in the US since childhood. He doesn't have unfinished US tax business and doesn't need the exemption.

Boris Johnson was in the first group. He was born in the US "accidentally" but he wasn't an "Accidental American" as that term has come to be used. He made heavy use of his US passport, with that convenient right of entry, and was often in and out of the US promoting his books. He blustered about renouncing every time he ran up against the obligations of US citizenship (when he tried to use his UK passport when overflying the US; when he found he owed tax on the sale of his house); but he didn't actually renounce until he was offered his present job.

This thread is really interesting. Another US citizen here who does not file and travels to the US regularly. I do occasionally feel a mild sense of worry, but then I figure I've had a UK bank account for 17 years, worked in the UK for 15 years, owned property etc etc and nothing bad has ever happened. Realistically if I was living in the US I'd be entitled to a tax refund, similar to talkinpeace, so if I am ever made to file maybe something good would come out of it!

@talkinpeace as ever I find your posts on financial matters deeply reassuring and helpful. I've seen you on other boards and you have a great way of putting financial matters into perspective and making it seem not so scary! Thanks

I mean @TalkingPeece

To make this crystal clear to everyone reading this thread, DH & I have been reading up on all the information out there for the best part of the month - since we received the initial “fatca” email requesting various forms from our isa provider. Some of the links and points raised by many posters weren’t new to us but some were. It’s all been invaluable but overwhelming. We’ve literally gone round the houses exploring all the options logically and only a sense of self preservation has stopped us from paying beyond an initial chat with a specialist tax accountant.

Sometimes, you do need the obvious spelt out by the minority voices. I hope that the information in this thread will help many others form their own decisions of what to do if they are in a similar scenario.

We’ll let you know how long the queue is at the US embassy!

Important to understand that the right to expatriate / renounce citizenship in accordance with the law is not just some dodgy workaround which might or might not succeed. It's US law. There's nothing to be pursued about, and no need to be scared.

I believe the above is correct but incomplete, in that this will succeed in eliminating any US tax liability under US law on income earned outside of the USA after the expatriation date.

That is mostly(+) true even for a person who owed some US tax, according to US law, before expatriation. [(+)there may be some exception for "covered persons"]

However, this does not address the issue of potential US tax liability on income earned and assets accumulated before the expatriation date. Here, it's clear (under US law) that the person is liable to tax. On the other hand, there is an important practical ambiguity around enforceability.

Technically speaking, per US law on its own, there is no ambiguity around this: US law as written has no geographic limits. It applies to any US citizen, anywhere in the world, as well as any US green card holder and any US resident. All such persons are taxable as US residents under US law for the period during which their citizenship/green card/residence status applies.

What creates the practical ambiguity is enforceability. if a person has no US assets, then the US government depends mostly on the willingness of their country of residence to help with enforcement, which may not be very high if the rules are seen as unfair. I say "mostly" because the US has an additional big stick, and the US uses it: most global banks need to operate in the US financial system. FATCA is a tool by which the US uses that leverage to make non-US financial institutions help the IRS with enforcement: to keep their US license to operate, they agree to either kick out US clients or send their personal financial information to the IRS. Most of the bank letters are intended to give the banks legal permission to send that information, so that the banks cannot be sued by their clients for following the US-imposed rules.

Until now, as best I understand it, the information exchange has been the extent of enforcement on non-US residents related to FATCA: the IRS gets a bunch information from banks around the world about people's accounts and income. There is only a practical consequence if the IRS is able to do anything with the information, which in most cases seems unlikely to happen.

As I see it, the risk being taken by a person who renounces without jumping through all of the IRS hoops such as filing tax returns and an 8854, and potentially paying an exit tax, is that the USA could, in the future, develop and implement additional ways to ratchet up the enforcement, for instance by changing the legislation so that US Border Control checks incoming visitors against information the IRS got under FATCA. Or, they could sign new agreements with non-US financial institutions that require said institutions to withhold money from the accounts of their clients who are or were US persons, or face loss of their license to operate in the USA.

That very sounds far-fetched today -- but 15 years ago, who would have predicted FATCA? 9-10 years ago, just after FATCA passed, who would have predicted that FATCA-like information exchange among all Western countries would become the norm? Yet, both did occur. Also, with aging populations, Western countries need to raise tax revenues, and the most politically acceptable manner to do that is by enforcing existing laws. Now that countries other than the US have something to gain from this trend, it could accelerate.

Going through the whole process with belt and suspenders, i.e. paying the lawyers and accountants to do everything by the book, is like buying an insurance policy: it means that even if the rules and the enforcement practices are changed, there is not a stored-up problem that could re-emerge in the future. The cost of that insurance policy will vary, depending on the cost of the specific lawyers/accountants and on whether there are any associated US tax liabilities. The potential benefits will vary as well, depending on the individual's level of assets and income, need to travel to the US (or not), wish to invest in the US (or not). Finally, individual risk tolerance must play into the equation.

A risk-averse individual who qualifies for the exemption, travels often to the USA, owns a house in London that they bought 25 years ago, holds a sizeable investment portfolio, and has paid plenty of UK tax on their gains and income, may find that this insurance policy is "good value" relative to its cost: they lock in the exemption for a few thousand dollars in accountant fees without paying any meaningful amount of US tax, and thereby eliminate a source of worry and a potential US tax liability in the hundreds of thousands.
A person with more modest assets who has nothing to do with the US and feels the rules are totally unfair might find the compliance costs are so high it's not worth hiring the lawyers/accountants.
Finally, a risk-taking UK-focused entrepreneur who does not qualify for the exemption, has a large house in London and a large investment portfolio, and would hence be liable for a large exit tax, might decide to solve the immediate problem with local banks by expatriating, but take the longer-term risk by refraining from filing anything with the IRS and hoping that the rules or their application will not change meaningfully in the future.

yankeedad

I owe no tax to the US. I don't have any assets (no investment accounts and I don't own my home). However, I have not filed since moving to the UK 13 years ago because I can't afford the fees for the help.

I would consider renouncing, but paying for the UK citizenship and the US renunciation would be a huge struggle. I could probably pull it off if I saved up.

In the meantime, I have to hope that my bank accounts opened pre-fatca will continue undisturbed. And I can't do anything like an isa.

Are you saying that I can just renounce without filing several years, especially as I owe no money?

Whenever I Google this, I only find stuff posted by accountants who obviously want to sell their services.

Wasn't there a thread recently about a UK bank refusing to open/keep accounts for US citizens, as it would mean they would have to obey US edicts (which they'd rather not ?)

I know DB saying he had to close his UK account when he took US citizenship - not sure exactly why (conversations with him are like that sometimes )

JustGettingStarted: I would consider renouncing, but paying for the UK citizenship and the US renunciation would be a huge struggle. I could probably pull it off if I saved up

Yours is the type of situation that makes my blood boil at the unfairness of the rules. I believe that they were genuinely intended to catch tax evaders, but in practice they have ended up causing unproductive stress and cost for thousands or millions of people who really cannot afford to waste their money or time on this bulls*.

I have a couple of ideas that might help somewhat:

1. First things first: get that UK citizenship. You may end up needing that anyway at some future date in order to remain here, regardless of whether you decide to renounce the US, so it won't be a waste of money. Plus, if you do want to renounce the US, you need to be a citizen of somewhere.

2. Don't worry too much about what the IRS might do. You are not their target, and their enforcement budget is limited. Your main concern is gaining the permanent right to remain in the UK, and keeping access to banking services.

3. Regarding banking services, my best guess is that your bank might ask you to sign a waiver giving them permission to send all your personal information to the US tax authorities. Then, you sign it, you keep accounts as normal, the IRS will receive a very long list that includes your name next to a very small number, and they will do nothing about you (see point #2 above).

4. Find out whether or not you actually have an obligation to file a US tax return. Depending on your income and assets, you may not. If you were to find out that you have no filing obligation, it would reduce your worry, it would reduce your eventual costs if you later decided to renounce, and it might also put you in a position to certify to your banks (if they asked) that you are fully compliant with your US tax obligations even though you have not filed.

5. Further reading: : One organisation I've run across that has some useful free info on its website is this not-for-profit organisation: www.americansabroad.org/ To check on the obligation to file, there is probably a page on the IRS website, and American Citizens Abroad might either have the information or be able to point you to the right page. Or, you could just search directly on the IRS website (google something like "IRS who is required to file").

6. Regarding accountants selling services, they are obliged under US laws/regulation to advise everyone to be 100% compliant with everything all of the time, even if the fees would be more than the client's net worth.

In case you do ever speak with one -- the good ones would then be willing to answer pragmatically if they were asked a question such as "What would most likely happen next if I were to do only Y?" (where Y could be either keeping the status quo, or renouncing without filing anything with the IRS). They cannot directly advise you to do Y, but you will be neither the first nor the last person they will see in your situation, and the good ones will understand that everyone, including you, the IRS, and other US tax payers, would be better off if there was less time and money wasted producing and then processing long tax returns that show zero tax liability to the US.

*"if a person has no US assets, then the US government depends mostly on the willingness of their country of residence to help with enforcement, which may not be very high if the rules are seen as unfair."

Most US tax treaties - including the UK treaty - don't provide for "mutual assistance with collection". (Five do, but won't collect from their own citizens.) It's nothing to do with fairness. Collecting foreign taxes often involves going to court, which is expensive.

But there's another reason. The US doesn't have primary taxing rights on UK-source income. HMRC has primary taxing rights and UK law enforces that right. UK law does not enforce the collection of foreign tax on UK-source income.

"...changing the legislation so that US Border Control checks incoming visitors against information the IRS got under FATCA."

They probably already check whether visiting former citizens owe US tax or are suspected of tax crime or any other crime. If there's no assessed tax debt or suspected felony, what is it that you fear they might do?

Most USCs - the overwhelming majority - never file a US tax return. It's access to financial services that has caused a problem; renouncing is the solution to that problem.

I suspect most renouncers will deal with US tax law in the same way they dealt with it pre-FATCA.

Most US tax treaties - including the UK treaty - don't provide for "mutual assistance with collection".

I did not know that; it's interesting. Thank you.

If there's no assessed tax debt or suspected felony, what is it that you fear they might do?

Today, under current rules and procedures - nothing at all.

For the future, I don't have enough detailed knowledge of the legislative and regulatory framework to predict specific measures with any accuracy - but that does not give me confidence that the answer will continue to be "nothing.". Nobody seemed to predict FATCA or automatic exchange of information. It just feels as though with Automatic Information Exchange, we are in a shift towards more cross-jurisdictional cooperation to aid enforcement.

Who's to say that there will not be a FATCA 2.0 10 years from now under which, for example, non-US financial institutions might agree to deduct funds from account holders to cover US tax liabilities? Or, there could be a regulation or law allowing the IRS to assess visitors for tax without a return being filed, if information exchange revealed the presence of undeclared accounts. There is precedent for developments like this. For example, I believe that Switzerland has withheld tax from accounts of UK-resident accountholders who did not want to comply fully with UK rules. For a US overseas resident, filing of returns, FBARs, etc. serves in part as an insurance policy against adverse changes that may occur in the future.

It's also worth remembering that full and correct filing of these documents is a requirement for any individual who does want to comply with US law, and that compliance is an appropriate and proportionate thing to do for certain individuals, including individuals in certain professional or executive roles. Many such individuals probably already comply, but many others probably still don't.

I suspect most renouncers will deal with US tax law in the same way they dealt with it pre-FATCA

I agree with your prediction. I think most of them will probably not end up having problems because of it, especially where the tax collection opportunity for the US would in any case be low. But each individual should carefully consider which course of action fits best with their particular circumstances.

JustGettingStarted. Correct. If you wish you can renounce without filing anything. YankeeDad is also correct in everything he posted. However the vast majority of minnows have no reason to fear the IRS