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.

To answer your question. The IRS thinks they do. A great many others don’t agree.

@Portland1812 wrote "Once again and for the last time, you do not have to be compliant in order to renounce. For many renouncing and not filing anything is the best course of action."

Taxation is not interdependent on or with renunciation and hasn't been since Thomas Jefferson (long before income tax). In a brief statement of issues, it is best at least to guide someone to avoid being a "covered expatriate". You may think it doesn't matter but every so often it does. For most but far from all accidental Americans compliance outside the horrid IRS programmes is not difficult. Facts matter: are there assets, income, heirs in the USA? Social Security credits totalised or otherwise? Maybe Medicare eligibility, for what it's worth. Nationality of present or future children? To ignore FATCA and PFIC when place of birth (largely ignored up to now by UK but not other foreign financial services providers) could make one "poison": a CLN may help but the potential for worse to come from the IRS as to accidental Americans can't be discounted. The Dewees case is a signal warning: OK, he failed to get Canadian citizenship. But what of a British citizen who exercises right of free movement and goes to work in France or Denmark or Sweden, etc.? Here we had a query from someone who knew nothing. S/he is not going to get an education on Mumsnet, and compliance condors could ruin his and her lives. I made what points came to mind for what they are worth, and suggested reference to the Isaac Brock Society site. I think your criticism is unwarranted. My advice is free, and perhaps that's what it's worth. But it's better than some and comes with authority and qualifications that I won't mention because I don't take new clients.

minipie, They don't ask any questions about your parents or siblings, but they do ask you to state how you acquired US citizenship.

For those born in the US, a US birth certificate and US passport is sufficient.

Those who were born elsewhere and got citizenship through a USC parent, do end up giving details of the parent's US citizenship. It doesn't have any consequences for siblings (i.e., they needn't fear that they'll be tracked down by the US). The US DoS doesn't try to find potential USCs.

Re the IRS, TBF, part of what I signed did tell me that I must contact the IRS (#10) and the form where I ticked the box to say whether or not I filed US taxes did say the information could be shared with the IRS.

Whether the IRS would have any interest in an ordinary U.K. citizen earning below the double taxation limit, I have no idea, but in theory, you do need to notify the IRS.

"The Dewees case is a signal warning."

The Dewees case is a sad example of what can happen if a USC is too quick to trust the advice of a tax professional. Dewees lived and worked in Canada for years, until FATCA came along and he sought advice from a US tax advisor, who told him his best course was to sign up for OVDP, a notorious IRS "programme" for people with reason to fear criminal charges.

Once he was in OVDP, his fate was sealed. When he found out how much he would be assessed for, he refused to pay. The IRS requested collection assistance as per the US-Canada treaty, and Canada withheld his refund until he paid, which eventually he did.

A very sad case, but not relevant for dual US/UK citizens or indeed for USCs resident in the UK regardless of whether they have UK citizenship.

"what of a British citizen who exercises right of free movement and goes to work in France or Denmark or Sweden, etc"

What of it?

I'm definitely leaning towards relinquishing citizenship.

Thanks for this thread, OP, because I really didn't know this information. (oh how I miss my happy bubble)

In a case I am working on, siblings have very different status, leading to US citizenship for some children, alienage for others also born abroad. Although partly overtaken by Justice Ginsburg's decision in the Morales-Santana case (the 365-day uninterrupted presence of the mother of a nonmarital child is abolished in favour of a 5-year interruptible residence or status of dependent of USG employee or military abroad) Vice Consul Amelia Shaw's article shows how chance affects outcomes: www.afsa.org/citizenship-and-unwed-border-moms-misfortune-geography

"Whether the IRS would have any interest in an ordinary U.K. citizen earning below the double taxation limit, I have no idea, but in theory, you do need to notify the IRS."

Yes, the information is shared with the IRS: the DoS sends a copy of the CLN to the IRS. It's up to the renouncer (who is no longer a US citizen following renunciation) to consider whether their best course of action is to file or to let sleeping dogs lie. It depends on their individual circumstances. There is no risk in choosing not to file, for those with no US assets/income. Any assessed tax debts obviously should be settled.

Suddenly the uncollectible penalties and taxes become, well, collectible unless (wildly inprobable) the Brit is also a citizen of, say, Denmark which doesn't make it easy to be a dual national after majority, Torben Dileng case procedurallytaxing.com/why-is-the-irs-collecting-taxes-for-denmark-2/ (I'm not going to go into details of how the result could have been avoided: suffice to say I try not to write stupid or unsupportable comments.)

If you don't file Form 8854 etc you become a covered expat even if otherwise you are exempt (born in Britain, British from birth, living here all your life (but hey, what if you were born in N.I. and are Irish from birth but (maybe) not also British: Chen/Zhu case of CJEU)?) The sad thing is (except for me, I don't accept money anymore, but also don't solicit clients or make it easy for them to find me) proper advice is costly, and much of the advice is incompetent and wrong.

Put it this way: I am working on the case of a single mum, she and child born in Britain, she is renouncing because he has a disability trust and the IRS is treating it as practically criminal, not acknowledging that the child is not and cannot be a US Person. That is the sort of IRS evil we come up against. And the mum earns minimum wage for 20 hours a week and depends on free housing (from family) and disability benefits for the child. I can only imagine what it would be for her if the family didn't or couldn't afford to, support her. Does the IRS want to consider the mum, or the family, "owner" of the trust? They won't say: they only threaten $10,000 or 35% fines for "improperly" filling out form 3520-A on which is written across the top: "There is NO US Owner of this trust: the disabled beneficiary is NOT a US person". Can IRS Ogden read? Or is it willfully negligent? Using their own terms.

"In a case I am working on, siblings have very different status, leading to US citizenship for some children, alienage for others also born abroad."

Working on? Are you a tax adviser?

Yes, some children may inherit US citizenship and some not. None need fear being hunted down by the US trying to make them pay taxes. Banks do indeed send out FATCA letters to those born in the US; all they want is the USC's SSN and a signed W-9. The USC is not obliged to provide them; the account is subject to being reported, either way.

So you have to pay tax if you are a dual citizen even if you don't live in the country? how fucked up.

"Suddenly the uncollectible penalties and taxes become, well, collectible"

Not true. The US-UK treaty doesn't include a "Mutually Collection" article.

Boris Johnson was born in the USA - he is in no way an "accidental yank"

I would consider myself an accidental American if I were born in USA but grew up in Britain with a British sense of identity.

"If you don't file Form 8854 etc you become a covered expat "

In your head, maybe. In the real world, nothing happens.

"The US-UK treaty doesn't include a "Mutually Collection" article."

Opps. "Mutual Collection", I should have said.

I wonder if we could set the IRS and Home Office up on a date. They'd get on like a house on fire ....

Thank you underfall, very helpful.

If someone goes down the route of renouncing but not backfiling, and the IRS later catches up with them somehow, what are the penalties?

I understand that the "dual at birth" exemption will be lost and the person will be a covered expat and so liable to Exit Tax if they have made sufficient gains. Will the gains still be measured as at the point of renunciation, or is it measured at a later date if you are discovered later? Are there fines?

Thank you

I should add that despite renouncing several years ago, I did live here for over 20 years, managing to stay out of the US system. My U.K. passport doesn’t say that I was born in the US so I just used it as ID for years and years. Unfortunately, due to personal circumstances, I found myself abruptly back in the IRS system some years back and at that point it made sense for me to file my five years worth and get out.

@underfall wrote "'Suddenly the uncollectible penalties and taxes become, well, collectible'

"Not true. The US-UK treaty doesn't include a "Mutually Collection" article."

You missed, or perhaps I misstated, the qualification: that the British citizen moved to France, Netherlands, Sweden, Canada or Denmark which do have mutual collection provisions and unless the CJEU says otherwise (it's never been asked the question) that other country will collect against its noncitizen resident. I gave you the cite for the Danish citizen in the USA, as a parallel if nonexact example.

The typical issue is when a former citizen inherits, or a covered expatriate dies with US Person heirs. Form 3520 could reveal the facts. Given that most people in Britain die in debt, some may ignore that issue. Besides, a British-born person, British citizen at birth, probably is exempt from covered status even if s/he has a valuable London property. But 8854 has to be filed, and 5 years of 1040s, 5471s, 3510-As and the rest -- if the renunciant had income above the filing threshold.

Of course people maybe most people manage to stay below the radar. And for some things (FBARs, keeping records) there is a statute of limitations. But if one doesn't file a complete return then there is no SOL on that, only on the FBAR which is not a tax law. Robert W. Wood in Forbes and Jack Townsend on his Federal Tax Crimes Blog have lots of hints.

Should read 3520-A. Sorry, fat fingers.

^"If someone goes down the route of renouncing but not backfiling, and the IRS later catches up with them somehow, what are the penalties?"

The IRS can't "catch up with them" if they haven't filed because the IRS doesn't know whether they had any obligation to file or would have owed US taxes. Very likely the renouncer doesn't know this either. The IRS would have to prove in court that the renouncer owes taxes from before s/he renounced, yet they don't know whether that's so. And the IRS knows that they wouldn't be able to collect anything (assuming no US income/assets). (This is mutual, by the way: the two countries do not want to have to collect each other's taxes, so they don't agree to do so.)

Once you renounce you're no longer subject to US tax law.

USCs don't need to feel like criminals for choosing to end their citizenship because they've concluded that the obligations outweigh the benefits. It's a rational decision and it's your right. The taxation obligation ends with the other obligations (such as registering for military service, if that's still required of citizens) and the benefits (such as the right to enter the US).

You can see that that's true by considering the fact that as soon as you show your CLN to your bank, your account is no longer reportable. You're no longer "tax-resident" in the US. Time to celebrate!

Hello

Can anyone recommend a specialist account. Reasonably priced. It's such an unfair system for us accidental Americans. TIA