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.

If you're opting to keep the citizenship and file US tax returns, you may be able to do the returns yourself if your affairs are straightforward (e.g. no stocks-and-shares ISAs)

There is free software you can use to put in your numbers and generate a dummy return, which you can then use as a model. There's a (commercial but quite helpful) website where you can ask questions at www.expatforum.com/expats/expat-tax/

I file our federal taxes with Tax Act, you fill it all in online and print it off and mail it in. I also pay for their cover annually so if anything goes pear shaped with our return they will sort and represent us. We don't earn enough to pay taxes to both countries. But want no bother when we come to collect our US SS pensions.
I got the link for Tax act from the Embassy website in the section for the IRS. (or Social security I forget which)

For what it's worth, I never filed US tax returns while I was a US citizen, never having been aware that it was required. There has been no difficulty with my SS pension. I applied for it with the assistance of the Federal Benefit Unit at the London Embassy, at the same time I was in the process of renouncing US citizenship. The FBU saw the SS application through and then after the renunciation had been approved the FBU helped me notify the change of citizenship to the SSA.

The SS pension is taxable by the UK only, under the US/UK treaty. It gets paid into my bank account in sterling, with no US tax withheld, and I file a self-assessment return with HMRC each year in order to pay the UK tax due. Easy peasy, and entirely in accordance with the laws of both countries.

Thats lovvely to hear underfall We have just over 5 years left to collect early at 62 or is it 62.5 years old.
How far in advance did you apply.

Actually, I didn't even know I was entitled to SS until I learned about citizenship-based taxation and started looking into the renunciation process in order to keep my banks happy.

I only worked in the US for a few years, long ago. Not enough for a pension. But I learned that a Social Security treaty had been signed which meant that I was entitled to claim a (small!) SS pension by combining years worked in the US with a few of the many many years worked in the UK. So that's what the FBU helped me claim. I could have been claiming it for years, if I had known I was entitled! They did backdate it - three months, I think.

Paid for my renunciation!

Here's a link to the information about the US-UK Totalisation Agreement, in case it may be useful to anyone reading:

www.ssa.gov/international/Agreement_Pamphlets/uk.html

Hi,
I think I need to go through this us tax compliance and renunciation. I am looking for a recommended us tax accountant who won't charge the earth. So if you would tell me who you used that would be great. I'm London based, born here, lived here all my life, but my mother is American. Just bad luck.
Thank you, pippa

Are you sure you're a US citizen? Were you registered as a US citizen when you were born, and/or have you had a US passport or SS number?

If not, you do have the option of simply never claiming the citizenship.

If you do need to renounce, you can do it very easily. There is no need to enter the US tax system in order to renounce. You can ring the Embassy (or email) and ask for an appointment to renounce. They'll tell you about the procedure. It costs $2350.

Underfall is asking good questions. The right course of action for any individual depends their risk tolerance, versus their willingness & ability to pay the administrative costs of getting everything sorted.

For a person who would not owe any US tax even if they filed everything correctly, I think the main risk relates to access to banking and other financial services outside of USA. US pressured the banks worldwide to help them identify and tax US citizens, and some banks are more diligent than others at doing that. The worst situation is with non-US banks who don't have their s* together and panic if they find out someone is a US citizen. I have heard about rare cases of accounts being frozen.
One practical problem with renouncing citizenship without sorting out the tax side of it (per Underfall's suggestion to ring the embassy) is that some banks will, in certain instances, demand proof of compliance with US tax law (for instance copies of filed Forms 1040), and in the absence of such proof, they may freeze accounts or kick out clients. I don't want to sound alarmist - this may be exceedingly rare - but it's not a zero-risk proposition to approach it this way.

Regarding who is or is not a US citizen, any person born in USA clearly is a US citizen (unless they have renounced US nationality), whether or not they have an SSN, were registered, or anything else. This is likely to turn up in banks' records at some point since they ask "where were you born", and many official documents include that information.

A person born to one US parent may or may not be a US citizen. There are different rules depending when they were born, how long the parent spent in USA at different ages, etc. I don't personally know the detailed rules, but they can probably be found online. American Citizens Abroad (www.aca.ch) may also be able to help with this.

With a US parent you don’t need to “claim” US citizenship - you either are a citizen or you aren’t. The flip-side of that is you don’t get to choose not to claim it.

"One practical problem with renouncing citizenship without sorting out the tax side of it (per Underfall's suggestion to ring the embassy) is that some banks will, in certain instances, demand proof of compliance with US tax law (for instance copies of filed Forms 1040), and in the absence of such proof, they may freeze accounts or kick out clients. I don't want to sound alarmist - this may be exceedingly rare - but it's not a zero-risk proposition to approach it this way."

That can happen in countries which have opted for a Model 2 Fatca Intergovernmental Agreement. Britain opted for Model 1, under which the banks are protected from the US FATCA 30% withdrawal penalties. Banks in the UK are only required to identify accountholders with US "indicia" and report the accounts to HMRC.

Since Pippa was born in the UK, her accounts shouldn't be treated as reportable unless she has a US address, or other US indicia.

"Regarding who is or is not a US citizen, any person born in USA clearly is a US citizen (unless they have renounced US nationality), whether or not they have an SSN, were registered, or anything else."

Correct. Pippa stated she was born in the UK to an American mother. She may have a claim to US citizenship, if her mother fulfills the residence criteria.

"With a US parent you don’t need to “claim” US citizenship - you either are a citizen or you aren’t. The flip-side of that is you don’t get to choose not to claim it."

Sure you do. You're required to claim it (and show proof) when you apply for a US passport.

If you never claim it, it's a moot point whether you "are" a US citizen. What matters to a person who doesn't want the citizenship is that with no US birthplace (and no other US indicia), your account is not reportable.

I was born in the US. I moved to Britain long ago, filing my last-ever 1040 before I left. Never heard of citizenship-based taxation, and the IRS never mentioned it.

Three years ago a bank told me about FATCA. I made an appointment to renounce, and six weeks later I was $2350 poorer and no longer a US citizen.

Believe me, if it wasn't permitted they wouldn't permit it.

Thanks underfall - it's helpful to know about the two different FATCA models. My main anxiety is about the possibility of having bank accounts frozen or refused. I know this has happened to people in Europe. Another fear is having my status reported to the IRS (by a bank) and being pursued with all the heavy fines they threaten for people who 'wilfully' avoid complying. They treat voluntary compilers much more leniently. It's part of piling on the pressure. Because I believe the IRS has no direct power to force UK resident citizens ('accidental americans') to pay them anything.
In my case I wouldn't owe any income tax but I sold my home a few years ago and under US rules the capital gain on that is taxable.
I believe in paying taxes but not to a country that I have no allegiance to, that gives me zero in return.
I had both US and a UK passports as a child to but was told when I was 16 I wasn't eligible to renew my US passport as I wasn't living in America! Yet now I'm suddenly American enough to pay them taxes??
It's ludicrous. A form of unjust bullying. And the only real winners are the legions of accountants.

I am a Canadian with duel citizenship who has never lived in the States a day in my life but they are reportedly coming after even those who've never had any residency. It's a pre Trump problem and foreign governments like mine, have fucked us all up the ass lest the US sanction them (bunch of cowardly fuckers) by giving up their data on duel citizens. It doesn't mention I'm a duel citizen on my passport but my mother, who was born in the us, refuses to cross the boarder as she is worried she will be stopped and flagged.

She has secured a lawyer to try to denounce her US citizenship which has proved a costly process. I'm sure, while not started under Trump, that he would massively uptake this form of highway robbery so it's good to make people aware. I recommend speaking to a lawyer with this speciality OP.

"My main anxiety is about the possibility of having bank accounts frozen or refused. I know this has happened to people in Europe."

Only the US-born. We are every bank's worst nightmare. Waving the CLN brings back the smiles and wipes the tears away.

"Another fear is having my status reported to the IRS (by a bank) and being pursued with all the heavy fines they threaten for people who 'wilfully' avoid complying. They treat voluntary compilers much more leniently. It's part of piling on the pressure. Because I believe the IRS has no direct power to force UK resident citizens ('accidental americans') to pay them anything."

You're correct, the IRS can't enforce US tax laws in the UK, and doesn't try. It's HMG that's requiring banks to report the bank accounts of US-born UK citizens. Neither country tries to enforce the insane US tax laws on UK residents, though both countries continue to pretend that the US extraterritorial tax laws are being enforced.

"I had both US and a UK passports as a child to but was told when I was 16 I wasn't eligible to renew my US passport as I wasn't living in America! Yet now I'm suddenly American enough to pay them taxes??
It's ludicrous. A form of unjust bullying. And the only real winners are the legions of accountants."

Correct. It's the tax advisers who peddle the fear.

Since you've had a passport you're undoubtedly a US citizen. It sounds like the official who told you couldn't renew, was just wrong. If you want the citizenship you can appeal that decision; or if you don't want the citizenship, you can renounce.

Third option is to ignore the whole business. That's what my UK-born children have done (they both had US passports as children, but not as adults).

FixitupChappie - language, for goodness sake!

Hi,

I'm a dual national (mother American) but I was born and have lived in the UK my entire life.

I have never filed a tax return to the IRS. I have an ISA and a LISA where I declared my dual national status - they are both cash ISAs.

I own no property, and don't have complicated financial affairs, but I'm looking to a) buy a house, and b) overpay into my pension in the next few years which will complicate matters. I also have over $10k in my LISA as it is my house deposit.

I spoke with a tax account at www.expattaxprofessionals.com/ today and they advised becoming compliant under the tax amnesty as a non-wilful delinquent. This is 3 years tax returns, and 6 years FBARs, and a legal professional to guide and review the non-wilful disclosure statement.

The cost for this would be $1800 - is this about right?

Then he said to renounce my citizenship I would need 5 years compliance so would need to pay for x2 more years ($750), plus FBARs ($100) plus a dual status return in the year of renunciation (so year 6) $500, and then filling out 8854 ($500) and then finally the admin fee to the US government of $2350.

This seems insane. I know that I have no tax owed to the USA due to higher tax rates here. I cannot pass my citizenship on to any children due to not ever being a resident.

Does anyone a) think these charges are reasonable, b) has anyone completed non-wilful tax amnesty themselves with zero knowledge of the USA tax system?

As per Underfall's advice, my nearest consulate is London where they insist on filling out the invasive form - would I be better paying to go to Paris?

I'm so confused as to what to do. I can't really afford the fees above, but I'm worried about the future even though I rarely travel to the USA. My passport recently expired so I want to get this sorted so I can travel to the USA in the near future.

My brother lives in the USA so files yearly, and my mother has been in the UK over 30 years, earns very little and doesn't file as she is under the income requirements (or so she thinks).

MindDisco:

1. Renunciation: you can go to the London Embassy site and have a look at the list of required forms, and download them to see what you think of them. Then, if need be, look elsewhere (Paris, Amsterdam, Iceland etc), and decide whether you need to go out of country to renounce.

1. You can backfile previous years of returns and FBARs, if you decide you wish to become compliant after renouncing. There's no need to go through the so-called "amnesty" streamlined procedures.

FBARs are easy to do for yourself (but don't, until/unless you've definitely decided you want to become compliant).

As for the returns, a fairly easy way to do it would be to download the 1040 form and read the instructions to see if you can figure out for yourself where your income should go. Or use one of the free or cheap tax software packages (TaxAct or similar) to generate a return for 2017, and use that as a model for previous years. That's all a tax adviser will do for you - ask you for your income information, put it into a tax software programme, and charge you a lot of money for doing it.

Or you could just do as your mother does and assume you're under the income requirements.

1. You can renounce with an expired US passport, but you then must wait until the CLN is in the system before you can obtain ESTA clearance in order to be allowed to board a plane to fly to the US. Don't book tickets until you have the CLN.

It is common knowledge that all US Americans have to pay us tax. Ignoring this was not a good idea - get legal advice!

This has nothing to do with Trump, it's always been the case, although as the thread shows, little known and does feel very unfair.
We lived the the US for a few years and had to file returns in both the US and UK which was very complex and time-consuming, but thankfully had an equalised tax arrangement so we didn't pay tax twice. We did have to continue filing returns for years after our return to the UK.

The US forms wanted seemingly random and impossible to find information about the cost of the land upon which our first house was sited, which we had bought 20 years previously and since sold. Super complex and definitely one for the experts.

Trump is going to help with this if he is able to end birthright citizenship, probably wont be retrospective though.

"This has nothing to do with Trump, it's always been the case, although as the thread shows, little known and does feel very unfair."

Correct, all US citizens are deemed forever tax-resident in the US; but the US never bothered to mention this to said citizens until the mid1980s, when a tiny note about tax was added to the US passport.

It's very unfair, indeed, but fortunately cannot be enforced extra-territorially. It's one of the obligations of US citizenship: if you don't want the citizenship, renounce and all's well.

$2350: definitely worth the fee if you want it and can pay. The idea that you have to file tax forms in order to renounce is simply a fallacy.

"The US forms wanted seemingly random and impossible to find information about the cost of the land upon which our first house was sited, which we had bought 20 years previously and since sold. Super complex and definitely one for the experts."

US citizenship-based taxation is indeed extremely valuable to tax advisers.

Underfall - you say 'the idea that you have to file tax forms to renounce is a fallacy'.

My understanding is that although someone can renounce US citizenship by paying the fee and doing the required forms, as you say, the renounciation isn't complete until you are also tax-compliant.

So you are still considered a taxable US citizen.

Am I mistaken about this?

Pip14 - you lose your US citizenship as soon as you swear the oath. The documentation of the loss (the Certificate of Loss of Nationality) is sent to you separately.

During the period when you're no longer a US citizen but don't yet have the CLN, some things, such as visiting the US, can present problems, because although you no longer have a US citizen's right of entry, your loss of citizenship has not yet been entered into the US system, so you are still not eligible to obtain a visa or visa-waiver (ESTA). So it's best to postpone visiting the US until you have the CLN and can use ESTA. If it's necessary to visit the US during the limbo period, you can ask the consular officer how to proceed.

That's it. Renouncing US citizenship, in accordance with US law, is your right. It's not conditional on filing US tax forms. (Google "UCSIS" and "Sec. 349" to see the statute)

Once you lose citizenship by swearing the oath, you're no longer a citizen, and from that moment you're no longer required to report your worldwide income to the IRS. However, loss of citizenship doesn't cancel out pre-existing liabilities. If you need or want to file a return for the final part year in which you were a citizen (e.g. if you owe tax or want to claim a refund, or just because you want to tidy things up), you can do so by filing a 1040NR as a "Non-Resident Alien", attaching an unsigned 1040 to report the necessary information for the "1040" portion of the year (when you were still taxable on your worldwide income) and supplying any information you need to report for the rest of the year (i.e. US-source US-taxable income that you may need or wish to report) on the 1040NR. (It's complicated and confusing, so read all the instructions very carefully.)

You can also file Form 8854 if you wish, during the year following renunciation, in order to confirm to the IRS that you're no longer a US citizen and provide information on your worldwide assets and agree to pretend you sold all your worldly goods (including your UK home if owned) the day before you renounced and therefore "owe" the IRS a share of the imaginary proceeds from the imaginary sale if the imaginary proceeds totalled more than a certain amount.

It's up to you; but the filing or non-filing of Form 8854 does not have any bearing whatsoever on the validity of your renunciation.