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Accidental Americans and Tax

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My friend is an accidental American - born there, but has never lived there.

This means that under American law she needs to file tax returns, which she has never done.

The obvious thing to do would be to continue to ignore it, but this can lead to problems with bank accounts and mortgages (both of which she now needs), as UK banks are required to give the IRS the details of their American citizens, and can refuse to deal with customers who are not 'compliant' with the American system.

Anyway - the key question is what to do? Has anyone else been in a similar situation and did they resolve it? 

Can it be ignored indefinitely? 

Revoking citizenship is a bad option as it is expensive and requires tax compliance beforehand anyway. 

In reply to Dan Arkle:

Has she tried doing a tax return? One of my good friends in Finland was American, she said because of tax agreements between the governments it wasn't particularly onerous and she didn't owe the IRS anything as she was paying her taxes in Finland. It did always seem a pain though.

How expensive is it to revoke your citizenship? If she doesn't want to deal with the issue now and in the future, I would have thought sorting it out formally that way was the only way to go. 

In reply to Dan Arkle:

I have experience of this at one remove.  It's a pain and entirely unreasonable of the US.  Acknowledging citizenship leads to endless admin (and cost).  It's not just tax but "FATCA"  filing, and there are implications for all of pensions, share-ownership and company Directorship.  However, if you do the admin you are at least safe-ish and it is unlikely any tax is actually due unless you are wealthy.

I don't know what happens if you ignore it long-term but it would involve lying on e.g. mortgage applications and bank account applications which I suspect is very high risk

There are "support groups" online with lots of advice and one or two reasonably priced US accountants who will deal with things each year.

Post edited at 08:31
In reply to TobyA:

> How expensive is it to revoke your citizenship? If she doesn't want to deal with the issue now and in the future, I would have thought sorting it out formally that way was the only way to go. 

It's quite a lot and only possible if you are up to date with 5(?) years of tax returns.  It also has implications if you want to visit the US in future.

 neilh 10 Nov 2022
In reply to Dan Arkle:

Oh dear . Depends on what she has earnt. Simple as that. At some stage it will catch up with her if she would need to have paid USA tax in the past. The IRS are not an easy organisation to deal with. She needs to do the research and not ignore it.  
 

it’s valuable having US citizenship,so well worth the price. 

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In reply to Dan Arkle:

Thanks all.

It is very unlikely that she would owe them any tax due to it being paid abroad on a medium/low income.

She hesitates to comply due the horror of having to fill in multiple years of tax returns in an unknown system.

I suspect it would take a huge amount of time or a huge amount of money to get a professional to help. 

Post edited at 09:00
 wbo2 10 Nov 2022
In reply to Dan Arkle: I would definitely investigate professional help tho'.  I work with several people with US citizenship, it is a p.i.t.a.

Revoking citizenship has some real consequences and is definitely not an easy way out.  Recent lunchtime discussion

 Ciro 10 Nov 2022
In reply to Dan Arkle:

I have no direct experience of the situation to contribute but as someone with a tendency to bury my head in the sand I would say that, in general, continuing to bury your head in the sand to avoid a stressful few months means years of low level stress, which cumulatively are far worse than getting your affairs in order.

In reply to Dan Arkle:

> I suspect it would take a huge amount of time or a huge amount of money to get a professional to help. 

I think the cost is about £300/yr for an accountant.

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 neilh 10 Nov 2022
In reply to Dan Arkle:

Does not matter. The IRS are unforgiving.

At some stage its going to catch with her even though its a nil return.

 hang_about 10 Nov 2022
In reply to Dan Arkle:

It's been a while and I was working in the US as a Brit - which of course is different. The IRS does have 'EZ' forms (meant to be ee-zee to fill in). Worth getting your friend to have a look. They make lots of assumptions about deductions etc rather than having to detail everything. Beyond that - professional help!

 Moacs 10 Nov 2022
In reply to Dan Arkle:

It's a bad old do and I feel for your friend.

It is not just the income tax unfortunately.  I believe the US will also want to levy gains tax on your primary residence when you sell.  If she owns or plans to own a house in the UK that could be very costly and there will be no relief for tax paid here (as we don't charge gains on primary residence).

Almost certainly ignoring it will cause substantial problems down the line, even if she stays well away from visiting.  Bringing the income tax and pension forms up to date is daunting, and the forms are not intuitive to folk used to the UK system. 

Sadly, she will probably need professional advice - and it is not cheap (a friend in identical circumstances had to pay several thousand).  The cost of getting up to date is similar whether she keeps the passport or not.  The advice should also include wider considerations such as the property gains.

All the major international accounting firms (KPMG, PWC, E&Y etc) provide this advice to a high standard.  Personally, I'd be wary of a small UK-only firm for this.

Oh, and said friend did ignore it for a number of years - and then one day his bank wrote to him saying they'd frozen his ISA because his name was on a list received from the IRS.  He's still clearing up the fallout.

Post edited at 15:02
In reply to Moacs:

> It is not just the income tax unfortunately.  I believe the US will also want to levy gains tax on your primary residence when you sell. 

A former UK Prime Minister (recent) got done for this, I believe. He revoked his citizenship. But I'm sure after he paid the tax (or at least I hope so). 

Best to get it done - the EZ form mentioned by hang_about isn't usable here and while the international income isn't that complex, it is certainly quite daunting.  Definitely get someone who does this sort of thing regularly. 

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 dread-i 10 Nov 2022
In reply to pneame:

>A former UK Prime Minister (recent) got done for this, I believe. He revoked his citizenship. But I'm sure after he paid the tax (or at least I hope so). 

Boris wanted to fill out the forms, but got stuck when it said: 'Number of children'.

 henwardian 10 Nov 2022
In reply to Dan Arkle:

You friend can download all her previous tax returns from HMRC if she self-asses and I'm sure there is a way to get all the tax return data from HMRC is she doesn't self-ass.

Then pick up the phone to the IRS and make them talk her through everything she needs to do. Sure it will take time, it will be a pita and it will require multiple long phone calls and it will probably require multiple processes to be done with other agencies first but it will future-proof the situation and after you've done it once, it will be pretty easy to just repeat each year.

In the unlikely event that the result is a demand for a big whack of tax, then she'll have to stump up for professional help to resolve it but it's unlikely to come to that, so jump off that bridge when you burn it.

My 2 cents about ignoring it: The world is nothing like as joined-up as we think it is, agencies within the same country don't communicate, let alone agencies between countries, you can almost certainly ignore it indefinitely (and you can definitely get away with lying on bank finance applications if it's stuff they can't easily check). However it _is_ always going to be there worrying you every time you think about it and that kind of low-level constant stress that you can't get rid of is what puts people in an early grave. Statistically. So best deal with it if it's the kind of thing you know you will worry about.

If you have citizenship somewhere, don't give it up! History is replete with countries where things went downhill rapidly and those who could get out were in a hell of a lot better position than those who could not and there were plenty of times where the warnings were not timely or obvious.

In reply to Dan Arkle:

You don't mention whether your friend has citizenship anywhere else.

Has she ever done ANYTHING that acknowledges her American citizenship.

Has she ever (even as a baby) had a USA passport?

Has she ever (since birth) visited the USA? If so, what happened on entry?

Does she ever intend to visit the USA?

I think you can see where I'm going with this, but basically if she's a complete "sleeper", then does she need to do anything.

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 neilh 11 Nov 2022
In reply to Michael Hood:

I think that is " bollocks" as regards the IRS and US citizenship.Its a serious business and should not be taken lightly.

In reply to neilh:

I never said it wasn't a serious business. I just asked a bit about the circumstances and then asked whether there were circumstances (even if unlikely) that would mean that this wasn't a serious business.

If she had left the USA as a newborn baby without a passport (overland, birth certificate) and never had anything to do with the USA since then (and maybe didn't even know until recently that she had USA citizenship), then surely it would have no effect on her unless/until she did something that would acknowledge that connection with the USA.

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 jimtitt 11 Nov 2022
In reply to Michael Hood:

The US government take citizenship seriously and can rightly claim that while one never exercised any of ones rights thr US was at all times ready to protect those rights and as we know historically can and will right up to military action.

Someone with US citizenship cannot be unaware of this fact.

You can renounce US citizenship, the fee is $2350. But you also have to have filled out a tax return for the last five years, if not then the IRS can make an assesment, for a close relative of mine (middle/low income pensioner in the UK) this is $150.000. 

This may seem like a draconian US thing but then possibly you have no experience dealing with the UK Revenue as a business operating in Europe!

In reply to jimtitt:

Thanks all for some good advice and sobering stories! 

 alan moore 12 Nov 2022
In reply to Dan Arkle:

Mrs Moore uses 'H&R Block Expat Tax Services' to do her US Tax returns.

She has lived and worked here for 25 years, but like you said, the US want their Tax returns done.

There is a cost, but it was worth it.

 Cobra_Head 14 Nov 2022
In reply to Michael Hood:

> You don't mention whether your friend has citizenship anywhere else.

> Has she ever done ANYTHING that acknowledges her American citizenship.

> Has she ever (even as a baby) had a USA passport?

> Has she ever (since birth) visited the USA? If so, what happened on entry?

> Does she ever intend to visit the USA?

> I think you can see where I'm going with this, but basically if she's a complete "sleeper", then does she need to do anything.

It doesn't matter if she, hasn't done / had any of the above.

My daughter, born in the UK, to my American wife, is classed as an American citizen, as is the son she brought with her, who's been here since he was 12, 25 years ago.

My daughter will be liable to file US tax returns!!

there's away out, if you renounce your American citizenship, which cost around $2,000.

My son's just had a load of hassle with the bank trying to close his bank account because of this madness.

In reply to Cobra_Head:

Thanks, that sort of seems to answer my question - bit draconian & quite scary really.

I understand that she's liable, but do the USA authorities actually know that your daughter exists?

I'm guessing that the answer's yes - because (guessing again) US tax returns include some kind of "immediate family/dependants" declaration?


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