Accidental American
Accidental Americans may be unaware of these requirements, or their US citizen status, until they encounter problems accessing bank services in their home countries, for example, or are barred from entering the US on a non-US passport.
Furthermore, the US State Department now charges USD$2,350 to renounce citizenship (or otherwise obtain a Certificate of Loss of Nationality), while tax reporting requirements associated with legal expatriation may pose additional financial burdens.
[1] Mumbai tax lawyer Poorvi Chothani stated that many Indians living in the U.S. on work visas "eagerly obtain U.S. citizenship" for their children but "do not even examine the long-term implications of this", and that she even has a client who is suing his own father for the reason of such an unwanted U.S.
§ 1409(c), only one year of continuous physical presence in the United States is required for an unmarried mother to pass down citizenship to children born abroad.
Retired U.S. State Department official Andrew Grossman wrote in 2007 that in cases of "doubtful nationality" in which a child's derivative U.S. citizenship remained undocumented and unreported to the U.S. government, the child was not regarded as a U.S. citizen either for tax or other purposes, and he expected that it would be quite difficult for tax authorities to make determinations of jus sanguinis citizenship on their own.
Additionally, the U.S. government has asserted that even a person who has been issued a CLN, but under a provision of law later found unconstitutional, remains a U.S. citizen all along.
Famously, former Prime Minister of the United Kingdom, Boris Johnson was denied boarding on a flight which transited the U.S. in 2006, after which he first claimed that he wanted to renounce his U.S. citizenship, but instead applied for a U.S. passport some years later.
[18] Furthermore, in the aftermath of the 2009 UBS tax evasion controversy, the U.S. government began concerted efforts to identify U.S. citizens who held non-U.S. financial accounts.
A major limb of this effort was the Foreign Account Tax Compliance Act (FATCA), passed in 2010, which imposed additional taxes on the U.S. income of non-U.S. banks which did not sign an agreement with the IRS to collect information about their customers' citizenships and to provide the IRS with any information on customers identified as having "U.S. indicia", including a U.S. place of birth.
Following FATCA's passage, many banks began inquiring into the birthplaces and parentage of their customers, raising awareness among accidental Americans that the U.S. government might consider them to be citizens.
[30] The reason is that the foreign earned income exclusion does not affect filing obligations nor the treatment of non-U.S bank accounts and investment plans.
Tax lawyers state that compliance with the foreign trust and passive foreign investment company rules can be particularly onerous, because their definitions are so broad as to include mutual funds, retirement accounts, and similar such structures owned by accidental Americans in their country of residence; people with savings in these kinds of plans will face higher taxes and compliance burdens than U.S. residents who keep money in similar U.S. investment plans.
[25] Those who have spent their lives planning for their retirement without considering the U.S. tax consequences of the non-U.S. financial instruments they hold may find that U.S. taxation, in particular PFIC taxation, wipes out most of their returns on investments; as Allison Christians states, "the PFIC regime is designed to be so harsh that no one would ever knowingly own one unless they were treating it like a partnership, and marking it to market annually with the assistance of sophisticated tax counsel".
[32] RDSPs and other registered Canadian accounts for education and retirement savings are exempt from FATCA reporting by banks under the FATCA agreement between Canada and the United States, but this agreement does not relieve the U.S. individual income taxes owed on such plans, nor the individual owner's obligation to file the non-FATCA-related trust or PFIC forms.
[33] Under the 2011 Offshore Voluntary Disclosure Initiative, people residing outside of the U.S. who stated that they did not file U.S. tax and asset-reporting forms because they were unaware of their U.S. citizenship faced fines of 5% of their assets.
[34] In many cases, it has also proven difficult for accidental Americans born abroad to obtain Social Security numbers (SSNs), which are required for them to file U.S.
§ 6109) does not require this, and so the California Bar suggested that their proposal could be accomplished by issuing new Treasury regulations without needing to wait for Congress to pass any new legislation.
Furthermore, the IRS has extremely limited ability to penalize accidental Americans for failure to file, provided they have no US assets or income sources.
And even then, according to Treasury audit report from April 2022, the IRS does not have the resources to use FATCA data to locate or pursue accidental Americans who do not voluntarily enter the US tax system.
§ 1482) formerly provided for automatic loss of U.S. citizenship by dual citizens resident abroad, but this was repealed by the Immigration and Nationality Act Amendments of 1978 (Pub.
Regardless, various U.S. lawyers have commented, based on their experiences with clients, that the majority of the early 2010s increase in renunciations of U.S. citizenship is probably attributable to accidental Americans, rather than the popular stereotype of wealthy people who move to a tax haven after becoming rich in the United States.
The very first such PLR request came from a British citizen who stated that he was unaware of his U.S. citizenship; Willard Yates, a retired tax attorney then with the IRS' Office of Associate Chief Council (International) who handled that PLR request, initially expressed disbelief at the possibility that anyone could be unaware of their U.S. citizenship, but states that later, "after working a bunch of 877 PLRs, I realized we didn’t know anything about anything when it came to U.S. citizens working overseas, accidental or otherwise.
[49] Temple University law professor Peter Spiro described this as possible evidence that the U.S. government was beginning to conclude "that the imposition of U.S. taxes on accidental Americans is unsustainable.
"[50] Roy A. Berg of tax law firm Moodys Gartner believed that the proposal had little chance of being passed by Congress, but that the executive branch might be able to implement similar relief solely through regulatory amendments.
