Experience. Dedication. Results.

Photo of Professionals at Law Office of Williams & Associates, P.C.

Americans Living Abroad Get Caught By the U.S. Tax Code

On Behalf of | May 17, 2012 | IRS |

It is no secret that the world is increasingly becoming a smaller place, especially when measured by the Internal Revenue Service’s (IRS) long reach. An article in the New York Times discusses how Americans living abroad are coming under pressure to declare foreign holdings and catch up on back tax filings. Many of these Americans have tenuous ties to the U.S. and the benefits conferred by U.S. citizenship.

The targets in the IRS’s sights might be called “accidental” Americans. Often these people were born during their foreign parents’ brief stay on U.S. soil, or born abroad to American parents who long ago settled elsewhere.

After lifetimes abroad, these “accidental” Americans believed that because exemptions left them owing no U.S. income tax they had no obligation to file returns. The IRS’s reporting requirements, however, have tripped up many in this group because even though they owe no U.S. tax, they must still declare their foreign bank and financial accounts.

The article provides a glimpse of the type unwitting citizen caught up in the IRS’s dragnet:

Roy, 37, a lifelong Canadian resident and citizen whose dual-national mother fears the U.S. tax authorities will target the modest savings account the Canadian government provides him as a developmentally disabled adult;

Jonathan, 34, a teacher whose American parents migrated to Canada 39 years ago. He considers himself 100 percent Canadian – a maple leaf is tattooed on his back – and believed until last year that he did not need to file a U.S. return. Tax advisers now tell him he must file eight years’ returns, at a cost in fees and fines in the thousands, lest an eventual U.S. inheritance be jeopardized;

The teenage children of Peter Hallworth, a Briton married to a Swede living in Malmo, Sweden; the children were born in the United States but lived there only as infants. Mr. Hallworth, having heard horror stories, now expects to urge his children, when they reach adulthood, to renounce the U.S. citizenship that up to now he had treasured.

Roy’s mother, from the story above, and her husband immigrated to Calgary Canada from the U.S. in 1969. They became Canadian citizens in 1975, believing that by doing so they would relinquish their U.S. citizenship.

When she learned she and her son were still subject to U.S. taxes, she said: “I was just astounded, angry. It’s not the tax. I just really, really, really, really resent being painted – all of us who’ve chosen to live in whatever country – as tax-evaders, you know?”

Because she has signature authority over her son’s account, she is taxable by the United States for all grants and bond contributions that the Canadian government has contributed to her son’s savings plan, she said.

On top of that, the U.S. Consulate in Calgary told her she could not renounce his citizenship because, it said, he lacked “the legal capacity to form the specific intent necessary to lose U.S. nationality.” Roy, his mother said, “does not understand the concept of citizenship.”

To read the New York Times article in its entirety click here.


FindLaw Network