Tom LR Griffiths from Ingleton Partners on why Accidental Americans aren’t covered by IRS relief procedures and aren’t eligible for FATCA relief.
Tom LR Griffiths is a tax advisor and consultant, specialising in US expatriate tax matters
Tom LR Griffiths
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14 Mar Accidental Americans won’t get FATCA relief from the IRS this tax year

Posted at 13:25h in US Expats by
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Tom LR Griffith, US expat tax specialist Ingleton Partners discusses IRS guidelines on who is eligible for FATCA relief

At the time of writing, US Treasury Secretary Steve Mnuchin has just announced on Twitter that the US tax filing date has been officially moved from 15 April to 15 July 2020. This as part of the federal government’s measures to combat the damaging effect of the coronavirus pandemic on the world’s economies.

Fines and penalties have also been waived, and the payment date for 2019’s taxes has also moved to 15 July. However, we don’t yet have any specific details for US expats. We can expect more information to be released over the coming days.

The following information therefore could change. But as it stands, Accidental Americans hoping for help from the IRS regarding the Foreign Account Tax Compliance Act (FATCA) will be disappointed. While the IRS announced that US expats should be able to avoid the FATCA provided they fulfil certain requirements, this doesn’t apply to Accidental Americans. The IRS doesn’t consider Accidental Americans as expats regardless of how long they’ve lived outside of the US. Let’s take a look at who could qualify for FATCA relief.

Who qualifies for FATCA relief?

These restrictions were announced in September 2019 by the IRS as part of the Relief Procedures for Certain Former Citizens. Exemptions to FATCA only cover US taxpayers who have not wilfully avoided filing returns. Wilfully covers inadvertence, not filing by mistake, negligence or someone who misunderstood the tax laws in good faith. But to qualify the individual must also:

  • Have renounced their US citizenship since 18 March 2010.
  • Not filed federal or state taxes as a US resident or national.
  • Not exceeded the average net income tax threshold, which stands at $124,000. They can’t have gone over this for the five years before citizenship renunciation.
  • Not have had a net worth of over $2 million when they gave up US citizenship.
  • Hold a total tax liability of $25,000 or less during the five tax years up to giving up their citizenship.
  • Agree to file returns for the six years leading up to giving up their US citizenship.

However, these relief procedures do not include Accidental Americans.

Who exactly are Accidental Americans?

An Accidental Americans is defined as a US citizen living in a different country who doesn’t realise they’re a US citizen. And, like all other US expats, under US tax law, Accidental Americans have federal tax obligations. Examples of Accidental Americans include:

  • Someone with a US parent but who was born outside of the US and was told they’re a citizen of a different country.
  • Someone who moved countries when very young.
  • Someone who mistakenly thought that because they had moved countries, their US citizenship was automatically revoked.
  • Someone who failed to renew a passport.
  • Someone who was born in the US but lived their whole life somewhere else and were never aware they held a Social Security number.

An individual remains a US citizen until official renunciation, which is marked by a certificate of loss of nationality from the US Department of State. Anyone who might be an Accidental American or a US expat living overseas who is unaware of their obligations with the US federal government, should get advice as soon as possible.

The US tax system is notoriously complex, and for any expats living overseas in the UK and other countries, it’s far-reaching too. America is one of just two countries that continue to tax their citizens regardless of where they live, and by leaving the country for pastures new, expats aren’t automatically exempt from tax obligations.

To ensure compliance, all US expats should work with a specialist tax advisor like Ingleton Partners. Having advisors with the expertise and experience of both the US and UK tax system, and how to avoid double payment, is the best way to ensure compliance with minimal stress. Contact the team here.

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