Accidental Americans & Expatriation

Accidental Americans & Expatriation

Accidental Americans, Expatriation & Renunciation

Accidental Americans & Expatriation: When a person is unaware they were considered a U.S. Citizen and has now discovered their U.S. Person status, they are referred to as an Accidental American. There are many downsides with being an Accidental American, with the most prevalent being the sudden realization that the IRS will tax you on your worldwide income, and be required to disclose your offshore assets, investments and accounts.

Since presumably, an Accidental American has been out of U.S. tax compliance for many years, there is the important issue of getting back into compliance to avoid offshore fines and penalties – especially since foreign accounts compliance by the U.S. government is on the rise.

Steps Accidental Americans Should Take

While the knee-jerk reaction for many Accidental Americans is to simply relinquish their status, that is usually not the best option.That is primarily because a person may be subject to an exit tax if they are deemed a covered expatriate.

And, once a person “Expatriates,” they cannot undo the action.

A Few Expatriation Tips

Here a few tips for Accidental Americans who want to Expatriate:

5-Years Tax Compliance

Even if the person can certify they are below the covered expatriate net-worth and/or net-income tax liability, if they cannot certify 5-years tax compliance, they will also be deemed a covered expatriate.

Evaluate Worldwide Assets

Before expatriating, the person should evaluate what their asset value is. If they are going to be a covered expatriate due to net worth, there may be planning strategies to reduce it, “aka Exit Tax Planning.”

Foreign Pension & U.S. Tax

When a person has a foreign pension, it is generally deemed as ineligible deferred compensation and may result in immediate tax liability for the expatriate. They will want to assess if transfer rules are possible under the source country pension taxation rules.

Gift Tax Rules

Whether or not the spouse (if applicable) is a U.S. citizen or not will impact the gift-transfer rules. There are generally no look-back provisions, but there are proposed regulations limiting the tax-free gift transfers of expatriates.

Interested in Expatriation from the U.S.?

Our firm specializes exclusively in international tax.

Contact our firm today for assistance with getting compliant.