What exactly does the phrase “Accidental American” imply? How can you tell if you’re one?
Children born in the United States (“U.S.”) are automatically U.S. citizens under the U.S. Federal Citizenship Law. Code. An individual who is a US citizen but is unaware of it is known as an “Accidental American.” Many reasons may result in this problem, the most common of which is:
- An individual was unaware that he or she was a United States citizen at birth.
- A U.S. citizen immigrated to another nation as a youngster, and he/she mistakenly believed his/her U.S. citizenship was automatically lost upon obtaining another country’s citizenship through naturalization certificate.
- An individual who was born in the United States, grew up in another country as an infant or toddler, and has no idea that he or she is a citizen of the United States.
- An individual was born in the U.S. to the non-U.S. citizen parents present in the US on an employment or student visa for temporary period of time.
- A child born outside of the U.S. to both U.S. citizen parents may be a U.S. citizen at birth if at-least one parent had resided in the U.S. or one of its outlying possessions (OLPs), even if s/he was never registered with the U.S. government Vital Records Office.
- A child born outside the United States to both U.S. citizen parents may be a U.S. citizen at birth if one of the parents has lived in the United States or one of its outlying possessions (OLPs) and even if s/he was never registered with the US government’s Vital Records Office.
- A child born outside of the United States with at least one parent who is a United States national. This individual may be a citizen by birth in some situations, such as when a parent is a U.S. citizen and has lived in the United States for at least five years, including at least two years after reaching fourteen years of age. If those children were never registered with the U.S. government Vital Records Office because U.S. citizenship is not considered optional in the United States.
Part H – Children of U.S. Citizens of Citizenship and Naturalization policy manual should be reviewed from the website of US Citizenship and Immigration Services for greater detail on U.S. citizenship at birth.
An Accidental American will almost always be a U.S. citizen until s/he informs the U.S. Department of state of the intent to relinquish his/her U.S. citizenship and receives a Certificate of Loss of Nationality (CLN).
Until they formally notify their intention to give up their US citizenship with the Department of State and get a Certificate of Loss of Nationality (CLN), an Accidental American will almost always be a citizen of the United States.
Please contact a U.S. immigration lawyer if any of the above circumstances apply to you, or if you are not sure whether you are a United States citizen.
What should someone do if s/he is an Accidental American?
An Accidental American is entitled to the same rights, privileges, and duties as other United States citizens. They can apply for a U.S. passport, a Social Security number, Medicare, and live and work freely throughout the United States without a visa. In addition, they have the right to vote in federal- or state-level elections for public officials and run for federal or state office in the United States.
An Accidental American is legally obligated to comply with all of the obligations that come with being a US citizen. One of those duties is for an “individual to pay income and other taxes honestly, on time, and to federal, state, and local authorities” (U.S. Citizenship Rights and Responsibilities – US Department of Homeland Security, 2019).
A US citizen is required by the Internal Revenue Code I.R.C. § 61(a) to file a personal income tax return with the IRS office in Austin, Texas, United States and report their worldwide income wherever they reside.
Many citizens of the United States who reside in Canada pay no or little U.S. tax because they receive foreign tax credits for taxes paid in Canada at a personal tax rate higher than that of the United States.
A Social Security Number (SSN#) is necessary to submit a U.S. 1040 personal income tax return. If an Accidental American was never given a U.S. SSN, they should apply for one to make the process of filing their U.S. tax return easier. Residents of Canada who are U.S. citizens should go to the nearest Social Security Administration Office in the U.S., depending on their province/territory or residence and postal code.
An Accidental American may also be required to file a Form FinCen 114 – Report of Foreign Bank and Financial Accounts (FBAR) – with the U.S. Department of Treasury under the Foreign Account Tax Compliance Act (FATCA) in addition to a U.S. 1040 personal income tax return. Penalties for late filing of this information form may be at-least $10,000 per year.
A U.S. citizen who is required to file a tax return in the United States, on the other hand, must submit Form 1040 and any necessary information returns.
A U.S. citizen may be required to file various annual information returns such as Form 5471, Form 8858, Form 8865, Form 8621 and Form 3520/3520-A, in addition to a US 1040 personal income tax return. Late or non-filing of these information returns can result in hefty penalties.
What would happen if an Accidental American who does not reside in the United States fails to file their U.S. tax returns or decide not to do so?
The IRS’s ability to identify a delinquent US citizen – including an Accidental American – and penalize non-compliance with their US tax obligations has been enhanced by the FATCA agreement between the United States and numerous nations, including Canada.
Under the Foreign Account Tax Compliance Act (FATCA), foreign financial institutions such as banks and investment/brokerage firms, including those in Canada, are required to disclose all U.S. account holders to the IRS through the Canada Revenue Agency. These financial institutions are able to freeze or close financial accounts held by delinquent Americans living abroad who have fallen behind on their tax obligations, in order to comply with the Foreign Account Tax Compliance Act.
Is there any program for U.S. Citizens who never filed their U.S. tax returns in the past to get out of their situation with a chance of relief or amnesty?
Many Americans living abroad, particularly Accidental Americans may be unfamiliar with their tax obligations owing to a lack of awareness according to the IRS. The IRS provides an amnesty program for delinquent U.S. citizens called “Streamlined Foreign Offshore Procedures” to assist them in coming into compliance with the U.S. tax law. U.S. citizens living in Canada or any other foreign nation are eligible for this program if they did not willfully neglect their U.S. tax obligations and failed to file a timely return on time.
What are the possibilities for people who no longer want to be U.S. citizens and wish to renounce their citizenship?
The right to renounce one’s US citizenship is recognized by the U.S. government for all lawful residents, including those who have acquired their citizenship by accident. For both U.S. immigration and tax purposes, giving up your citizenship must be done voluntarily.
An Accidental American must make an appointment with the U.S. Consulate and apply for a Certificate of Loss of Nationality (CLN) as well as pay a fee of $2,350, go through an interview with a US Consulate official, and sign immigration papers to renounce their citizenship for the U.S. Immigration purposes.
To renounce the citizenship for the U.S. immigration purposes, an Accidental American must schedule a visit with the U.S. Consulate and apply for a Certificate of Loss of Nationality (CLN) as well as make a payment of $2,350 and go through an interview with a US Consulate official. For U.S. immigration purposes, if your citizenship is revoked, you will lose it immediately. Legal counsel from a US immigration lawyer can also be obtained for this procedure.
A U.S. citizen must first comply with his or her federal tax obligations before renouncing for tax purposes, and he or she must file Form 8854, the Initial Annual Expatriation Statement, along with U.S. dual status personal income tax returns for that year to no longer be regarded a U.S. taxpayer by the IRS.
The IRS provides “Relief Procedures for Certain Former Citizens” to those who have either renounced their U.S. citizenship after March 18, 2010 or plan to do so in the near future. Accidental Americans who wish to renounce their citizenship of the United States may qualify for these relief measures if all of the requirements are satisfied. These procedures are being provided by the IRS without a specified termination date. Before terminating these procedures, the IRS will make an announcement.
To renounce for the U.S. tax purposes, a U.S. citizen is first required to be compliant with his/her U.S. tax obligations and must file Form 8854 – Initial Annual Expatriation Statement – along with U.S. Dual Status personal Income tax returns for that year in order to no longer be a U.S. taxpayer in the eyes of the IRS.
The IRS offers “Relief Procedures for Certain Former Citizens” who have either given up their U.S. citizenship after March 18, 2010 or intend to relinquish it soon. Accidental Americans who wish to give up their U.S. citizenship may quality under these relief procedures if all the criteria are met. The IRS is offering these procedures without a specific termination date. The IRS will make an announcement prior to terminating these procedures.
If eligible under the new Relief Procedure, an Accidental American is required to file U.S. tax returns for six years (five prior years plus the year of renunciation for Immigration purposes) along with Form 8854 and the last six years of FinCen 114 (FBAR) forms.
Under this procedure, Accidental Americans (U.S. citizens who do not have a U.S. Social Security Number) are no longer required to obtain that number if they have never filed a U.S. income tax returns in the past. They can simply file their U.S. tax returns without a SSN to comply with U.S. tax requirements for renunciation of U.S. citizenship.
How do Accidental Americans know if Renunciation of U.S. Citizenship is the best option for them? Is there any planning required before renunciation of U.S. Citizenship?
Like many other countries, including Canada, the U.S. imposes an exit tax on U.S. citizens in the year they renounce their U.S. citizenship, pursuant to Internal Revenue Code (I.R.C.) §877A based on a test of net-worth and net tax liability. Tax consequences can be very harsh if the renouncing U.S. citizen is considered as a Covered Expatriate under IRC code 877A. If one or more of the following criteria is met for renouncing U.S. citizen, s/he is a Covered Expatriate:
- S/he has a net worth of more than USD$2,000,000 (subject to no inflation adjustment)
- S/he has an average annual net tax liability for last five years preceding the year of renunciation greater than USD$165,000
- S/he fails to certify, under penalty of perjury, that all U.S. federal tax obligations have been complied with for the five tax years preceding the tax year that includes the expatriation date. This certification must be made on Form 8854.
There are few exceptions to §877A Exit Tax Regime available for certain U.S. citizens who are considered as Covered Expatriates and for U.S. citzens eligible under “Relief Procedures for Certain Former Citizens“.
Proactive and meticulous planning may be required for U.S. citizens who would like to renounce to avoid triggering U.S. tax issues.
According to the U.S. law, if it is assessed a U.S. citizen has renounced his/her U.S. citizenship only to avoid fulfilling the responsibility of compliance with the U.S. tax obligations, s/he may be banned from future entry to United States. Although officials of the U.S. Department of Homeland Security have the authority to do so, at present there has been no official news of the banning of any renounced U.S. citizen.
Renunciation of U.S. citizenship is not always a solution but does present as an option for any U.S. citizen, including Accidental Americans. Advice from a U.S. Immigration Lawyer and/or a U.S. Cross-border Tax Specialist may be prudent to avoid any issues.
If you are an Accidental American who has never filed a U.S. 1040 personal income tax return, you may reinstate your tax-compliant status by opting to file your U.S. tax returns for previous years without late penalties and interest under the Streamlined Filing Compliance Procedures and/or Relief Procedures for Certain Former Citizens if you meet the eligibility criteria.
Please feel free to contact Raj at your convenience to determine if you are eligible under the above procedures.
