Accidental Americans & U.S. Taxes, FBAR & FATCA: The Accidental Americans & U.S. Taxes, FBAR & FATCA is highly complex. With the IRS taking an aggressive position on matters involving foreign accounts compliance and unreported foreign income, compliance is crucial to avoid offshore penalties. We will provide an introductory analysis to assist individuals in this situation, but oftentimes there is a simple answer.
The Streamlined Foreign Offshore Procedures (SFOP) can help an Accidental American avoid penalties and get into tax compliance. In addition, the use of the Foreign Earned Income Exclusion and Foreign Tax Credit will assist with reducing, if not eliminating earned income and investment income tax liability
We have helped many clients both submit the SFOP and then subsequently expatriate.
And, for clients who fall within the parameters of the IRS Relief for Certain Former (and current) Citizens (and Residents), additional taxes may be forgiven.
Accidental Americans & U.S. Taxes, FBAR & FATCA
An Accidental American is quite simply a foreign person who was unaware they were considered a U.S. person.
For example, Michelle grew up in Taiwan. Her mom is a U.S. Citizen, but the family is “Taiwanese” for all intent and purposes. Michelle never visits the U.S., nor has any family, friends, or employment/investment income in the U.S.
Then one day, by chance, she learns she is considered a U.S. person, because her mom was a U.S. citizen when Michelle was born (even though Michelle was born in Taiwan). She learns this when she applies for a passport to travel to the U.S. to look at graduate schools.
On the one hand, the visa process just became a whole lot simpler. Conversely, Michelle’s Tax situation just became much more complicated.
U.S. Tax for Accidental Americans
The U.S. utilizes a CBT (Citizen Based Taxation) model. Therefore, even if when an Accidental America resides outside of the United States, the U.S. still taxes U.S. persons on their worldwide income. This is the case, even if a U.S. Citizen or Legal Permanent Resident resides outside of the U.S. and all of the income is foreign sourced.
The U.S. Tax Code does include mechanisms to help reduce taxation.
*The two main methods are the Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credit (FTC)
FATCA for Accidental Americans
FATCA is the Foreign Account Tax Compliance Act. The law requires more than 110 countries (and 300,000 Foreign Financial Institutions aka FFIs) to report U.S. account holder information to the IRS.
While the intended goal of the law is reduce offshore tax evasion, there are several other detriments that accompany this law:
- Foreign Financial Institutions refuse to open accounts for U.S. Persons
- Foreign Financial Institutions close or freeze accounts of U.S. Persons
- Accidental Americans have a higher likelihood of being outed by the IRS.
For individual and entity 1040 filers, they file an annual Form 8938 if they meet the threshold requirements for filing, and the failure to file may result in 8938 Form fines and penalties.
FBAR for Accidental Americans
Similar to FATCA reporting requirements, is the FBAR.
Technically, the FBAR is the Foreign Bank and Financial Account Reporting Form. It is also referred to as FinCEN Form 114. We have authored numerous articles on the FBAR.
When a U.S. person (even if they reside out of the U.S. or do not have a tax filing requirement) has more than $10,000 in annual aggregate total (not per account) combined in their foreign accounts, they are required to file an FBAR. It is filed electronically and (post-2016) is due to be filed at the same time a person’s tax return is due to be filed.
The failure to file the form may result in significant foreign account fines and penalties. These penalties range from a warning letter in lieu of penalty, all the way up to a 50% penalty on the annual maximum balance – up to a 100% penalty of the total value.
Accidental Americans Streamlined Procedures
When an Accidental American learns about their status and wants to get compliant, they may qualify for the Streamlined Foreign Offshore Procedures (SFOP). SFOP or “Expat Amnesty” results in a complete penalty waiver of the Title 26 Miscellaneous Offshore Penalty.
We Specialize in Streamlined & Offshore Voluntary Disclosure
We specialize exclusively in international tax, and specifically IRS offshore disclosure, including FBAR vs 8938 comparison, analysis and strategy development.
We have successfully represented clients in more than 1,000 streamlined and voluntary offshore disclosure submissions nationwide and in over 70-different countries. We have represented thousands of individuals and businesses with international tax problems.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.
- Learn more about the Board-Certified Tax Lawyer Specialist credential
- Learn more about the Enrolled Agent credential
- Learn more about Case Accomplishments
- Learn more about Testimonials from prior clients
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants and Financial Professionals worldwide.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Our lead attorney is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Streamlined Counsel?
How to Hire Experienced Offshore Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
Interested in Learning More about our Firm?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
We specialize in FBAR and FATCA. Contact our firm today for assistance with getting compliant.
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