Why Accidental Americans should tread carefully

3 min
Published on: 15-09-2015 Last modified on: 30-01-2024
The reasons Accidental Americans should tread carefully

1. As an accidental American You do NOT have a tax problem. The reason is simple. You are not in the U.S. tax system. (Once you enter the U.S. tax system you will have tax problems for as long as you are a “U.S. person”).

2. If you are a “U.S. person” (you should investigate this) then you have a “compliance” (or rather “non-compliance”) problem. What does this mean? Hint: If you don’t yet have a tax problem, you don’t start by calling a tax professional.

3. You probably are so “Dazed and Confused” that you are NOT capable of making any decision. You don’t even know HOW TO MAKE A DECISION. Furthermore, you cannot delegate your inability to decide anybody else. You need to take your time and educate yourself.

4. I repeat point 3. You are NOT capable of making any rational decision. Proceed slowly!

Some first steps:

1. Google: IRS Publication 54

This is the IRS Publication that “explains” (sort of) the tax rules that apply to Americans abroad. Take your time. It will give you some background for a discussion with an adviser. Once again, PLEASE do some prep work on your own. That way you will be better able to evaluate the advice you are given.

(While you are reading Publication 54 you might look for information about some of the following: FBAR, Form 8938, Form 3520, Form 3520A, Form 1116, and Form 2225. (But there’s much more. These are just a few “of my favorite forms”.)

2. When it comes to whether you are a “U.S. citizen”

A. Those born in the USA begin life as U.S. citizens but they may have lost it along the way.
B. Those born outside the USA are NOT U.S. citizens without proof of additional facts.

If you have any doubt about your “USness”, then you should address the “State (no pun intended) of your U.S. citizenship.”

3. I just want to file “U.S. taxes”. How do I do this?

No problem. It’s easy. You just file them. The real questions are:

A. How many years should I file?
B. Do I just file them or do I file them using one of the “IRS Compliance” programs? (A current example of an “IRS Compliance” program would be “streamlined compliance.)

About the IRS

I suspect that the IRS has few friends. But, the IRS is NOT your problem. The IRS is charged with the unfortunate task of administering incomprehensible laws outside the U.S. Would you want that job?

So far, there have been few Americans abroad (unless you “signed up to pay penalties by entering the “Offshore Voluntary Disclosure Programs”) who have been subjected to penalties for not knowing they had to file U.S. taxes.

(If you don’t want to pay penalties, then you should NOT enter the “Offshore Voluntary Disclosure Program” – “OVDP”. It is the worst way to come into U.S. tax compliance. “OVDP” is a program for those who KNOW THEY ARE CRIMINALS and have been using “offshore bank accounts” to hide money from the IRS. That is almost certainly not YOU! So, don’t enter the OVDP program unless at least three different lawyers (who don’t know each other) recommend it.)

Understand that:

It’s the laws themselves that are the problem. The IRS cannot change the laws. It’s Congress that is the problem. It’s Congress that created FATCA and continues “citizenship taxation”. (Fortunately, the USA is currently considering tax reform.)

“Sacred Trust: Counselling U.S. citizens abroad in a FATCA world”

That’s the title of a seminar that I presented to a group of U.S. tax professionals in the U.K. The point is that counseling U.S. citizens abroad are:

– partly about citizenship
– partly about tax
– partly about financial planning
– partly about emotional counseling*
and always about “Life Planning”!

So, you should ….

Proceed slowly. Proceed carefully. Proceed with the knowledge that whatever decision you make will have to live with it for life!

Contact us for more information


John Richardson is a Toronto-based lawyer with a clear understanding of the legal, tax, Retirement Planning, and investment climate in Canada. He also has a good understanding of the obligations of U.S. citizens abroad. He provides “citizenship counseling” for U.S. citizens abroad. Quote: The truth is that citizenship counseling is a form of life counseling.

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