Accidental US Citizens Urged to Get Advice Over Tax Situation

by Ray Clancy on March 25, 2015

A tax service firm that specialises in advising American expats has issued a warning about so called accidental Americans who do not realise they are liable for tax in the US.

According to Greenback Expat Tax Services there are many US citizens who has always lived and worked in another country who do not know that they should have been filing US taxes all along.

IRSTaxes_thumbnailAn example is Helga, aged 25, who was born in Germany and has lived there all her life. As one of her parents was a US citizens she received automatic US citizenship even though she never lived in the US and has never visited the country. All her working life she has been filing and paying German taxes.

But the US has a citizen-based tax system, not residency based like in most European countries and it has increased efforts to thwart tax cheats and force Americans to report and pay taxes on any income they receive, regardless of where they live.

Because of the campaign to enforce tax reporting requirements, Helga realised she was delinquent on her US tax returns. But she had no idea where to begin or how many years she would need to file, so she needed advice.

Helga communicated with her accountant through email initially to assess her situation. He reviewed her income and the taxes she had paid to Germany, as well as her bank accounts to determine exactly what she would need to file.

Helga’s situation was perfectly suited to file under the IRS amnesty programme, the Streamlined Filing Procedures. ‘This programme requires you to file the last three years’ tax returns, as well as FBAR (Foreign Bank Account Report) if applicable. Helga’s bank accounts all fell under the FBAR reporting threshold of $10,000, so all she needed to file were her Federal Tax Returns,’ said David McKeegan of Greenback Expat Tax Services.

When Helga originally contacted Greenback, she explained that she spoke very little English so it would be difficult for her to communicate with an accountant. Greenback’s Customer Champion chose an accountant who was fluent in German in order to make the process simpler for Helga.

She was quite organized with all her tax documents, so it wasn’t a time consuming process to gather all the documents needed to file under the Streamlined Filing Procedures. In the end, Helga’s German income tax was higher than what her US tax would have been, which means she could offset those taxes using the Foreign Tax Credit for each year. As a result, she avoided owing any tax to the US.

‘And with the recent changes to the Streamlined Procedures, there were no penalties for late filing. While Helga considered renouncing her citizenship prior to coming to Greenback, she decided not to do so after discovering that the tax filing process is much simpler than she expected. She doesn’t have any plans to move to the US, but because of her young age she didn’t want to eliminate the possibility in the future,’ added McKeegan.

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