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IRS Relief For Former Citizens

Relinquishing United States citizenship is a serious matter, and involves decisions that are irrevocable. Of course, there are tax implications to doing this as well. Anyone considering this is encouraged to speak with a specialized legal professional prior to making final decisions. The IRS has procedures to handle these matters. To aid in decision making, below is some information about tax compliance and how to avoid becoming a “covered expatriate”.

Background

United States citizenship is defined by the US Constitution in the Fourteenth Amendment, where it states that “all persons born or naturalized in the United States” are United States citizens. While there are exceptions for high-level diplomats, everyone born within the US becomes a US citizen at birth. Similarly, people born to US citizens outside of the United States are almost always US citizens.

There are some United States citizens who are not even aware of their citizenship status because they were born to foreign parents in the US, or to US citizens outside of the United States. Even if they are aware of their citizenship status, they may not be aware of the tax implications. Every United States citizen, no matter where they live, must report their income and pay taxes on all of the money they earn everywhere in the world, even on foreign assets.

The Foreign Account Tax Compliance Act, commonly known as FATCA, became law in 2010. This act requires financial institutions throughout the world to determine if their clients are United States citizens, and report information to the Internal Revenue Service about their account. If their financial institution determines a customer is a US citizen, that customer must either provide their Social Security Number or provide documentation to counter that determination if they are not a US citizen. This is usually all done via a customer self-certification at the time of account opening.

Whole Story at TFX.

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