EP 16: What is English for "Accidental Americans”?
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According to migration policy data, the highest number of immigrants are trying to get to the U.S. For those wanting to become Americans, it's a stressful situation, and the process can last for years.
But then there is another group of people who live outside the U.S., some of whom have no idea they are Americans, especially because they don't have a U.S. passport. For the record, not having a passport does not determine citizenship.
This group somehow acquired U.S. citizenship because they were born to U.S. citizens outside the country (probably on deployment), were born to non-immigrants in the U.S., or were born to U.S. parents but left the U.S. at a very young age. They may not be aware of it, but they are "American." in all ways possible.
We call this group "Accidental Americans."
In today's "shortie" episode, we discuss the implications of being an accidental American and the tax and financial implications of being an American overseas and make suggestions on how to deal with them. Ignorance is no defense, and you can't really ignore it.
IRS wants you to pay U.S. taxes like other U.S. tax persons or officially quit (exit).
We also discuss probably the most famous accidental American - Boris Johnson - a former U.K. prime minister.
We enjoyed digging into the details of this one.
The speakers' views and opinions discussed in this episode should not be considered financial, tax, or legal advice. Consult your advisor for any legal, cross-border tax, and financial advice.
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Speaker 1 (00:06):
Welcome to the International Money Cafe Podcast, the show where we filter out the noise on cross-border taxes, finances, and life in the us. I'm your host Jen, me from Certified Financial Planner, founder and owner of Elgon Financial Advisors.
Speaker 2 (00:21):
And I'm your host, man, Nadi, enrolled agent, owner and founder of Amman Tax and Business Services. Join us on this journey as we explore the unique challenges faced by inbound outbound families and businesses on taxes, compliance, and financial planning.
Who Are Accidental Americans?
Speaker 1 (00:41):
Let's get to the show. Have you heard of the term accidental Americans? We actually don't have an accurate number of people, Americans who are considered accidental Americans, but looking at some numbers, I think the last numbers we have from 2016, there were over 110,000 in Europe alone. And when you think about the US or America, everybody wants to come here. You are born in the US or you moved here legally, but believe it or not, they are those who are actually accidental Americans. And so in today's episode where we translate tax finance legalese into common English, we are going to be talking about who accidental Americans are. Manasa, are you ready for this one?
Legal Definition of Accidental American
Speaker 2 (01:33):
Oh, yes. Well, if we kind of try to find a legal definition of the term accidental Americans, there really isn't one. So I guess like you said, it's a term used to describe someone whom the United States law has deemed to be a US citizen, and how does that happen? So these people could be someone who was born in the US to a non-immigrant visa holder parent or used solely who left the US when the persons were very young, or someone born to a US citizen parent who live abroad and have grown up in that country and may not have any emotional or social affiliation to the US or also known as US SANEs. They may actually not even be aware of the fact that they're American. So again, a baby born on US soil is a US citizen, even if the parents do not have US citizenship or a baby born to a US citizen parent anywhere in the world is a United States citizen at birth. So that takes us into the more clear way of looking at why somebody could be an accidental American. They may have moved abroad and not known that this applied to them or they were born abroad and they have lived there all their lives not knowing even that their parents or one of their parent was a US citizen. Right?
Speaker 1 (03:28):
Yeah. And I think the part we want to emphasize on this is that they are dual citizens. So right now they live in x, Y, Z country. They are a citizen of X, Y, Z country as well as being a US American citizen. So the question is why should people care if they're accidental Americans? What are the ramifications, the tax obviously, and the financial implications of being an accidental American?
What are the Financial Implications of Being an Accidental American?
Speaker 2 (04:00):
I know that is something that people who accidentally find out that now they are a United States citizen, it comes with its ramifications and implications of course, especially around US tax reporting under fbar and fatca. And we have met so many of accidental Americans who have come to assist clients and it is definitely ones for some to come and just find out that they now are subject to all of these reporting requirements. And we've been talking about this on our various episodes, but kind of going into it again, for those of you who this might apply to is back in 2010, Congress enacted the Foreign Account Tax Compliance Act of fatca. And basically that act was created to crack down on tax evasion by Americans with financial assets, especially after a Swiss bank scandal showed that there were people who had hid millions of dollars overseas.
Speaker 2 (05:18):
But what happened was there are a lot of people who don't have that kind of money, but are still subject to these rules and regulations. And FATCA also created these intergovernmental agreements where that required banks in foreign countries to report back to the US if somebody is a US citizen and is trying to open a bank account, et cetera. So they have found that being an accidental American has all these ramifications, whether you are trying to conduct your daily business, but you live abroad. But now you are subject to this FA and FATCA reporting and US tax reporting as well because US citizens are subject to taxation on their worldwide income or reporting of their worldwide income. So do you have any interesting stories around this, Jane? Do you think anything interesting comes to mind?
Speaker 1 (06:25):
Oh yes. You can see me nodding my head. So the most famous case that comes to mind is Boris Johnson, the former prime minister of the uk. So Boris Johnson was actually born in New York, and so he had dual citizenship after his family lived here. And then I think when he was maybe around five, they moved back to the uk, but nobody ever did anything with Boris Johnson citizenship. And so as far as the IRS is concerned, this is one of their citizens. He committed himself to the UK all the way to becoming the prime minister, but this was before now where he gets interesting. At some point he ended up selling his house in the UK for something like I think it was, the number I remember was over $150,000 or over a hundred thousand pounds. And guess what IRS says, Hey, as a US citizen, we need a cut of that money. And so of course Boris fought back, but the IRS was not going to settle for anything less than we need to settle this. You are an American, granted, you're an American, an accidental American. And so he ended up settling and what he ended up doing was actually renouncing his US citizenship. But that kind of really brought it to the fore that if you're an accidental American IRS is never ever far from you. And so this brings to the next question, which is if you're an accidental American, what do you do?
What do you do if You’re an Accidental American?
Speaker 2 (08:05):
Yeah, I know. The first thing that of course is do you want to keep that citizenship? That's the immediate question you would probably have to answer for yourself. And obviously if you want to keep it, then you have to make sure that now you are compliant with all of the US tax rules and regs. And if you are not, then there are all these amnesty programs that you can use to come into compliance. And then if you decide you don't want to keep the citizenship and you want to have nothing to do with that anymore, then you can renounce your citizenship. Of course there is a way to do it, and there's a path to the expatriation, which we won't go into today, and there is a fee involved in surrendering your citizenship. However, that fee has changed from what it was before. Now it's $450 since October of 2023. So you can go ahead and renounce and follow the rules to do that, or you can keep your citizenship and stay compliant with US tax rules. So yeah. Do you have anything else you want to add, Jane?
Speaker 1 (09:22):
No, I think we've addressed who an accidental American is. We've talked about the implications and we've given accidental Americans a possible solution going forward. Ignoring their status is obviously not a solution or an option. So we are coming up to 10 minutes, so I'm going to pass it back to you to conclude.
Speaker 2 (09:43):
Alright, so dear listener, we had fun with this shorty today. And if you like that and if you want to listen to more, please go to our website. You can see links to all the major platforms we stream on. Go to your favorite platform to listen to your podcast and make sure you hit follow. So you will be intimated of future episodes. Thanks for listening. Bye
Speaker 3 (10:12):
Bye. Thank you for listening to the International Money Cafe podcast. The content is for informational and educational purposes only, and should not be used as a substitute for professional advice. Seek the advice of your qualified service provider with any questions you may have regarding your cross order finances and tax needs.