One element of the new [IRS Tax Amnesty] that is different from IRS’s 2009 the amnesty scheme is a provision for so-called “accidental Americans”. These are individuals who became American under unconventional circumstances, such as having been born in the US to non-American parents and who were subsequently raised in another country, unaware in many cases that they even are US citizens, and thus obliged to report to the IRS each year for their entire adult lives.
Under this scheme, such individuals – who some believe account for a large percentage of the estimated 1 million or more American expats who do not file Foreign Bank and Financial Account reports annually that authorities think ought to – may qualify for a 5% ‘in lieu of’ penalty rather than being hit with the full 25%.
Five percent may be much less than 25%, but as Krause notes, it is still likely to come as a major shock to many people, who were not even aware that they were Americans, that they owe the IRS a twentieth of their assets.
“There are thought to be thousands of these people in the UK and across the globe,” says Krause.
“Most are under the mistaken impression that not holding a US passport means that they are not US citizens. Unfortunately that is not the case.”
Adds Paul Hocking, chairman of Frank Hirth, a tax firm specialising in looking after Americans and others with US tax issues: “The 5% penalty for accidental Americans is so narrowly drawn it will only help a tiny handful of [them], as it expressely excludes those people who ‘knew’ they were a US person — [such as because they hold] a US passport — but didn’t understand they had a tax filing requirement. This is a large proportion of the non-filers we see, and the penalties for these individuals can be very high.”
“For someone who knew they were American [but] didn’t understand they had to report their income, to face a minimum of $10,000 per bank account per year penalty is too harsh, let alone someone who falls foul of the asset-based penalties, which can be as high as 25% of the value.”