Accidental Americans: What You Need to Know About U.S. Taxes

Has your bank asked you to clarify whether you are American even though you have never lived in America? Due to the legal principle of jus soli ("right of the soil"), you are an American if you were born in the U.S. Many Europeans, born in the U.S. but with only a minimal connection with the U.S., are commonly called "Accidental Americans." Accidental Americans face the same tax obligations and information return filing requirements.

Failure to comply with U.S. tax rules and obligations may result in significant penalties. Our team of experienced professionals can help you understand your U.S. tax and reporting obligation, the complex process of relinquishing United States nationality, and exit tax. We can guide you through renouncing your citizenship and help you minimize the financial impact of the exit tax.

Compliance is vital for Accidental Americans under FATCA as the IRS adopts a forceful approach to foreign accounts compliance and unreported foreign income, making offshore penalties a real risk to you. To help Accidental Americans & FATCA, THEVOZ & Partners will help guide you through the processes to mitigate the risks of non-compliance.

Citizen-Based Taxation (CBT) means that even if an Accidental American lives outside the U.S., they're still subject to U.S. taxation on their worldwide income. So even Accidental Americans residing outside the country must pay taxes on their worldwide income. This is the case even if a U.S. Citizen or Legal Permanent Resident lives abroad and earns only foreign income. However, the U.S. Tax Code provides methods to decrease taxation, including the Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credit (FTC).

The Foreign Earned Income Exclusion (FEIE) provision in the U.S. Tax Code allows U.S. citizens and resident aliens who work abroad to exclude a certain amount of their foreign-earned income from U.S. taxation. Our trusted team can help in determining and eliminating your taxable exposure.

Like FATCA, the FBAR (Foreign Bank and Financial Account Reporting Form) has reporting requirements that U.S. persons must follow. For example, if an individual has more than $10,000 in annual aggregate total in their foreign accounts, they're required to file an FBAR, regardless of their residence or tax filing status. Failing to file the FBAR can result in significant fines and penalties, including a warning letter or a penalty ranging from 50% of the annual maximum balance to 100% of the total value.

If an Accidental American discovers their status and wants to become compliant, they might be eligible for the Streamlined Foreign Offshore Procedures (SFOP), also known as "Expat Amnesty." SFOP can result in a complete waiver of the failure-to-file and failure-to-pay penalties, accuracy-related penalties, information return penalties and FBAR penalties. The experienced team of THEVOZ & Partners can help determine if SFOP is suitable for you.

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    THEVOZ & Partners is a highly respected boutique law firm with locations in the United States and Switzerland. Our attorneys have a wealth of experience in various legal fields, with a focus on tax, corporate and commercial law. We are here to help you navigate any legal issues, whether you are a business owner seeking advice or an individual needing representation. Our team is dedicated to providing personalized, attentive service to all our clients. Trust us to be by your side as you navigate the legal landscape.