The Curious Tax Case of Accidental Americans

Who Are Accidental Americans?

Unlike nations like Italy that use bloodlines and ancestry to determine citizenship, the U.S. primarily relies on one key occurrence: birth in the United States. If you were born in the U.S. and had a birth certificate issued by a hospital in the U.S. and are not the children of diplomats or other restricted foreign officials, you are generally considered a U.S. citizen. In the circumstances of one fairly publicized case of an accidental American, a woman was born in the U.S. to Canadian parents who were studying abroad. Despite the disinterest of these enterprising scholars in remaining in the U.S. long-term or in raising their daughter to be American, under U.S. law, their new bundle of joy was indeed automatically an American citizen.

  • Birth to a U.S. citizen parent who has previously had a residence in the U.S.
  • Birth to a U.S. citizen parent who was continuously present in the U.S. for at least a year prior to the birth of a child
  • Unknown parentage but found to have a residence in the U.S. before age 5
  • Birth to a U.S. citizen parent who was physically present in the U.S. for at least five years and at least two years after age 14

The Identification of Accidental Americans

For many accidental Americans, the challenges associated with identification almost diminish the headaches of incidental citizenship. After all, how can the U.S. expect tax returns or FBAR filings for those not living in the country with few, if any, ties?

The Tax Obligation of Accidental Americans

As citizen non-residents are well aware, the U.S. is among two countries that impose tax based not on residency but on citizenship. This means that wherever you live, wherever you are, if you’re American, you’re going to have to file taxes accordingly. This doesn’t necessarily mean you’ll owe taxes; under Section 911, U.S. citizens can exclude up to $80,000 — or the corresponding amount adjusted for inflation — in foreign income annually. For any income not excluded, a tax credit is available in the amount paid to local tax authorities.

  • Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts
  • Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner
  • Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations
  • Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business.

Ensuring Compliance as an Accidental American

As with most things involving the U.S. government, there are many hoops to jump through in becoming — and remaining — compliant as an accidental American. The first step? Getting a passport. Want to relinquish your citizenship and cut ties with the United States? You still need a passport in order to give said passport up.

The Arduous Tax Compliance Requirements

Applying for a Social Security Number and passport are good first steps, but they’re only the initial steps of many on the road to compliance. The next part? Filing taxes.

Saying Goodbye to the U.S.A.

For accidental Americans who have no personal or familial ties to the United States or who simply have no interest in being further associated — say, for example, the child born to Canadian parents studying abroad in the case referenced at the beginning of this article — it is possible to relinquish U.S. citizenship, a process known as expatriating. According to Section 1481, a U.S. citizen can give up his citizen status by:

  • Becoming a naturalized citizen of a foreign country or pledging allegiance to a foreign country
  • Serving in the armed forces of a country in a hostile relationship with the U.S.
  • Working for the government of a foreign country after becoming a citizen of that country or pledging allegiance to that country
  • Formally renouncing citizenship in front of a diplomatic or consular officer of the U.S.
  • Providing a written statement of renunciation when the U.S. is in a state of war and the Attorney General finds that renouncing citizenship is not a risk to national security
  • Committing an act of treason against the U.S.

Taxes Due and Expatriation

While a vast majority of accidental Americans don’t owe tax to the United States, around 18% do. This amount is generally small, but for some individuals, the burden of taxation from multiple countries simultaneously is too much to bear. Some simply neglect to pay these amounts, but staying current with tax debt is important for those considering expatiation.

Charting a Course as an Accidental American

If you’re among the international individuals who have found themselves the lucky — or unlucky, as the case may be — recipients of accidental American citizenship, there are many complex legal and financial considerations to keep in mind. However, whether you choose to preserve citizenship or wish to cut all ties to the U.S.A., the long arm of the law isn’t avoidable, and there’s no escaping the need to stay up to date on tax and FBAR filings. Adhering to the law may be easier said than done — and no one wants to file taxes more often than they have to — but tax compliance matters for everyone: intentional American, accidental American, and everyone in between.

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Michael DeBlis

Michael DeBlis

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Michael is an attorney specializing in entertainment law and a professionally-trained actor. He is a partner in the law firm of DeBlis Law.