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Accidental Americans and The Streamlining Process (The IRS Tax Expat Amnesty Program) 2022/23

Discovering you are an accidental American can be extremely stressful and ultimately expensive. This article explains the Streamlining Procedures and what to do if you think you may be subject to US tax rules.

Written on 14 September 2023

An Accidental American is a person who doesn’t realise they have US citizenship and are therefore subject to US taxes. While you may not live or intend to live in the USA, you could still be counted in the eyes of the American government as an American citizen which in term will have an impact on the amount of tax you have to pay to the IRS.

While there are schemes in place to assist accidental Americans to minimise their tax bill, once you recognise your US citizenship status, the clock will be ticking to ensure you are compliant with US tax laws or risk facing penalties.

It is therefore vital that you understand the IRS Tax Expat Amnesty Program, also known as "the streamlining process", to help bring you into line with the US tax system.

This article explains what an Accidental American is and how the streamlining process works. As with any complex tax matters it is essential that you seek professional, expert advice before making any decisions. If you need assistance, request an introduction via our free US tax specialist introduction service.

Identifying whether you might be an Accidental American

The key question for anybody with connections to the US is: how do you know if you’re an accidental American?

In America, specifically, there’s only one thing that matters: whether or not you were born in the United States. If you were, and if you have a birth certificate that was given to you by a U.S. hospital, you are generally considered a U.S. citizen (that is, if you aren’t also the child of diplomats or other restricted foreign officials).

One quite famous accidental American, a woman born in the U.S. to Canadian parents, became an American citizen under U.S. law, even though her family was from Canada, and Canada was where they intended to live.

The geographical location of your birth isn’t the only thing that could impact your citizenship. Your parents’ nationalities can also affect things, under the following circumstances: if you were born to a U.S. citizen parent with either a previous residence in the U.S. or who was in the U.S. for at least a year prior to your birth, or physically present in the U.S. for at least five years and then at least two years after age 14, you’ll be counted as a U.S. citizen. Even if your parentage is unknown, but you were resident in the U.S. before the age of 5, you could be counted as a U.S. citizen.

So, even if you weren’t born there, or have never actually lived there, and even if you don’t have any plans to live there in the future, you might still find yourself required to file taxes under U.S. law.

You also might have to consider being compliant with FATCA (Foreign Account Tax Compliance Act).

Under FATCA, financial institutions outside of the U.S. have to report on potential U.S. citizens. If these potential U.S. citizens do actually have significant ties to the United States or are found to be citizens, then these foreign financial institutions (FFIs) are required to report this to the IRS. FATCA isn’t strictly enforced in all countries, but it’s worth noting that it is in the UK.

Tax obligations of Accidental Americans

You will not necessarily owe taxes, even if it turns out you are an accidental American. Under Section 911, U.S. citizens can exclude up to $112,000 in 2022 and $120,000 in 2023 (which should be adjusted for inflation) in foreign income every year. For any income that falls outside of this, you can get a tax credit paid to local tax authorities.

Laws like these basically mean that over 80% of accidental Americans actually owe no tax to the U.S. government. However, even if you don’t have an amount you have to pay, you’ll still need to file, and this can be a lengthy process.

Among the things that non-resident citizens may have to file are:

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

Then there’s the option of terminating your citizenship, an extreme but viable route to go down if you’re serious about not being an American in the eyes of the government. Even for people who genuinely have no ties to the U.S. and never plan to use their American citizenship, it’s not a widely exercised option.

The IRS Tax Expat Amnesty Program “Streamlined procedures”

Because of the six million Americans on average who find themselves in this situation, the IRS has introduced a few different amnesty programs. One of which is the Streamlined Procedures, where expats can get all penalties completely waived.

You just need to file three years of previous tax returns and six years of Form 114s (formerly known as FBAR), which (in 2022) would cover the years 2019-2021 for your tax returns and 2016-2021 for your Form 114s.

It doesn’t matter what your income level is or how long you haven’t filed for — under this program you can start fresh, safe in the knowledge you have complete amnesty from any penalties. This program has meant that many more can come into tax compliance without fear of fines or punishments.

As well as these tax return forms, you might also have to file foreign bank reports. If you’ve got more than $10,000 in aggregate, then these forms are required every year. For non-US bank accounts, this can happen at any point during the year. If you do have to complete these, and you’re operating under the Streamlined Procedures, you’ll need to submit late forms that cover the last 6 years.

Renouncing your US citizenship

This is an uncommonly used alternative, but can be suited to some. You can give up your U.S. citizenship status through the following routes:

  • Pledging allegiance to a foreign country or becoming a citizen of a foreign country (and/or then working for government of that country)
  • Serving in the army of a country that’s in a hostile relationship with the U.S.
  • Formally renouncing your citizenship in front of a diplomatic or consular officer of the U.S.
  • Providing a written statement of renunciation, while the U.S. is in a state of war and the Attorney General finds that you renouncing your citizenship is not a risk to national security
  • Committing an ‘act of treason’ against the U.S. (nor advised)

Some of these actions might sound pretty extreme, especially if you’re just trying to sort out your taxes, but depending on your situation, it’s good to know your options.

The U.S. is one of only two countries that impose tax based on citizenship, rather than residency. What this means is that no matter where you are, or live, or intend to live, if you’re American - even accidentally - you’re going to have to file taxes accordingly and the most sensible and cost effective option is to enter the streamlining process.

When to seek expert advice

In all cases, especially if you’re unsure whether you are an accidental American or there is a potentially large amount of money at stake, it’s vital to get personalised, tailored advice from a qualified professional experienced with US tax rules, the identification of accidental Americans and the streamlining process.

If you incorrectly assume that you are not an Accidental American, it could come back to bite you. A specialist will be able to review your situation in full, identify potential connections to the US and also any potential longer term implications. If you then need help getting your financial affairs in order, they will be able to provide you with a plan, including any potential streamlining or communications with the IRS and ensure that you get everything done right first time.

We provide a free introduction service which will connect you the a US tax specialist with extensive experience assisting people with connections to the US. As part of our free introduction service, our partner will offer you the chance of a free, initial consultation to discuss your situation and provide answers to your general questions. If you feel that you need further assistance and help, they will provide you with a no-obligation fee quotation and detailed breakdown of the services on offer.

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