A dilemma, alerting the ‘accidental American’

Despite initial thoughts you may have, I felt this was appropriate for this forum due to the subject matter.

I attended a funeral recently. The deceased was the parent of one of my spouse’s oldest and dearest friends. The deceased had led a harrowing life, brought about by World War II. As a result, they became transient, and spent time in the US in the early 1950s. Whilst in the US the parent gave birth to a sibling of my spouse’s best friend, but the family relocated back to the UK shortly after the birth. All was detailed in the eulogy, and for many attending the service, the details of the deceased’s life were a revelation. The best friend was born in the UK. The best friend’s sibling knows they were born in the US and talked freely about it. But, as with many others, they appear to be unaware of any responsibilities they may have due to their US birth. They are satisfied in the knowledge that they are British.

During the wake, I overheard a conversation the sibling was having with a small group of friends fascinated by the revelations. The sibling appears to have never applied for a US Social Security number or a US Passport. They’ve never lived or worked in the US. They travel on a British Passport, even to the US on holiday (Yes, I know that’s illegal, but that’s a topic for the Visa forum). I would guess they’ve never filed a US tax return. They seem a sincere person. They’re a very successful professional, and are partners in a UK firm. As regulars on this forum would understand, by this time I had unavoidably contemplated numerous pitfalls, some with very dire consequences.

What especially caught my attention was a comment concerning the curiosity of the sibling’s children about their rights to live in America, which they were intending to investigate.

A gathering of new acquaintances is certainly never the time to bring up a subject as obtuse as US taxes. And this was the funeral of the sibling’s parent. I would not contemplate even a quiet word, and said nothing.

The 14th Amendment; the obligation of a US Citizen to file US taxes; to file FBARs; Form 3520; the requirements pertaining to a US Citizen’s partnership in a UK registered firm; enactment of FATCA legislation; requirements for FFIs (NOTICE 2010-60 is still intent on the notification of US Persons who are account holders) and the inevitable Form 8938; the list goes on and on, and all are pitfalls.

Amongst others in a similar situation, there’s a very decent US/UK Citizen who would be surprised to learn that they are living in ‘ignorant bliss’. They may be one of the lucky individuals who never encounter any difficulties simply because they pursue no ties to the US. With increased diligence, and FATCA, anonymity may eventually become problematic. There’s always the ‘quiet’ filing of back returns, or renunciation. But they don’t deserve the degree of grief that may be unleashed if events conspire against them. I can hear the disagreement some readers may have with the previous sentence, the sibling should have investigated. Unfortunately, like many others, they simply might see no reason to do so. They’re British, and no civilised foreign country would be so draconian. We (the regulars on this forum) would have investigated, but then we know we’re expats and have a different mindset. I won’t automatically condemn others for not investigating. (Prior to recent threads, would everyone have fully investigated individual State domicile rules?)

Once we arrived home I mentioned to my spouse that, potentially, the sibling (and their firm) could encounter some difficulties. I naturally met a stone wall. My spouse (UKC) has always questioned the “audacity of a dysfunctional foreign government to impose taxes on one of its citizens abroad, let alone a British Citizen” such as the sibling. The conversation will go no further, and certainly will not be posed to the best friend or their sibling. Whilst I have a degree of sympathy for the sentiments expressed by my spouse, I also believe it’s not my place to be so impolite as to make an unsolicited comment on the personal affairs of others I hardly know. But the truth is we are required to file, and many of us do so. In the past, and in different circumstances, I have given the occasional ‘wink wink, nod nod’ to others in a similar situation. How they proceeded was their concern. Perhaps I’ll meet the sibling at some future gathering, and much to my spouse’s chagrin, if the subject were to arise…….

It’s the one curse of the Blue Passport: tax and financial reporting, and the knowledge of it. I dread the best friend’s dismay, possibly one day in the future, when they tell of the sudden difficulties their sibling has encountered with the US Treasury. A decent person may have unforeseen complications in their life and I haven’t offered as much as a ‘finger aside the nose’. Congress will celebrate another triumph over tax evasion in the name of justice and fairness for all honest, patriotic Americans. As much as I am against tax evasion, I would find the fair judgement somewhat perverse.

The opinions expressed are mine alone. You’re invited to post “life’s tough, rules are rules, you should alert them but it’s not your problem, they’ve got by so far so stay out of it, they may not subject to reporting in this situation, or it’s none of your business” viewpoints. I won’t be offended, but possibly enlightened. 

What an awkward situation this has placed you in!  Obviously you did the right thing in not saying anything at the funeral and it doesn't seem your spouse would mention it.  Perhaps wait until it comes up or mention how surprised you were in a future conversation?

Personally, since you have a link with this person, I would alert them through the sibling.  I think the person is better off being alerted to the rules, and then deciding whether or not to ignore them, rather than finding out about them when it is too late.  That said, equally, I wouldn't lose sleep over it.  To some extent, it isn't your problem.

I am curious how the U.S. government notified citizens living abroad of their responsibility to file U.S. taxes in times gone by (i.e. pre-internet days) I honestly do not remember any directives from the Embassy or otherwise 35 years ago. So I imagine there was even less awareness of this type of thing in the 1950's.
Having said that, I do realize "ignorance of the law ... etc. etc."

I am curious how the U.S. government notified citizens living abroad of their responsibility to file U.S. taxes in times gone by (i.e. pre-internet days) I honestly do not remember any directives from the Embassy or otherwise 35 years ago. So I imagine there was even less awareness of this type of thing in the 1950's.
Having said that, I do realize "ignorance of the law ... etc. etc."

One way is by reading the notes on your US passport.  Obviously that doesn't help folks who never bothered with a US passport... 

This is an example of American exceptionalism; exceptional dumbness. Europeans' concept of citizenship is entirely different form that of an American as it hinges on parentage not location of birth.

The reaction of your UKC wife is understandable as she just sees the citizenship and tax issues as the US trying to lord it over everyone. You've hit upon the reason why some many  foreigners are anti-America

You've hit upon the reason why some many  foreigners are anti-America

Yeah, I can't count the number of times someone has said to me, after finding out I'm an American, "I really hate America because of its tax policies and how they are applied to Americans living outside the United States!"
 

Yeah, I can't count the number of times someone has said to me, after finding out I'm an American, "I really hate America because of its tax policies and how they are applied to Americans living outside the United States!"
 

Obviously there are lots of other reasons to hate America (and reasons to love it too). But tell the OPs story to a non-American and watch the reaction, it just confirms all the
bad stereotypes they have about America. It reminds me of the Mormon's practice of baptizing dead people....it would be nice if they asked first. It's the same with US citizenship. I'm sure the UK citizen in question doesn't consider himself and probably doesn't want to be American and it's the utmost arrogance for the US law to ignore his wishes.

I'm sure the UK citizen in question doesn't consider himself and probably doesn't want to be American and it's the utmost arrogance for the US law to ignore his wishes.

Every country has their own citizenship laws and requirements that come with citizenship, and I don't see how one method is necessarily better than another.  Finns, for example have compulsory military service for men, and if you're born outside Finland to a Finnish woman, you're Finnish.

So let's say a Finnish woman living in Australia has a baby boy, and he grows up in Australia.  According to the Finnish embassy in Canberra's website, that boy is going to get a call-up letter when he's 18.*  Why is that better than an American being liable for taxes due to the circumstances of their birth?

*According to the site, if the boy (or his mother) has never updated his contact information with the Finnish government he probably won't get a letter.  This would be similar in nature to the American living in the UK in the original post.  While they're technically liable for US taxes, it doesn't sound likely that the US is even aware of their existence. 

I'm sure the UK citizen in question doesn't consider himself and probably doesn't want to be American and it's the utmost arrogance for the US law to ignore his wishes.

Huh?  How are the US ignoring his wishes?  If he wants to give up his US citizenship, there are formal channels for doing so (as with any country).  The US isn't psychic.

The UK recognised people born in the UK as citizens until the 80s.  The US is the only place which taxes people not in the country, but imagine the outcry if they decided to pull citizenship? 

The whole issue is this persons children want to go to the the US, so if they had pulled it those kids would be out of luck and probably moaning about how horrible the US is.

US tax law for overseas citizens is bad public policy. In the case of normal UK resident, US citizens, there are two choices:

1. You comply. You spend a lot of time and money on preparing the forms. In the UK, typically you will owe little if anything and sometimes the US even pays you. You have to obey various nonsensical restrictions on where you put your money.

2. You do not comply (knowingly or through ignorance). You run the risk of losing most of your assets and being imprisoned for years.

The point of taxes is to raise money but insignificant amounts are generated at significant costs. Group 1 has to bear the costs of compliance and get more or less irritated according to taste. Group 2 are turned into criminals. None of this makes public policy sense.

The US has a legitimate right and reason to go after genuine tax evaders but they do it in a way that causes significant collateral damage. The US would get better results (i.e. more tax income) if it respected the territorial principle and cooperated symmetrically with other countries.

1. You comply. You spend a lot of time and money on preparing the forms. In the UK, typically you will owe little if anything and sometimes the US even pays you. You have to obey various nonsensical restrictions on where you put your money.

I certainly don't spend "a lot of time and money" to prepare mine but wouldn't complain at all if the US stopped insisting we file.

While the US has the right to prosecute, why would they?

Would they really pay tens or even hundreds of thousands of dollars to extradite, prosecute and imprison someone who doesn't actually owe them any money?

They have their hands full with resident citizens who DO own them money and who actually have SSNs, don't you think?

Mention it to them, by all means, but keep a little perspective and take it easy on the scare tactics which are wholly inappropriate in this case.

We should absolutely all be filing returns, but the idea that they will be hammering on the door and carting them off to San Quentin is a little extreme.

In truth, I don't think the US govt cares either way about low to moderate income overseas Americans. Certainly not enough to go chasing after them. However, I think it's wrong to have something like the FBAR law which ordinary expats can easily get wrong. The penalties are draconian and non-discretionary (i.e. no honest mistakes allowed). There should be a way for the subject of the original poster to get this sorted out without taking a big hit.