In early 2019, a subset of French expats known as “accidental Americans” rose up and took action – legal action – against foreign banks who uphold FATCA, citing discrimination. Find out what this could mean for expats across the globe who disagree with the requirement to file citizenship-based American taxes.
What Are Accidental Americans, and Are They Subject to American Taxes?
Accidental Americans are typically people who live abroad and did not know they were considered US citizens. These people carry with them a tax-filing obligation throughout their life, unless – and even then, until – they give up their American citizenship. Consider the following situations that can lead to an accidental American:
- Someone was born while their American parent(s) were living abroad,
- Someone was born on US soil while their foreign parents were in the US, but they returned promptly to their home country to raise them,
- An expat has become a naturalized citizen of another country and believes their US citizenship has ended.
What does this mean for Accidental Americans and taxes? The conditions under which US citizenship was conferred make no difference to the IRS. A tax-filing (and sometimes tax-paying!) liability is still required, and stiff penalties are levied when an expat is non-compliant. Further, the European Banking Federation estimates that more than 300,000 people currently residing in the European Union are accidental Americans – quite a dizzying figure.
On What Grounds Are They Suing?
Reuters reported that a group of over 300 accidental Americans who are citizens of and residing in France have filed a class action, discrimination lawsuit. Some of the citizens found themselves incapable of finding loans or opening bank accounts, courtesy of FATCA, which compelled the citizens to take legal action. So, they filed a discrimination lawsuit against the financial institutions who uphold FATCA regulations.
What Could This Lawsuit Mean for Expats?
If FATCA is found to be discriminatory, this could have a far-reaching impact on expats. The goal of the lawsuit is to put pressure on the US to ease to present the current banking and financial challenges that expats currently experience. Ultimately, supporters of the lawsuit would like to see the US shift to residence-based taxation, repeal FATCA, and permit accidental Americans to renounce their citizenship at a lower cost.
This isn’t the only stand that expats have taken in the past few years. The Tax Fairness for Americans Abroad Act, which was introduced in 2018, sought to end American taxes on foreign income, meaning that only US income would be subject to US tax. All of this political attention is excellent news for expats who have long struggled to find politicians willing to back their plight.
Hopefully, this political and legal momentum continues, and American elected officials understand that the current taxation system makes expats choose between surrendering their citizenship (an expensive and permanent endeavor) and facing lifelong taxation from a country now foreign to them.
Greenback Experts Can Help With Your American Taxes
For now, the April tax deadline is right around the corner. If you need to become tax compliant, Greenback can make it easy. Contact us today, and we’ll help answer any questions you may have about FATCA, tax-compliance, citizenship renunciation, and more.