Some of the top news stories as of late may also have the biggest impact on American expats: Birthright citizenship, international compliance campaigns, and the IRS’ proposed regulations on Section 956. These topics have made waves across the world over the past week and we want to make sure you have all the information you need to stay up-to-date and understand the potential effects on US expats.
Proposal to end Birthright Citizenship
President Trump is preparing an executive order to end birthright citizenship which would put an end to automatic citizenship granted to children born on American soil to parents with unauthorized immigration status. If an executive order is issued, this would bypass Congress from making policy, however, the President has stated that his first preference is to go through Congress.
The core of this subject matter comes down to the 14th amendment which grants citizenship to “All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and the State wherein they reside.” The main question at hand is related to the line “subject to the jurisdiction,” and if those words have been misunderstood over the years.
The whole world is watching what will happen next, but perhaps one specific group is keeping an even closer eye on things: Accidental Americans. If the proposed end to birthright citizenship continues to make headway, that will potentially open the door to this group being free from their US Tax obligations.
If the President does proceed with an executive order, it is expected to be challenged in court and likely to be a very lengthy process.
International Compliance Campaigns
Even though OVDP sunset at the end of September, the IRS continues pursuing those who evaded their taxes. This can be illustrated in their recent release on their big campaigns launched by the Large Business and International Division (LB&I). These campaigns were selected not only through data, but also suggestions made by IRS employees and aim to identify issues presenting risk of non-compliance.
American expats should specifically take note of the following campaigns:
- Individual Foreign Tax Credit Phase II
The IRS will focus in on those who’ve claimed the foreign tax credit but do not meet all the requirements.
- Offshore Service Providers
This will address U.S. taxpayers who engaged Offshore Service Providers that facilitated the creation of foreign entities and tiered structures to conceal the beneficial ownership of foreign financial accounts and assets, generally, for the purpose of tax avoidance or evasion.
- FATCA Filing Accuracy
This campaign addresses those entities that have FATCA reporting obligations but do not meet all their compliance responsibilities.
- 1120-F Delinquent Returns Campaign
Form 1120-F is generally considered to be timely filed if it is filed no later than 18 months after the due date of the current year’s return.
Based on these 4 LB&I campaigns that have been announced and it’s abundantly clear that Americans living abroad should take every step to get caught up and stay caught up. Have your documents in order and know what forms you need to protect yourself in the event of an audit from the IRS.
IRS Proposed Regulations on Section 956
The IRS has proposed regulations tied to Section 956 rules that reduce the potential income inclusions for domestic corporations that won stock in foreign corporations (CFC) so they are eligible for a dividends-received deduction.