Are “accidental Americans” living in Ireland in danger of facing a large tax bill from the US?
Are you officially a US citizen despite living in Ireland and having no economic ties to the US? No matter, you could still owe significant amounts of money in tax to the US government.
As Fiona Reddan in the Irish Times reports, thousands of Irish people may have to pay tax to the Internal Revenue Service (IRS) in the US because of a way in which the US operates its tax system. As one of the only developed nations in the world to do so, the US enforces taxes based on citizenship and not residency. All of its citizens are taxed on their worldwide income, even if they no longer call America home or even if they never have and have inherited citizenship.
The issue has come about as a result of the Foreign Account Tax Compliance Act (FATCA), first introduced in 2010 and which Ireland signed onto in 2015. FACTA was introduced to put a stop to tax evasion outside of the US by asking the financial institutions and revenue authorities in the countries that signed on to provide information to the IRS on the financial assets of the US citizens earning a wage or owning property in their country.
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FATCA could mean, as a US citizen, you owe taxes despite living in Ireland. Image: iStock
As such, some Europeans who also hold US citizenship could now be expected to file a tax return in the US each year and in some cases, pay US taxes.
“There are potentially thousands of accidental Americans in Ireland who could be subject to huge US tax bills and they don’t know about it,” Brian Hayes, a Member of the European Parliament (MEP), told the Irish Times.
“Because of our long-standing cultural and family ties with the United States, Ireland could be worse affected than many other countries in the EU.”
Calling on the Irish government to “get ahead of the curve” before Ireland finds that its residents are beginning to receive IRS tax bills, Hayes revealed that as the Irish Revenue cannot comment on cases, it is not known to what extent people will be affected.
“Cohorts of people should not be hit with extra bills due to some anomaly in US tax law,” he added.
The problem is not just an Irish one. There are an estimated 10,000 “Accidental Americans” in France, who have also been pushing their government to address FATCA.
One such French citizen is Marilyn Wiles-Mooij, who although born in America, moved back to Europe when she was just a month old. Now 67 years old, she stopped renewing her US passport in her 20s which she thought meant that she had lost her citizenship.
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Do you have to file US taxes despite living in Ireland? Image: iStock
For US citizenship to be officially revoked, however, fees of up to $2,000 must be paid and your taxes must first all be in order for the previous three years, a fact that would leave many of these “accidentals” having to hand over thousands and thousands of dollars to the IRS before they can finally say they are no longer an American.
Wiles-Mooij, unfortunately, discovered this the hard way when in 2010 she was insistently asked to file a US tax return and had a bank begin to close down her accounts, sending her to the US consulate. On applying for a social security number she had never previously held in the US and filing her taxes, Wiles-Mooij was told that she owed $3,000 for that year, despite paying no income tax in France because she cared for her handicapped husband.
“I never asked to be American,” Wiles-Mooij told Bloomberg.
“All we’re asking for is a simple and free way to renounce our citizenship.
“I only realized four years ago that I was American when I received a letter from my bank threatening to close my accounts if I didn’t give them my Social Security number.”
While FATCA was first introduced as a way of preventing US tax evasion after scandals in which Swiss banks were aiding wealthy Americans to avoid taxes, it has now gone on to target those of modest means who are simply unaware of the fact they may owe US taxes.
A US tax form. Image: iStock
With 100 countries signed on to report anyone who could be a US citizen to the IRS, many banks were all but forced to agree to the Act or risk being barred from operating in the U.S. The act is also not reciprocal and the U.S. does not have to provide information on the other countries’ citizens living on their shores.
The French Supreme Court is set to rule on a case this December which claims that the application of Fatca is unconstitutional as it is not reciprocal and claims that FATCA violates French and European laws protecting personal data.
France even has an Association of Accidental Americans, founded in 2015, which now has 440 members and as many as 15 members joining a week. One of the main issues the members have is that banks in Europe are now not eager to deal with those with U.S. citizenship, making it difficult to have any financial dealings as soon as the banks hear that you were born in the US.
This was also an issue discovered by Jude Ryan who spoke to the Irish Times about the “ blatant discrimination” from European-based banks. Born in Boston to an Irish father and French mother, he moved to Europe when he was five and only held a US passport until he was 16.
“Once you disclose that you were born on US soil, banks won’t touch you,” he revealed, stating that it is even difficult to obtain everyday banking products.
Should Ireland and other countries push to change FATCA? Let us know in the comments section, below.
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