Newspaper article International Herald Tribune

Americans on Paper Only, but Taking a Tax Hit

Newspaper article International Herald Tribune

Americans on Paper Only, but Taking a Tax Hit

Article excerpt

One group of Americans abroad with tenuous ties to the country and the benefits of citizenship is feeling particular pain and unease as the I.R.S. steps up enforcement of the unusual tax code.

As Americans abroad chafe under sharply increased U.S. pressure to declare foreign holdings and catch up on back tax filings, one group with tenuous ties to America and the benefits of citizenship is feeling particular pain and unease.

They might be called "accidental" Americans, born during their foreign parents' brief stay on U.S. soil, or born abroad to American parents who long ago settled elsewhere.

After lifetimes abroad, many in this group, whose total size is impossible to estimate, had believed that because exemptions left them owing no U.S. income tax they had no obligation to file returns; many have been tripped up by a requirement that they still declare their foreign bank and financial accounts.

In interviews, several people declined to allow their full names to be used for fear of complicating already complex tax situations. "Some people have never even lived in the U.S." and learned belatedly of American tax responsibilities, said Sonia Stewart, a tax accountant in Grayson, Georgia, who works exclusively with overseas filers. "People are panicking."

Some typical laments include:

- Roy, 37, a lifelong Canadian resident and citizen whose dual- national mother fears the U.S. tax authorities will target the modest savings account the Canadian government provides him as a developmentally disabled adult;

- Jonathan, 34, a teacher whose American parents migrated to Canada 39 years ago. He considers himself 100 percent Canadian -- a maple leaf is tattooed on his back -- and believed until last year that he did not need to file a U.S. return. Tax advisers now tell him he must file eight years' returns, at a cost in fees and fines in the thousands, lest an eventual U.S. inheritance be jeopardized;

- The teenage children of Peter Hallworth, a Briton married to a Swede living in Malmo, Sweden; the children were born in the United States but lived there only as infants. Mr. Hallworth, having heard horror stories, now expects to urge his children, when they reach adulthood, to renounce the U.S. citizenship that up to now he had treasured.

"It's a great shame that I'm being forced to take an action because of an illogical tax law for a country which I've loved living in and I respect very much," Mr. Hallworth said in a phone interview.

Almost every new tax law sows confusion and dismay, but new U.S. regulations -- and much tougher enforcement -- are catching some Americans in legal nets designed to snare terrorists, money- launderers or wealthy tax-evaders. Many Americans overseas -- not just the rich -- have had to pay thousands of dollars in fees for tax accountants or Internal Revenue Service fines.

The increased pressure has produced results. The numbers of Americans filing the Report of Foreign Bank and Financial Accounts, or FBAR, soared from 276,386 in 2009 to 618,134 in 2011 (failure to file, the IRS warns, "subjects a person to a prison term of up to 10 years and criminal penalties of up to $500,000").

A growing number of Americans living abroad are renouncing once- valued U.S. passports. Some 1,780 people gave up U.S. nationality last year, eight times the 2008 level and the largest number in more than a decade.

Virginia La Torre Jeker has worked abroad as a tax attorney since 1986, and in Dubai since 2001. She said the pain among American clients is high -- 9 on a 10-point scale -- and that her Middle Eastern clients had always treasured U.S. passports that made travel much easier than Lebanese, Pakistani or Jordanian documents. Now, "they're lining up to get rid of the U.S. passport."

Over the past decade, the I.R.S. and Treasury Department have stiffened penalties for failure to file and demanded more expansive filings on foreign holdings. …

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