US Citizen but never resident in US

US Citizen but never resident in US

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I have been approached by a potential client who is a British citizen but also has US citizenship through his father being American.  He has never lived in the US and has only visited the US twice before for short breaks.  He has never earned a penny from anywhere except the UK and earns a sizable amount, easily able to exceed any de minimis limits which may apply.  He has never filed a tax return in the US as his earnings have been nil in the US.  He is now concerned that he has a liability in the US and particularly following the recent introduction of the Foreign Account Tax Compliance Act (FATCA).  Does he have a liability and, if so, will he be entitled to any retrospective double taxation relief?  Would the relief cover the full amount?

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By carnmores
19th Nov 2014 10:11

All US citizens have to file wherever they live

ther is a foreign earngs exemption i believe that used to be $75k p.a that may cover any tax due, if earnings are more then you need to sort out asap. you can try speaking to US embassy IRS staff tho wouldnt take what they say as gospel.

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Replying to Practice Admin Monkey:
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By Exchequer
19th Nov 2014 11:38

Retrospective Double Taxation Relief
Carnmores, many thanks for your reply. Is there a double taxation relief available and can it be applied retrospectively?

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By carnmores
19th Nov 2014 11:54

there are usually strict limits for DTR relief

i have a client who simply wont file US returns  and there is one old year that he went over the FEE and i am looking into this so will let you know when and if I find out

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By David Treitel
24th Nov 2014 19:52

The US tax system is drawn

The stories outlined above are the everyday stuff of  my life today.  Where US returns have never been filed, or filing has lapsed at some stage, the question most frequently asked is: how many years back should be filed to enable someone to catch up? Under US law until a return has been filed for any year, the statute of limitations remains open for that year. On this basis, the law might suggest that every unfiled return should be completed today.

Given, however, that there is frequently little or no tax involved for someone living overseas, the IRS announced “Streamlined Filing Compliance Procedures” on 18 June 2014, which are a simplified process for US taxpayers who have not filed complete returns in recent years and who have non-US income and assets. In most circumstances, this is expected to result in no penalties.

Essentially, American taxpayers overseas will be welcomed as long as they:

1.   Have lived outside the States for at least one of the three most recent calendar years for which a US tax return was due.

2.   Prepare and file three years of amended or late tax returns.

3.   Include any relevant payment of tax with the returns.

4.   Write a declaration “in red” on the first page of each return, announcing that the documents are filed under these procedures.

5.   File six years of late or corrected FBARs (Returns of Foreign Bank and Financial Accounts).

6.   Include a signed declaration certifying that any past omissions “resulted from non-wilful conduct”.

7.   Summarise within this declaration reasons why the “non-wilful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law”. (Wilful conduct by contrast is defined broadly as a voluntary and purposeful violation of a known legal duty.) The IRS has explained that the purpose of this section of the form is to allow a chance for a taxpayer to explain why accurate paperwork was not filed earlier. Providing that the explanation is clear and unless someone has done something wilful, it seems unlikely that the IRS will investigate further beyond possible routine enquiries. Where it is unclear if conduct might be considered wilful, legal advice may be sensible before approaching the IRS.

Given that the IRS has stated that it expects not to assess numerous possible penalties for most individuals using these procedures, the streamlined procedures will probably be the optimal method for many individuals to become US compliant.

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