May 16, 2020 – New York, United States
The Restaurant Check and Accidental Americans
Jerry Seinfeld, the American comedian, tells a joke wherein a family goes out to a restaurant for dinner on a special occasion. They order and then they order some more without considering the check to be handed them when the good time is over. Upon receiving the check, the father looks at a whopping sum total and starts to ask questions. “Who ordered the Diet Coke? Why did you order two side dishes? Hey, did anyone know that the wine was so expensive? Maybe we should have passed on the dessert? Did you really need to have a filet mignon in such a fancy restaurant? How am I going to pay this?”
Like the family out to dinner, America at present is merely considering the here and now without a second thought about the future. To cover and maintain itself as an economic superpower, it is handing out billions of dollars as a stimulus to keep the economy going at an attempt to avoid an otherwise complete shutdown altogether. But, at some point in time after the crisis is over, the bill will come due. Of all government agencies, it is the IRS that will be put to task to strictly enforce the tax laws and succeed in their collection efforts.
One strategy the government will use is to tap into revenue sources it may have neglected in the past. Hundreds of thousands of Americans living abroad have scoffed at their filing responsibilities with the IRS and as such, many have been able to evade their tax obligations. In spite of the slew of rules and regulations that have come about in the last two decades to monitor the expatriation of assets abroad and the income earned by expatriate Americans, the outcome has been met with limited success.
The IRS may resort to a tactic as part of its collection process by tapping into the wealth generated by the population of accidental Americans who have not filed nor paid taxes in the US. An accidental American is someone by virtue of their birth, whether born here or born of an American citizen is an American taxpayer. These accidental citizens never considered themselves Americans since they may have spent minimal or no time in the US. As a result, they may not have bothered to obtain a Social Security number let alone file a return.
The US Foreign Account Tax Compliance Act, known by the acronym FATCA, will be another weapon in the IRS arsenal used to chase after tax evaders abroad. Under the act, foreign financial institutions are required to report to the IRS any accounts held by them wherein the accountholder is an American. In Canada, for example, financial institutions are required to have a Social Security number associated with the account that gets reported under FATCA. Previously, this rule was overlooked as there was a grace period to comply with the law. That grace period expired on January 1, 2020. Foreign financial institutions now need to have a Social Security number associated with these accounts.
Accidental Americans in all likelihood do not hold Social Security cards. To file a tax return in the US, the IRS requires the taxpayer to have a valid Social Security number or the return will be rejected. Ergo, accidental Americans are not filing tax returns. In lieu of obtaining Social Security numbers from accidental Americans, many financial institutions may opt to close these accounts. This is because these institutions face steep penalties for not reporting Social Security numbers, up to 30% on every dollar earned. Impressing upon these accidental Americans to provide these numbers may prove to be futile because many of them do not have one nor want to obtain one for fear of exposure to the IRS. In any event, the IRS will be provided with the names of relevant accounts without Social Security numbers, which is a list that doubly acts as an impressive tally of tax evaders.
The IRS has streamlined the procedural requirements for accidental Americans. Additionally, the Service has implemented programs for Americans that have renounced citizenship to catch up on past due returns from before expatriation. These measures may be a prelude to the eventual termination of these relief programs. This is the reason there has been a surge in demand for active foreign-based Enrolled Agents and CPA’s who can help catch up these taxpayers to be compliant. It would behoove any reader of this article who falls into these categories to soon seek out one of these specialty tax experts before it may be too late. The reason being that disappearance of the chance to become compliant with minimal penalty seems imminent.
About the Author
Alicea Castellanos is the CEO and Founder of Global Taxes LLC. Alicea provides personalized U.S. tax advisory and compliance services to high net worth families and their advisors. Alicea has more than 17 years of experience. Prior to forming Global Taxes, Alicea founded and oversaw operations at a boutique tax firm, worked at a prestigious global law firm and CPA firm. Alicea specializes in U.S. tax planning and compliance for non-U.S. families with global wealth and asset protection structures which include non-U.S. trusts, estates and foundations that have a U.S. connection.
Alicea also specializes in foreign investment in U.S. real estate property, and other U.S. assets, pre-immigration tax planning, U.S. expatriation matters, U.S. persons in receipt of foreign gifts and inheritances, foreign accounts and assets compliance, offshore voluntary disclosures/tax amnesties, FATCA registration, and foreign companies wanting to do business in the U.S. Alicea is fluent in Spanish and has a working knowledge of Portuguese.
Alicea is an active member of the Society of Trusts & Estates Practitioners (STEP), the New York City Bar, the New York State Society of Certified Public Accountants (NYSSCPAs), the American Institute of Certified Public Accountants (AICPA) and the International Fiscal Association (IFA). She is the New York/Northeast Regional Representative of the Women of IFA Network (WIN). Distinctly, in 2020, Alicea was awarded with a prestigious NYSSCPA Forty Under 40 Award. She was selected as someone that has notable skills and is visibly making a difference in the accounting profession.
Please note: This content is intended for informational purposes only and is not a replacement for professional accounting or tax preparatory services. Consult your own accounting, tax, and legal professionals for advice related to your individual situation. Any copy or reproduction of our presentation is expressly prohibited. Any names or situations have been made up for illustrative purposes — any similarities found in real life are purely coincidental.