AccidentaL American: fundamentals of derivative citizenship, requiredtax compliance.

• Author: Jesus, Torakichi
• Position: Internationaltax

Foreign nationals intending give birth in the -United States does not disqualify them from being eligible for U.S. visas. U.S. Immigration and Customs Enforcement (ICE) does not care st. much that people are coming to give birth in the United States: rather. ICE is concerned with ensuring that visitors do not overstay their visas. The inherent advantages of U.S. citizenship are sufficiently appealing to foreigners who conic to the U.S. to ensure their child is a citizen from birth..

But it may not be as easy as all that.

Accidental Americans

"Accidental American" is a term used by Procopio international tax partner Patrick Martin to describe a person who is unaware of the tax compliance requirements created by less than obvious U.S. citizenship. It may seem odd to be unaware of one's citizenship, but consider a person born in a foreign country to citizens of that foreign country who has never been to the United States. Scents reasonable to assume there are no U.S. citizenship concerns.

However, if the parent of that foreign-born national is a U.S. citizen who lived in the United States for an extended period of time before departing for a foreign country, derivative citizenship may be passed on to the child. Because the United States taxes its citizens on their worldwide income, even derivative citizens must tile all necessary returns and disclosures and pay their income taxes to comply with U.S. law. Because law makes no mention of dual nationality, dual nationals are considered solely U.S. persons in the eyes of the U.S. government.

If this derivative citizen has varied business interests and involvements in foreign trusts, the coinciding compliance requirements builds tip quietly in all the years the person remains unaware of their citizenship. The penalty exposure for not complying with their US filing requirements is staggering:

* IRS Form 8938, Statement of Specific Foreign Financial Assets: The penalties begin at $100,000 for missing the filing, with additional penalties ranging from $10,000 to $30,000 depending on the individual facts and circumstances.

* IRS Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations: The penalties begin at $10,000 for missing the filing, with additional penalties ranging from $10,000 to $50,000 depending on the individual facts and circumstances.

* IRS Form 8865, Return of U.S. Persons with Respect to Certain Foreign Partnerships: The penalty depends on the...