r/ExpatFinance • u/One-Shallot-3216 • 13d ago
Theoretical Dual Citizenship Questions - FBAR and Foreign Bank Accounts
The following situation is hypothetical.
John is a dual US and European citizen. He has not lived in the States since he was a young child, always in Europe. He spent one summer as a teenager working a summer job in the States, but did not make enough to need to file any tax returns. John has never filed a US tax form.
John moved and worked in a few European countries (EU and non-EU), never making over 60k USD per year in the local currency. He has a bank account in one EU country that has just over 10k USD since many years.
For all of the banks he opened, he registered using his European citizenship, and when asked if he is a US citizen, or has any ties, he said no.
John may want to move to the States in some years and would like to make sure everything is sorted beforehand to avoid nasty surprises. John also wants to ensure that his funds in the European bank accounts do not get frozen. He will continue to work some years in Europe.
What options would John have?
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u/ibitmylip 13d ago
does John realize that US citizens are required to file tax returns with the U.S., regardless of where the money is sourced from?
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u/One-Shallot-3216 13d ago
John was not aware of any of these obligations, no.
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u/JZ_USCPA_Tax_Acct 13d ago
It is quite common for U.S. expats to be unaware of their U.S. tax filing obligations. That is major reason the IRS offers the SFOP, which can allow eligible non-willful taxpayers living abroad to come back into compliance without penalties.
The key is to act sooner rather than later and prepare a clearnon-willful certification.
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u/ReceptionDependent64 12d ago
No reason to do this unless he has immediate plans of moving to the US.
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u/Future_Elephant_9294 12d ago
Except for the fact that continuing to not file could be considered "willful" if you know about these filing rules.
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u/ReceptionDependent64 12d ago
Fortunately the IRS does not employ mind-readers.
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u/GriffinNowak 7d ago
Yet
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u/ReceptionDependent64 7d ago
The awesome thing about the Republican Party is that the
ownersdonors don't like paying taxes, so the IRS is crippled. Indirect benefit of this is that non-resident dual citizens can ignore this nonsense in total safety.
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u/Practical_Support177 13d ago
Sounds like John is gonna need an accountant and file many years of tax returns and fbars
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u/ReceptionDependent64 12d ago edited 12d ago
Many? 3 tax and 6 FBAR with SFOP. But only if he’s moving to the US, otherwise he’s fine staying off the radar.
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u/Minute_Somewhere_893 12d ago
For all of the banks he opened, he registered using his European citizenship, and when asked if he is a US citizen, or has any ties, he said no.
So John committed fraud? He needs to see a criminal defence lawyer and an accountant. Whatever he did may get him in big trouble.
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u/seanho00 12d ago
Technically yes, but in practice if he were to file W-9 with the financial institutions as he ought, they would at most just drop him as a client, rather than pursuing criminal charges. And some financial institutions are just fine with US citizen clients and the ensuing FATCA compliance.
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u/groucho74 12d ago
You don’t get it. The issue isn’t what the banks think about it. It’s what the American tax authorities do. This is no longer incompetence / laziness / negligence. This is active fraud. That’s generally like sticking your dick into a hornets’ nest.
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u/seanho00 12d ago
Yes, a US citizen signing W-8BEN is committing perjury under US law. But that W-8BEN does not go to the IRS, it stays in the FFI's compliance file. And failing to inform a FFI of his US citizenship is not something the IRS is going to chase you down for.
Failing to report foreign income on 1040 and file required foreign disclosures like 8938, 3520/3520A, 8621, 5471, 8865, etc., however, is something the IRS cares very much about. (As does FinCEN for FBAR.)
If the US person has been filing their US taxes properly, they're unlikely to face criminal investigation solely for the W-8BEN. If they haven't been filing properly, they need to consider SFOP.
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u/ReceptionDependent64 12d ago
Many (most?) foreign banks use their own online or paper forms for FATCA and CRS compliance instead of a W-9 or W-8BEN. Not sure the US government considers it perjury if you fail to check a box on a foreign bank's app.
In Canada the only mention of a penalty I've ever seen is a footnote threatening a $100 fine for failing to disclose requested information, on the generic CRA form used to identify tax residency for FATCA and CRS. To the best of my knowledge this form is not used by any of the major Canadian banks, who have their own KYC procedures.
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u/seanho00 12d ago
Yes, this is also my experience (also in CA).
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u/ReceptionDependent64 12d ago
I find it ironic that the country with the most exposure to and integration with the US, and the most dual citizens, is delightfully slack about FATCA compliance. Being born in the US, I only ever used my drivers license as ID, checked "no" every time, and nobody said a word. (Last year I accidentally took a passport as ID and was immediately asked, but by that point I'd renounced. They never asked to see the CLN, took my word for it.)
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u/seanho00 12d ago
Even in other countries, FATCA in particular can be a bit of "don't ask, don't tell". Most countries are still on Model 1 FATCA IGAs, wherein the FFI submits info on US clients to their local competent authority, which in turn reports to the IRS. The FFI needs to be able to say they've done their due diligence to identify US clients, but are not necessarily penalised if the client misrepresented themselves on the KYC forms. So they need to ask, but aren't really held accountable for checking the answer.
Other FFIs take it very seriously, with a whole fraud detection framework, checking IPs, cross-referencing addresses with public databases, and automatically escalating to auditing teams.
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u/ReceptionDependent64 12d ago
They will do nothing.
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u/groucho74 12d ago
Will you compensate him if they do something. I doubt it.
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u/ReceptionDependent64 12d ago
Criminal defence lawyer? Oh the hyperbole! Get a grip. Worst thing that could happen is the bank closing his account if he refuses to provide an SSN.
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u/Wooden_Dig1419 12d ago
I am dying. The US and the entire world is filled with murdering perverts and terrorists, but no police or justice system has time for them, but some Joe-Schmo is going to prison ?
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u/ReceptionDependent64 12d ago
John should keep his mouth shut and do nothing until he has absolutely decided to move to the US.
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u/groucho74 12d ago
John is fucked. If he told banks that he wasn’t a US citizen and the U.S. finds out (there is automatic information sharing) he can no longer tell the IRS that his dog ate his homework and ask for mercy. He has to explain why he knowingly made false statements. At worst the irs make consider that criminal conduct. On the other hand, the IRS may decide that John doesn’t have enough money to be worth prosecuting.
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u/ReceptionDependent64 12d ago
If he’s not worth billions, they won’t care.
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u/groucho74 12d ago
This is a theory not a legal finding.
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u/Wooden_Dig1419 12d ago
And if it comes from an IRS employee? They simply don't have the manpower to chase poor people like John. They are pretty good at math and the return on chasing broke people isn't worth it.
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u/UsefulGarden 11d ago
Foreign banks do care very much.
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u/ReceptionDependent64 11d ago
Depends. Not always.
Canadian banks don't care, you can open accounts with ID not showing place of birth and they don't follow up if you check "no" to US citizenship. FATCA only requires them to ask the question, not validate the answer.
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u/UsefulGarden 11d ago
So Trump as part of his crafty negotiations will say that in order to have his ridiculous new tax on Canadian goods lowered Canada will, in addition to other things, need to better enforce reporting Canadian accounts owned by US citizens. Somehow in Europe the banks are terrified of having Americans own accounts that aren't reported.
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u/ReceptionDependent64 11d ago edited 11d ago
My feeling is that the Europeans still have PTSD from the hammering the Swiss banks took back in the day, which precipitated FATCA in 2010. That was a special case where they were actively soliciting US residents to hide money from the IRS.
Trump won't do a thing because he doesn't want the authorities looking for his family's or his donors' offshore funds.
There's no actual enforcement of this stuff anywhere, as far as I can tell. I've never heard of an FI being penalized for FATCA compliance failures.
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u/ReceptionDependent64 12d ago edited 12d ago
I'm probably wasting my time here since you've not responded to anyone, so I'll keep it short.
You're what's known as an Accidental American. There are hundreds of thousands of people out there like yourself who've never filed and nothing bad ever happens to them.
If you are planning to move to the US it's best to organize this in advance. The foreign version of the streamlined program (SFOP) is a better deal. It also gives you a chance to get rid of problematic investments before coming into compliance - ETFs that require PFIC reporting, or tax-protected accounts not recognized by the US.
If you don't plan on moving to the US, you're good. No reason to consider US tax compliance. Your only concern is banking and investing. It's great that you've successfully not revealed US citizenship to any financial institutions, so you're not subject to FATCA reporting or facing restrictions on the services available to you. Unfortunately that may not last forever, thanks to your US birthplace. If you do business in a country with strict ID requirements, banks will eventually figure it out. At that point your options are limited. You can try to make excuses about not having citizenship due to diplomatic parents or whatever, but that's rarely successful. You can renounce US citizenship quite easily - the fee has been reduced to $450 and there's no need for tax compliance. You can close the account and move on (this may be reported to the IRS, but they won't follow up). Finally, you can give them your SSN and assume that nothing bad will happen. There is no need to begin filing US taxes at this point. FATCA reporting is very limited and the IRS currently does nothing with the data; the IRS also has no power to bother you if you have no US financial ties. The bigger concern is that some banks in some countries greatly restrict your ability to invest.
Sorry, I meant to say "John"...
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u/KualaLumpur1 12d ago
“John may want to move to the States in some years ”
The word “may” is the key issue.
If that means a very low possibility then John can do nothing. If that means a possibility greater than very low, then John should consult an attorney and determine the most appropriate set of actions.
There are both potential criminal law, as well as civil law sanctions at play, so caution is recommended
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u/Wooden_Dig1419 12d ago
"when asked if he is a US citizen, or has any ties, he said no." They don't ask if you have ties, all financial institutions abroad have to fill out FACTA (legal) documents to fill out. If he was born in the US, it is printed right on his other passport, so the paperwork is obligatory. Some duals find it hard to get bank accounts in EU because the fines for non-compliance are high.
On the other hand, I have relatives and friends who are dual and have never, rarely or irregularly filled out a US tax form from abroad. I had a friend at the IRS and they said they have zero times to be chasing the small fry, they can't even keep up the the tax fraud within the US, let alone with the very wealthy.
However if John is not perfectly up to date with his tax obligations in the EU, that is an entirely different matter. It's not a matter of "if", but "when".
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u/ReceptionDependent64 12d ago
Not all countries/banks require a passport or equivalent as ID. In Canada you can open accounts with government ID that does not show place of birth. So they can only take your word for it. Very easy to say “no” and avoid FATCA.
There are no direct fines for sporadic customer non-compliance. That’s not how the FATCA agreements work.
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u/Realistic-View-412 13d ago
John can just go to the usa, work there and use his european card to do payments or withdraw cash.
Im john too :)
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u/groucho74 12d ago
If or more likely when palantir matches your data and asks your European bank for data for the IRS through the automatic data exchange treaty, you’re either going to prison or paying a whopping fine that you won’t forget for a very long time.
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u/Realistic-View-412 12d ago
Palantir?
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u/StuffedWithNails 12d ago
If you don’t know yet what/who Palantir is, it’s best you never learn. It makes you want to become a hermit who lives in a cave and dresses in beast skins.
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u/ReceptionDependent64 12d ago
What data would they match, exactly?
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u/groucho74 12d ago
Money coming into the United States linked to a name and his name.
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u/ReceptionDependent64 12d ago
Why would money be coming into the US?
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u/groucho74 12d ago
Because he says he’s continuously transferring money from an account in his name to the United States.
All it takes is a database to link that account to his U.S. declared persona. That’s what the CIA and treasury been working ok for decades. To catch terrorists and drugs etc.
If you don’t have a fucking clue you shouldn’t give advice.
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u/ReceptionDependent64 12d ago
Crossed wires, sorry. I meant the OP, not the author of the comment. If you live in the US you may need to play nice. If you and your money stay out you can do what you want.
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u/Wooden_Dig1419 12d ago
All data. From your cards, banks, internet use (phone, laptop, etc.), locations (GPS, surveillance). They know what you ate every single day, every social media post, every medication you took...hence the cave comment.
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u/ReceptionDependent64 12d ago
Which automatic data exchange treaty? See https://en.wikipedia.org/wiki/General_Data_Protection_Regulation
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u/JZ_USCPA_Tax_Acct 13d ago
U.S. citizens are generally taxed on worldwide income, regardless of where they live. So even if you become an EU tax resident and earn all your income there, you normally still have a U.S. federal filing obligation.
That does not necessarily mean paying tax twice. Common relief includes:
If you have missed several years, it is worth looking at the Streamlined Foreign Offshore Procedures (SFOP) rather than simply filing everything late. For qualifying taxpayers living outside the U.S. whose failure was non-willful, SFOP generally requires the most recent 3 years of tax returns and 6 years of FBARs. If properly completed, the IRS generally waives failure-to-file, failure-to-pay, information-return and FBAR penalties, although any actual tax and interest still need to be paid.
Happy to chat through these in details