WSJ: When American Expats Don’t Want Their Kids to Have U.S. Citizenship By: Chantal Panozzo

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WSJ:  When American Expats Don’t Want Their Kids to Have U.S. Citizenship
By: Chantal Panozzo (18 Feb. 2015)
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A recent article this week by Ms. Chantal Panozzo in the Wall Street Journal, explains in practical terms the decisions faced by many multi-national families; typically where one parent is a U.S. citizen.  The child will typically be a U.S. citizen, as a matter of law through what is known as “derivative citizenship” as explained in prior posts (see, Famous Americans who Renounced U.S. Citizenship – Elizabeth Taylor!).
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The Wall Street article uses various family scenarios around the world, with some key interviews , including the following with “Jessica” that demonstrates the choices individuals are making around the world:
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Jessica, who asked that her last name not be used, says she initially looked forward to getting her infant son an American passport. But after considering the implications of American citizenship, including the possibility of her son being drafted or taxed by a country where he may never live, she and her husband decided against applying for the moment.

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The article seems to imply that a U.S. citizen may be “U.S. person” for U.S. federal tax purposes, but will not need to file U.S. tax returns or report their worldwide assets, if they do not apply for a U.S. passport:
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That said, U.S. citizens born abroad are technically liable for taxes even if their parents don’t register their birth with American authorities . . .
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It’s probably worth clarifying, that Title 26, the federal tax law, has a clear dictate that all U.S. citizens (whether they know of their citizenship status or not) are “U.S. persons” and therefore subject to worldwide taxation and worldwide reporting of their assets.  Whether the U.S. citizen without a U.S. passport actually owe any taxes or not, is a different question.  See, How the IRS Can file a “Substitute Return” for those USCs and LPRs Residing Overseas
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Every individual who is born to a parent who was a U.S. citizen must consider whether they too are a U.S. citizen as a matter of law via “derivative citizenship“; i.e., “derived” from a U.S. citizen parent.   The U.S. Citizenship and Immigration Services (USCIS) has a “Nationality Chart 1, for Children Born Outside U.S.” to help determine if the individual was a U.S. citizen at birth.  
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Whether a U.S. passport is ever applied for, is irrelevant for purposes of the tax definition of who is a “U.S. person” (See, IRC Section 7701(a)(30)(A) and Treas. Reg. § 301.7701-6 Definitions; person, fiduciary); including for FATCA reporting requirements when forms and information are provided under penalty of perjury with financial institutions around the world.  See, Part 2 – Unintended Consequences of FATCA – for USCs and LPRs Living Outside the U.S.

This entry was posted in FATCA - Chapter 4, Immigration Law Considerations, Tax Compliance.

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