Thousands of people around the world are facing unexpected tax bills because they are Accidental Americans.
Accidental Americans are those considered as US citizens by birth even if they have never set foot in the country.
Many are children of American expats captured in the US tax net by the Internal Revenue Service.
They are coming to the attention of the US tax authority because of data exchanges between Washington and more than 100 countries and 300,000 financial institutions worldwide who provide their information under the controversial Foreign Account Tax Compliance Act (FATCA).
Banks and tax authorities must tell the IRS about any US citizen who controls a bank account or investments outside the US.
Unaware of tax bills
Many were unaware that they might owe tax in the US.
The IRS wants them to pay a share of their earnings because US citizens are taxed on their worldwide earnings regardless of where they live.
British Foreign Secretary Boris Johnson faced a capital gains tax bill when he sold a home in London that was not liable to tax in the UK. Johnson was born in New York but has lived most of his life in Britain.
Around 10,000 people with US connections in France have formed a protest group against FATCA.
Now, the focus has shifted to the Republic of Ireland, where several thousand people have US connections.
“We do not know the full extent of what taxes the IRS might be imposing on Irish citizens who also have US citizenship,” Irish European MP Brian Hayes said.
Anomaly in US tax law
“I am calling on the Irish government to get ahead of the curve on this issue before many people find out they have huge US tax bills.
“Cohorts of people should not be hit with extra bills due to some anomaly in US tax law.”
Some Accidental Americans are trying to avoid tax issues with the IRS by renouncing their US citizenship – but that requires them to pay an ‘exit tax’ of at least $2,000 and to settle any outstanding tax bills.
Data transfers to the IRS started in September 2016.
The IRS says more than $10 billion of ‘lost’ tax has been recovered under FATCA, which was designed to track US taxpayers hiding cash and assets in foreign countries.
An unintended consequence seems to be that the law is also trapping non-Americans who live abroad.