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Law360 Talks to Dianne Mehany on Recent Expat Relief Procedure

September 19, 2019, Law360 Tax Authority

Internal Revenue Service relief procedures designed to forgive some former U.S. citizens from paying taxes may not be as useful an avenue as hoped because of their relatively low aggregate net asset and tax liability limits.

. . .

But the requirement for a net worth of less than $2 million stood out glaringly in the new procedures, excluding a vast majority of clients, according to Dianne Mehany, a member at Caplin & Drysdale. Many who are truly accidental U.S. citizens are very wealthy and would not qualify, Mehany said.

“The new procedures are not as helpful as I would have hoped, [and] I feel that they are shortsighted,” she said. “It’s so narrow that your average client will likely not qualify.”

. . .

The new procedures are designed to help some “accidental Americans,” people born in the U.S. who have little connection to the country otherwise and may not be aware that they have had U.S. tax obligations, the IRS said. But Mehany said the $2 million threshold leaves out a lot of accidental Americans, especially younger citizens who end up inheriting money from their families.

“A huge percentage of accidental Americans that I see are coming from the Asian countries, where families were either here on work visas, here as students, or moved here for a short time, had children here, and returned to Japan, Korea, Singapore, Hong Kong and China,” Mehany said. The children, who took their American citizenship back with them, “are now coming into great wealth and realize that American citizenship brings with it” a tremendous tax burden, she said.

If the threshold is only $2 million and these young adults inherit money from their parents, they will be ineligible for the new program, Mehany said.

. . .

Mehany at Caplin & Drysdale said it might be better to pursue the streamlined program if one cannot meet the maximum $25,000 tax liability or $2 million net asset requirements of the new procedures. But a positive element of the new procedures is that unlike the streamlined program, they do not require a Social Security number, she said.

“It is ridiculously difficult to obtain a SSN living and working abroad,” she said. “It’s just horrible.”

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