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Do Foreign Citizens Who Obtain US Citizenship File US Tax Return?

As I understand it, US citizens must file a US federal tax return on all of their worldwide income, even if they are currently not residents in the US. Are there exceptions to this?

Here is the case someone asked me about today. A citizen of Brazil, who was born in Brazil and lived there for their entire lives, obtains US citizenship. The person might have done this in order to have a US passport, or it might have just been a "vanity" issue to have dual citizenship. Do such individuals now have an obligation to file a US tax return on their Brazilian income? Obviously they get a credit for foreign taxes paid. I'm not asking about the mechanics of the return, but rather just when there is an obligation to pay US tax and file.

Assuming such an individual later realizes their mistake and wants to back out, are they subject to all of the stiff penalties that the IRS has set up for US citizens who renounce citizenship?

Reply to
W
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The OP posted a followup earlier:

Again, I am far from an expert on this, but from a few searches it does appear that:

1) family members can request permanent resident status for siblings/children (I guess they cannot go directly to citizenship, but must go through permanent resident status first). Likewise, someone could marry a US citizen, get resident/citizen status, and then get divorced. 2) as Alan said, becoming a permanent resident appears to require issuance of an SSN. But based on (1), it does not necessarily mean you have ever worked in the US, or have recently worked in the US.

So in answer to the OP's followup question,

... I'd change my previous comment to leave out the part about not having an SSN, but the rest still stands. If they've never filed a return (or filed no recent returns), and get no 3rd party reporting, the IRS computer probably isn't going to send any notices or inquiries, or even if they did, they might well have an invalid address on file.

And even if they did, what's the point if the person has no US assets and no plans to ever visit or live here? How much is it going to cost the IRS to try to collect... nothing? They would not have anything on which to base a substitute return and assess any tax or penalty.

Related to this, I recall seeing news stories in the last few years, regarding children born abroad to US citizens, who have never been in the US and who now may be subject to severe penalties for not filing FBAR and FATCA forms in the past.

Reply to
Mark Bole

In article you write:

Only the usual ones for people with too little income to owe tax.

Yes. US citizens pay US tax on their worldwide income, no matter where they live. Ask any expat and you'll get a long diatribe about what a pain in the patoot this is, and how unfair it is that the US has this uniquely onerous rule.

Of course. How in the world could someone go through the entire process of becoming a US citizen without realizing this?

R's, John

Reply to
John Levine

The interesting thing is that South America is loaded with such people. They get citizenship through a parent or brother/sister who worked in US, and then they never move to the US or work there.

I'm pretty sure 90% of them have no clue what they signed up to.

Why doesn't the IRS pursue them, because to my knowledge that group of people (US citizens who never lived or worked in the US) do not get notices from the IRS asking for a return.

Reply to
W
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Just guessing -- if they've never filed a return, do not have a Soc. Security number, and don't get any 3rd party reporting (from US employers, banks, brokerages, etc), then probably the IRS simply does not know they exist.

Reply to
Mark Bole

Nothing wrong with your comment. But in this instance (A citizen of Brazil, who was born in Brazil and lived there for their entire lives, obtains US citizenship.) the person could have only obtained citizenship by either being a permanent resident of the US or serving in the US military. In both instances they would have SSNs. If in the military, tax returns would have been filed and if a permanent resident then "most" probably they were working here and filed tax returns.

I suppose in this unreal world of theoretical questions without any substance, anything is possible.

Reply to
Alan

I forgot about citizenship deriving from having one or two parents who are US citizens. That said, in one way these people are no different then those people who were born and lived in the US their whole life and never filed tax returns because their source of income was either from an entity that had no reporting requirement (e.g., foreign source income) or they were paid "under the table." These folks are also unknown to to the IRS.

Reply to
Alan

But if they know, or suspect, they DO go after them. Hence the increase in US citizenship renunciations. And the even greater moaning and groaning for all the record keeping requirements, even if US taxes are not owed.

Reply to
Pico Rico

Perhaps "obtains US citizenship" really means he was a US citizen all along (i.e. born in Brazil to US citizens) and has now formally had his US citizenship recognized by the US government.

Reply to
Pico Rico

What is more likely is that a child born to citizen parents abroad who never steps foot in the U.S. could get away with it. Existing as a dependent doesn't necessarily mean that one grows up to be a taxpayer. Short of self-reporting, there would be no document trail to indicate income that is reported to the IRS.

Reply to
D. Stussy

Sorry I don't understand... Are you saying that a person can serve in the US military without being a US citizen or permanent resident alien?

Reply to
tb

Yes, they certainly can - and do. After World War II many Filipinos who had served in the US military applied for the citizenship they had been promised before they signed up. But they were turned down. And to this day Congress refuses to approve it.

Reply to
Stuart A. Bronstein

It depends on your definition of "loaded".

Getting citizenship through a US citizen brother or sister is a long process and it cannot happen without deliberate actions on your part. First you need your brother or sister to sponsor you for permanent residence, which I think involves few years' wait, then you have to live in the US as a permanent resident for 5 years andm only then can you apply to become a citizen.

Reply to
s_pickle2001

Not only "can", but in principle all men between the appropriate ages living in the US, including illegal aliens, are liable for military service. Only people with certain visa types are exempt.

Reply to
s_pickle2001

I guess what I am asking is: A Mexican can cross the border illegally and join the military no questions asked?

Reply to
tb

To join any branch of the US Military you must be a citizen or resident alien. Resident alien is defined as an individual who is a lawful permanent resident of the US (has a green card). Individuals who are resident aliens because of passing the substantial presence test may not enlist in the US military.

Reply to
Alan

Children born abroad is a perfect example. Many without understanding the details are accumulating a silent hidden liability.

And FATCA is a perfect example of why this topic now becomes important. Because these people will with FATCA in many cases become visible to the IRS. The IRS will receive notices from foreign banks that a US citizen has an account outside the US and is collecting some kind of interest on that account.

Reply to
W

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