Birthright citizenship and the income tax

[Colonel_Buck]

So, a person born in the US (States and Territories? or just States?) is a citizen of the US (with a few exceptions like children of diplomats) ... correct?

And, since US citizens are subject to taxation on their world-wide income regardless of where they live ... correct?

Does the IRS attempt to collect taxes on the income of persons that were born in the US but were flown back to their country of origin a few days after birth and never returned?

[BBFlatt]

Yes. It's normally not a worthwhile use of enforcement resources due to the Foreign Earned Income exclusion and Foreign Tax credit, but in certain circumstances they will as Boris Johnson could tell you.

[Pottapaug1938]

The argument which is being used in support of the attempt to end birthright citizenship is that illegal immigrants are not subject to the jurisdiction of the US or any of its states. Considering that the phrase "subject to the jurisdiction thereof" was meant to apply to foreign diplomats and visiting royalty, and also considering the extent to which foreign diplomatic personnel can enjoy varying degrees of immunity from criminal and civil actions against them, I would not be surprised to hear of lawyers for people who have been deprived of birthright citizenship and are in danger of deportation trying to use the lack of jurisdiction as an affirmative defense.

[Pottapaug1938]

https://www.thoughtco.com/diplomatic-im ... on-4153374

[noblepa]

Just ask Boris Johnson, former British Prime Minister.

Mr. J was born in New York. His father was an executive of a British firm and was stationed in New York when Boris was born, making the young master Johnson a US citizen, thanks to the 14th amendment. Since both the US and the UK allow dual citizenship, he was also a UK citizen, by virtue of his parents' status as UK citizens. Neither parent held US citizenship.

Fast forward several decades, before he was PM. Mr. Johnson sold a large personal residence in or near London, making a profit of IIRC more than a million pounds sterling. In any event, the profit was considerable.

The UK does not tax profit from the sale of a personal residence. The US does. So, when the IRS got wind of the sale, they sent Mr. Johnson a bill for the capital gain tax on the sale. This, even though he hadnt lived in the US since he was a child and the residence was not located in the US.

I understand that he settled with the IRS, although the amount was never, to my knowledge, disclosed.

I believe that, shortly after this episode, he renounced his US citizenship. It wouldn't have been a good look for a wannabe PM to be a US citizen.

[noblepa]

So, a person born in the US (States and Territories? or just States?) is a citizen of the US (with a few exceptions like children of diplomats) ... correct?

Citizenship can be a bit tricky. Obviously, if one is born in one of the 50 states, one is a citizen.

For the territories, it s little more complicated. Residents of some territories are citizens; some are not.

The most obvious example is Puerto Rico. Residents are US citizens, although, when residing in Puerto Rico, they can not vote in national elections. However, PR residents can freely move to the mainland US, with no visa, passport or encountering any immigration issues. Once they establish a permanent residence in one of the states or DC, they immediately have the right to vote.

OTOH, I believe that some of the smaller territories are not so lucky. American Samoan residents, I believe, are referred to as US Nationals, not citizens. The distinction is unclear to me, except that, if they move to the mainland, I don't believe that they have the right to vote.

It is further complicated if one or both parents of a territorial resident are US citizens. In many cases, and under certain conditions, one citizen parent can bestow citizenship on a child born anywhere in the world. As I said, there are conditions, having to do with the parent's age and length of time they have been a citizen.

EDIT: I was wrong about Boris Johnson's father. He was studying economics at Columbia University. He was not an executive of a British firm. That doesn't really change the story very much. His parents were NOT US citizens; they were living in NY; Boris was born there.

[Pottapaug1938]

From July of 1973 until February of 1974, I lived and worked in Puerto Rico. Had I remained domiciled in Massachusetts, and remained until 1978, I could have voted as before. However, had I chosen to become domiciled in Puerto Rico, I would have lost those rights, and regained them only if I moved back to one of the 50 states.

[Burnaby49]

The UK does not tax profit from the sale of a personal residence. The US does. So, when the IRS got wind of the sale, they sent Mr. Johnson a bill for the capital gain tax on the sale. This, even though he hadnt lived in the US since he was a child and the residence was not located in the US.

Same situation in Canada. We bought our house for about $70,000 close to a half century ago. It is now worth just under $2,000,000. When we sell this gain will be tax-free. However I know a fairly large number of Canadian citizens who are also American citizens who emigrated to Canada. Some left the U.S. as children. If they were in our position regarding the gains on their houses here in Vancouver they'd be taxable in America on about $2,000,000 in capital gains regardless of their being residents and citizens of Canada.

[noblepa]

The UK does not tax profit from the sale of a personal residence. The US does. So, when the IRS got wind of the sale, they sent Mr. Johnson a bill for the capital gain tax on the sale. This, even though he hadnt lived in the US since he was a child and the residence was not located in the US.

Same situation in Canada. We bought our house for about $70,000 close to a half century ago. It is now worth just under $2,000,000. When we sell this gain will be tax-free. However I know a fairly large number of Canadian citizens who are also American citizens who emigrated to Canada. Some left the U.S. as children. If they were in our position regarding the gains on their houses here in Vancouver they'd be taxable in America on about $2,000,000 in capital gains regardless of their being residents and citizens of Canada.

I wouldn't presume to advise your dual-citizen friends, but that might be a good reason to renounce their US citizenship. It is my understanding that, to renounce your citizenship, the US requires that you have obtained citizenship in another country (check), you must leave the US (check) and you must not have any outstanding tax liabilities.

IOW, they can't wait until they sell their house and realize that huge profit. The moment that they close the deal to sell, they incur a US tax liability. The US will not recognize their renunciation until that liabilty is settled.

They would have to go to the US embassy in Ottawa or a consulate in another city, show proof of their Canadian citizenship and show that they had no outstanding tax liability. After doing that, they could formally renounce their US citizenship.

OTOH, while its been almost 40 years since I sold a house, I believe that there are options that allow one to sell their personal residence and avoid the tax. I would find a good tax accountant or tax lawyer who is familiar with US tax laws, if it were me.

[Burnaby49]

The Americans I know in this situation are aware that they'd have to renounce their citizenship to avoid American tax law. I can only assume they don't because of the effort required or they have some reason, unknown to me, for hanging on to it. Perhaps they think that the IRS would never find out anyhow. As a career CRA employee I'd say that was a pretty solid bet. I can't see the IRS keeping track of a Canadian who emigrated from America 40 or 50 years ago as a child. Boris Johnson was high-profile enough that he was just low-hanging fruit but my friends are all nobodies.