Most people think of taxes as something tied to the country they live and work in. But what if you’ve never set foot in the United States and you’re still legally required to file U.S. tax returns?
That’s the reality of U.S. citizenship-based taxation, where your parent’s passport can create IRS obligations for you.
How I Found Out and Why You Need to Know
I learned about this completely by chance.
In a casual chat with one of my tax agents, they mentioned my son might have to file U.S. taxes. I was certain they were wrong.
“No way,” I said. “We moved to Australia when he was nine. He’s never worked in the U.S. He’s never even lived there as an adult.”
But it turns out none of that matters under U.S. tax law. Simply being born to an American parent can make you liable for tax reporting to the IRS, no matter where you live.
That’s how I found myself deep in the maze of U.S. citizenship-based taxation.
How You Might Be a U.S. Citizen Without Knowing
The U.S. is one of the few countries in the world that taxes based on citizenship rather than residency. If one or both of your parents are U.S. citizens, you may have inherited U.S. citizenship at birth, even if:
• You were born outside the U.S.
• You’ve never lived in or visited the U.S.
• You don’t have a U.S. passport or even think of yourself as American
Citizenship laws depend on when you were born and whether your U.S. parent met certain residency requirements before your birth. If those conditions are met, you’re considered a U.S. citizen by law — whether you’ve claimed it or not.
It’s also important to know that if your overseas birth was ever reported to U.S. authorities — for example, through a Consular Report of Birth Abroad — your citizenship may already be formally recognised, which means the tax obligations could still apply even if you’ve never used a U.S. passport or lived in the country.
Are You an “Accidental American”?
You might be considered a U.S. citizen — and have IRS tax obligations — if any of these apply:
• You were born in the U.S., even if you left as a child and never returned.
• You were born outside the U.S. and one or both parents were U.S. citizens at the time.
• Your U.S. parent met certain residency requirements before your birth (varies depending on when you were born).
• Your overseas birth was registered with a U.S. consulate (you have or could have a Consular Report of Birth Abroad).
• You’ve ever held or applied for a U.S. passport.
• You were naturalised as a U.S. citizen at any point.
If any of these sound like you, it’s worth confirming your status and getting professional tax advice before ignoring the possibility.
What That Means for Your Taxes
If you’re a U.S. citizen, you’re expected to:
• File an annual U.S. tax return (Form 1040)
• Report your worldwide income, even if it’s earned and taxed in Australia
• File an FBAR if your non-U.S. accounts total more than $10,000 USD
• Comply with FATCA reporting rules
You may not actually owe tax thanks to credits and treaties, but you still have to file. Ignoring it can lead to serious penalties.
The Risk of Not Filing
The IRS can impose heavy fines even if no tax is owed.
• FBAR penalties can be up to $10,000 USD per year
• Late returns can attract interest and fines
• Non-compliance can affect travel, banking, or receiving an inheritance internationally
This is especially relevant for “Accidental Americans” — people who never realised they had U.S. citizenship until they learned about the tax rules that come with it.
What You Can Do
If you think you or your child might be considered a U.S. citizen:
1. Confirm your citizenship status with legal or immigration advice.
2. Speak to a U.S. tax advisor who understands expats.
3. Look into your options, such as:
• Filing under IRS amnesty programs like the Streamlined Filing Compliance Procedures
• Renouncing U.S. citizenship if you qualify
• Filing ongoing returns to stay compliant
A Sad Shift: ATO and IRS Cooperation
One of the most concerning developments is that the Australian Tax Office now works with the IRS to collect U.S. tax debts. This can include:
• Garnishing wages
• Seizing assets
• Placing liens on property or even superannuation
It’s hard to accept that your own country’s tax office can be pressured to act for a foreign government. Your home or your super could be at risk simply because of a citizenship you never applied for.
It raises real questions about fairness, sovereignty and privacy — especially when so many people never knew the rules existed in the first place.
Final Thoughts
If you have a U.S. citizen parent, or you are one yourself, this is something you can’t ignore. The rules are complicated, but the consequences of doing nothing can be serious.
I was lucky enough to find out in time. Many aren’t.
And here’s what I find just as troubling: if the ATO is willing to work with the IRS to collect these debts, why isn’t there a process built into our normal Australian tax filing that flags this risk? Imagine if, during your annual tax return, you were asked a simple question — “Do you have a U.S. parent?” — along with a clear explanation of the potential obligations. People deserve to know before they face penalties, not after.
Get informed, seek proper advice and make sure you’re protected. You may not feel American, but the IRS might still think you are.