When The IRS Tracks Down 'Accidental Americans' In France

French authorities agreed to help the U.S. crack down on tax evaders. But in doing so, people who just happened to be born on American soil face massive penalties and reams of red tape.

There are several thousand people like Renaud, who are French but also 'accidental Americans.'
There are several thousand people like Renaud, who are French but also "accidental Americans."
Marie Visot

PARIS — In 1964, a happy young French couple moved to the United States. The husband had just taken a new job at IBM and his wife was expecting their first child. They spent two hectic years in this country they didn't know, together with their little Renaud, who came into the world just a few months after they'd settled — in Poughkeepsie, New York. Then, following a transfer, the family returned to France, moving into a home near Paris.

Renaud knew that being born on the other side of the Atlantic, he had dual-citizenship. "When I was a teenager I used to show off a little to my friends, even if I didn't know the country," he says. But coming of age, he assumed he'd lost his American citizenship. Then, one day in 2013, his bank, HSBC, told him they'd found a "trace of Americanization" in his file.

At first, he didn't worry too much about it, thinking it was maybe a mistake. But a few months later he discovered an astonishing transaction on an account he had with a different French bank, Caisse d'Epargne. "At that time I had almost 5,000 euros of Home Depot shares that my father had given me. In September 2013, I decided to sell them — at a loss! — and earned only about 4,100 euros. In November, I was astonished to see that the bank had canceled the entry and only re-credited 2,900 euros to my account. The difference was the $1,500 deducted at the source without my consent from the U.S. tax authorities. I was livid."

A one-size-fits-all approach

There are several thousand people like Renaud, who are French but also "accidental Americans." He never took the necessary steps to renounce his U.S. citizenship, so technically, he's still a citizen of this unfamiliar country. But because he doesn't want to file a tax return in a foreign country to which he has "no ties," he's also an outlaw — at least from the U.S. perspective. And as a result, he lives with the permanent danger of a tax adjustment or lawsuit — a "sword of Damocles' hanging over his head, he says.

In the United States, taxpayer status is based on nationality, not on residence. And being a U.S. taxpayer means having to declare your income to the IRS every year, regardless of where you live or work. In 2010, Washington passed the Foreign Account Tax Compliance Act (FATCA), a piece of legislation designed to fight against tax evasion that requires banks around the world to disclose information (income, account details, etc.) on any of their U.S. clients whenever their accounts exceed $50,000. Failure to do so may result in penalties.

He lives with the permanent danger of a tax adjustment or lawsuit.

In 2013, the two countries reached a bilateral agreement making FATCA effective in France. Bi-nationals who never intended to break the law are getting singled out regardless. That's because every American — "accidental" or not — is subject to the same rules. As such, hundreds of French people have received bank letters in recent years obliging them to regularize their situation with the U.S. tax authorities.

To say that most of them were dumbfounded is an understatement. Some people have decided to bury their heads in the sand — even if means one day having to pay back taxes or penalty fees. Others make an effort to get their paperwork in order with the help of lawyers and arrears payments.

As for those who want to relinquish their nationality, they must first regularize the past five tax years. The sums can go up quickly. Taxes paid on income in France are deducted from those claimed by the U.S. But many investments are taxable. In France, you can deduct part of your private pension contributions from your taxes, but not on the other side of the Atlantic. The tax bases also differ between the two countries, notably on things like life insurance and the sale of principal residences.

"Of course, it's a mistake"

Marilyn knows this situation all too well. Born by chance in Georgia in 1950, from a Breton mother and a British father, she had an American passport until the 1970s. "I returned it to the embassy," she says. "At the time, you had to choose only one nationality before you turned 25." Then, in 2015, she received a letter from her bank asking her to give information because she is American. Of course, it's a mistake, she assumed. But when her online bank, ING, announced that it was closing her life insurance, she realized that things were perhaps more serious than she'd thought.

The Internal Revenue Service building in Washington D.C. — Photo: Shashi Bellamkonda

Nobody at the embassy can find any record that she relinquished her U.S. citizenship. "I thought the sky had fallen on my head," she says. So once again, she began taking the necessary steps to bring herself into compliance. As best as she could, she tried to regularize her tax situation from the last few years. That led to another bad surprise: the IRS asked her to pay several thousand dollars in taxes even though she is not liable in France, having gone through a period of unemployment. She filed a claim with the IRS and hopes to receive a prompt response. In the meantime, she cannot sell her house without having to pay a capital gains tax.

Olivier Clifford, for his part, was able to renounce his U.S. citizenship. "But it's racketeering!" he says. Born in 1966 in Chicago — his father completed his studies as a dentist that year at Northwestern University — he spent just 13 days on American soil before returning to France. Nearly a half-century later, in 2014, his bank, Axa, contacted him with the news that they'd found "a trace of Americanness' and gave him one month to transfer his accounts. "I felt totally helpless as if the ground was falling from under my feet," Clifford says.

That's when he decided to give up a nationality he'd never felt a genuine claim to in the first place. "I realize that the country only sees me as a walking piggy bank. I don't see why I'd pay for American highways or schools when I never even used them!"

The "one thing I did wrong: being born on American soil"

U.S. authorities then asked him to prove that he had always lived in France. "I went and dug up vaccination cards, certificates of school attendance, library cards, diplomas, etc.," he recalls. Clifford also called on a tax consultant, who took almost a year to reconstitute his bank account history and compile his tax file, which ran 400 pages! "The total cost of this operation came to about 12,000 euros — 6,500 euros for the consultant, 3,500 euros in taxes and 2,000 euros in administrative costs. It's a good thing I had some savings. For some French people, that means six months of wages."

Lobbying the government

Despite his calm voice, Fabien Lehagre, 33, is arguably the angriest of all "accidental Americans." The young man was born in Mountain View, California in December 1984, to a French father and a mother of Singaporean descent. Like others, he also found himself in "an illegal situation," according to the U.S. tax system. He has since been going through "a long and expensive journey, all because of just one thing I did wrong: being born on American soil," he says.

But rather than just ignore the situation or wrestle with the red tape, Lehagrehe has decided to go even further. Starting in late 2016, he got in touch with other bi-nationals in the same situation. "We wanted our voices to be heard, so I created a Facebook group to gather testimonials," he says. "Soon there were a lot of us."

On the page, comments pour in. "We're sick and tired of being treated like pariahs or tax evaders," one of the other "Accidental Americans' wrote. Some people say their inheritance has been blocked. Others have spent thousands of euros trying to regularize their situation. Others explain how some banks refuse to take them as customers. "Just you go and try it, go to Boursorama, Hello Bank! or ING and use an American city as your birthplace," one person wrote.

In 2017, the group established itself as a formal organization — the l'Association des Américains Accidentels (Association of Accidental Americans) — or AAA. Some of the members managed to alert the French Ombudsman, Jacques Toubon. Fabien Lehagre, meanwhile, launched an intense lobbying effort with the public authorities. A few members of Parliament have been receptive to the arguments. The ministries not so much. Senior advisors at the Ministry of Economy, at the Foreign Ministry or even at the presidential palace listen politely to their grievances but seem disinclined to act.

"They are talking about double taxation, but we mustn't forget that they have dual citizenship," a government source says. "It gives them rights but also obligations," a source at the Ministry of Economy says. "This information-sharing provision was originally introduced to combat tax evasion, which is very commendable."

Their struggle will be long and difficult.​

But things can change. The association now has the support of La République En Marche!, President Emmanuel Macron"s party, which is no small feat. In early February, the president of the group in the lower house of Parliament, Richard Ferrand, wrote Prime Minister Édouard Philippe to alert him on the issue. In his letter, he asked Philippe to "take strong diplomatic action" with the United States in order to prevent "derogatory" treatment for "Accidental Americans," allowing them to renounce American citizenship through a "simple and free" procedure or be "exempt from American tax obligations."

At the same time, Ferrand asked for "negotiations with French banks so that they can provide their Franco-American clients with all of their services." According to our sources, the prime minister responded to the letter, saying that, "France will argue vigorously with the American diplomacy to obtain simplified renunciations of citizenship."

But AAA members know that their struggle will be long and difficult. Therefore, the association is pursuing a legal strategy. Last July, its members met Régis Bismuth, a professor at the Sciences Po Law School. The legal expert worked hard throughout the summer and produced a memo laying out the flaws in the system. "FATCA raises serious issues regarding the reciprocal implementation of this commitment by the United States. Indeed, they haven't taken the necessary internal measures to ensure that the exchange of information is equivalent," Régis Bismuth explains.

He adds that it's also likely to present many "inconsistencies with European Union legislation on the protection of personal data." The association stepped into the breach and hired the law firm, Spinosi-Sureau, last October with filing a plea to the French Council of State — not against the FATCA treaty ratified by the French Parliament, but against the implementing decree. All the cards are now in the hands of the institution. It has 18 months to deliver its verdict.

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Air Next: How A Crypto Scam Collapsed On A Single Spelling Mistake

It is today a proven fraud, nailed by the French stock market watchdog: Air Next resorted to a full range of dubious practices to raise money for a blockchain-powered e-commerce app. But the simplest of errors exposed the scam and limited the damage to investors. A cautionary tale for the crypto economy.

Sky is the crypto limit

Laurence Boisseau

PARIS — Air Next promised to use blockchain technology to revolutionize passenger transport. Should we have read something into its name? In fact, the company was talking a lot of hot air from the start. Air Next turned out to be a scam, with a fake website, false identities, fake criminal records, counterfeited bank certificates, aggressive marketing … real crooks. Thirty-five employees recruited over the summer ranked among its victims, not to mention the few investors who put money in the business.

Maud (not her real name) had always dreamed of working in a start-up. In July, she spotted an ad on Linkedin and was interviewed by videoconference — hardly unusual in the era of COVID and teleworking. She was hired very quickly and signed a permanent work contract. She resigned from her old job, happy to get started on a new adventure.

Others like Maud fell for the bait. At least ten senior managers, coming from major airlines, airports, large French and American corporations, a former police officer … all firmly believed in this project. Some quit their jobs to join; some French expats even made their way back to France.

Share capital of one billion 

The story began last February, when Air Next registered with the Paris Commercial Court. The new company stated it was developing an application that would allow the purchase of airline tickets by using cryptocurrency, at unbeatable prices and with an automatic guarantee in case of cancellation or delay, via a "smart contract" system (a computer protocol that facilitates, verifies and oversees the handling of a contract).

The firm declared a share capital of one billion euros, with offices under construction at 50, Avenue des Champs Elysées, and a president, Philippe Vincent ... which was probably a usurped identity.

Last summer, Air Next started recruiting. The company also wanted to raise money to have the assets on hand to allow passenger compensation. It organized a fundraiser using an ICO, or "Initial Coin Offering", via the issuance of digital tokens, transacted in cryptocurrencies through the blockchain.

While nothing obliged him to do so, the company owner went as far as setting up a file with the AMF, France's stock market regulator which oversees this type of transaction. Seeking the market regulator stamp is optional, but when issued, it gives guarantees to those buying tokens.

screenshot of the typo that revealed the Air Next scam

The infamous typo that brought the Air Next scam down

compta online

Raising Initial Coin Offering 

Then, on Sept. 30, the AMF issued an alert, by way of a press release, on the risks of fraud associated with the ICO, as it suspected some documents to be forgeries. A few hours before that, Air Next had just brought forward by several days the date of its tokens pre-sale.

For employees of the new company, it was a brutal wake-up call. They quickly understood that they had been duped, that they'd bet on the proverbial house of cards. On the investor side, the CEO didn't get beyond an initial fundraising of 150,000 euros. He was hoping to raise millions, but despite his failure, he didn't lose confidence. Challenged by one of his employees on Telegram, he admitted that "many documents provided were false", that "an error cost the life of this project."

What was the "error" he was referring to? A typo in the name of the would-be bank backing the startup. A very small one, at the bottom of the page of the false bank certificate, where the name "Edmond de Rothschild" is misspelled "Edemond".

Finding culprits 

Before the AMF's public alert, websites specializing in crypto-assets had already noted certain inconsistencies. The company had declared a share capital of 1 billion euros, which is an enormous amount. Air Next's CEO also boasted about having discovered bitcoin at a time when only a few geeks knew about cryptocurrency.

Employees and investors filed a complaint. Failing to find the general manager, Julien Leclerc — which might also be a fake name — they started looking for other culprits. They believe that if the Paris Commercial Court hadn't registered the company, no one would have been defrauded.

Beyond the handful of victims, this case is a plea for the implementation of more secure procedures, in an increasingly digital world, particularly following the pandemic. The much touted ICO market is itself a victim, and may find it hard to recover.

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