Royal Marriage & U.S. Taxes

From Forbes.com

As American actress Meghan Markle prepares to wed Britain's Prince Harry, most people will not focus on the tax problems complex U.S. tax laws inevitably seem to bring. Early in their engagement, Buckingham Palace announced that Markle will become a British citizen after marriage. Yet tax lawyers quickly pointed out that Meghan Markle’s U.S. citizenship could cause tax headaches for Britain’s royal family. Unless she renounces her American citizenship, she must continue to file U.S. tax returns, plus FBARs, every year, reporting her worldwide income, and disclosing her assets. Even if the couple try to keep their assets separate, disclosing assets may be a particular worry.

More recent reports underscoring Markle's coming British citizenship have noted that she may well decide to give up her American citizenship. At least this royal couple will be very well advised. Many a dual country couple innocently starts filing U.S. taxes together, and then are both caught forever in the U.S. tax net. 95% of married couples file joint tax returns, making each spouse liable for everything on the return–and anything that might not be on the return. Markle will surely be advised to file taxes separately, so Prince Harry will hopefully not be caught within the U.S. tax net. But if they have children, what about them?

FATCA, the Foreign Account Tax Compliance Act, was passed in 2010, and was ramped up worldwide. It requires an annual Form 8938 filing with the IRS that could end up involving royal assets. FATCA's unparalleled network of reporting requires foreign banks and governments to hand over secret bank data about depositors. Non-U.S. banks and financial institutions around the world must reveal American account details or risk big penalties. Markle could follow London’s former Mayor Boris Johnson, now Britain's Foreign Secretary. Having been born in New York but raised in Britain, Johnson was a dual citizen of the U.S. and U.K. A run-in with the IRS eventually led him to renounce his American citizenship.

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