Royal Baby Archie Highlights Dual-Citizenship Taxation Issues
The Duke and Duchess of Sussex welcomed baby boy Archie this week. Congratulations to the new family!
While most are focusing on those adorable new photos, I’m sure some are wondering about the complexity of an English father and an American mother for the newborn. This little guy will have the advantage of dual citizenship should his parents choose. However, will they take advantage of the sought-after American citizenship?
It’s well-known that the United States is a worldwide taxation country, and while this new addition won’t be earning anything for a long while, he may have access to significant foreign assets. In the U.S., those assets have to be disclosed, and since his paternal family members are not United States citizens, this could lead to a lot of reporting requirements, even for an infant.
Since the Duke and Duchess of Sussex receive funding from various avenues for their work done for the royal family, this could create a plethora of filing requirements. For example, should any of the royal trusts disburse monies to Meghan (nee Markle), she could have a Form 3520-A “Annual Information Return of Foreign Trust with a U.S. Owner” or a Form 3520 “Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts” filing requirement to show the amounts received by her from these assets/family members. Even if her husband pays for some of her personal items, a potential Form 3520 has to be filed by her to show what was received from him. Additionally, her access to various foreign accounts or accounts she can sign on have to be reported on the FinCen114 “Report of Foreign Bank Accounts” and a Form 8938 “Statement of Specified Foreign Financial Assets.” This could all hold true for their newborn son as well, depending on how the structure of the assets work within the royal family.
None of these informational forms have a taxation effect, which means that no tax is due with the filing of these forms. However, there is a hefty penalty for not filing the forms. The penalty for each form is $10,000 or 10% of the value received depending on the form. Now, depending on the amount of forms needed, that adds up quickly, even for a newborn.
This a common theme for many children with dual citizenship from an American parent, and many have not thought about the implications. This is often overlooked by the parents and the children (who sometimes don’t even step foot in the U.S.) and can create a headache of becoming compliant in the United States. So the question becomes, is it financially worth it to have dual citizenship from the U.S. and another country?