Meghan, Harry and the royal baby's US tax dilemma

Britain's Prince Harry, Duke of Sussex, (L) and Britain's Meghan, Duchess of Sussex (R) attend a reception to mark the 50th Anniversary of the investiture of The Prince of Wales at Buckingham Palace in London on March 5, 2019. - The Queen hosted a reception to mark the Fiftieth Anniversary of the investiture of Britain's Prince Charles, her son, as the Prince of Wales. Prince Charles was created The Prince of Wales aged 9 on July 26th 1958 and was formally invested with the title by Her Majesty The Queen on July 1st 1969 at Caernarfon Castle.

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(CNN) —

As first-time parents-to-be, the Duke and Duchess of Sussex have plenty to worry about already – but thanks to the US tax system, there could be one more thing keeping Harry and Meghan and their new baby awake at night.

Since the royal couple announced their pregnancy last October, all eyes have been on Meghan and her emerging bump – and it seems even the palace accountants are taking interest.

That’s because as US citizens, both Meghan and her baby – who will be seventh in line to the British throne – will be liable to pay US taxes, which could potentially open up the notoriously private royal accounts to the Internal Revenue Service (IRS).

“The United States has – unique among nations – a citizenship-based taxation (system), so as long as Meghan is a citizen of the United States she is taxed,” explained David Treitel, the founder of American Tax Returns Ltd., which provides taxation advice to US expats.

The law means US tax inspectors could scrutinize Harry and Meghan’s royal wealth, and the income of their newborn child.

“The baby is being born to a United States citizen and that baby, little boy or girl, who comes along in the next few weeks, will automatically be a citizen of the United States simply because her mother is,” Treitel told CNN. “There is no other precedent of anybody else in the Royal Family who’s been American. So nobody else has ever faced this circumstance before.”

Britain's Prince Harry and Meghan, Duchess of Sussex, may face scrutiny from US tax inspectors.

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As a US citizen, regardless of where she lives, Meghan will be obliged to file a US tax return and to report any foreign accounts, assets over $200,000 and gifts valued more than $15,797 “regardless of whether it is actually in your possession,” according to the IRS.

Meghan may have to declare items like the wedding ring gifted by the Queen from a nugget of Welsh gold from the Royal Collection, the priceless diamond in her engagement ring taken from Princess Diana’s world famous jewelry collection, wedding presents from international royalty and A-list friends. Then there’s the biggest gift of all – the multi-million-dollar newly renovated home, Frogmore Cottage, in Windsor where the couple got married.

“The Queen has got to sit there and her advisers have to sit there thinking: well if I lend Meghan a tiara, if I have the baby use a beautiful silver rattle that was used by Queen Victoria, how much is that worth? What’s the value of it? How much is to be reported to the States? It’s a tough question, it’s not easy,” Treitel said.

Meghan may have to declare valuable gifts such as her wedding and engagement rings.

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Not only will Meghan have to declare gifts but if she considers selling any of them, she would be taxed on any rise in their value – and with her name attached to them, the jump in value is likely to be great.

While all of this could create a big tax headache for the royal couple, it won’t have come as a surprise. Treitel believes Harry and Meghan will have been considering potential tax troubles, “long before they were married, when they were dating, just in case a baby came along because they knew if they had a child that the baby would be American.”