New Zealand children born to parents' who are citizens of the United States face a difficult KiwiSaver choice: Give up your US citizenship, or face a KiwiSaver tax compliance bill of $750​ or more a year courtesy of the US taxman.

A petition has been started at Parliament asking MPs to change the KiwiSaver Act to allow people with KiwiSaver accounts facing the unreasonable demands from US tax authorities to close their KiwiSaver accounts.

The issue surfaced as a result of the plight of Auckland dual national Kira Bacal and her four New Zealand-born children, Harper, 13, Rowan, 10 and twins Malachi and Elias, 8.

Bacal says she signed her children up to KiwiSaver, but found that entangled them in a net of US tax authority red tape requiring extensive tax filings every year.

The filings are so complex only an accountant can prepare them.

Bacal says she tried to shut her children's KiwiSaver accounts at KiwiSaver provider Juno, only to find the KiwiSaver Act does not permit that.

Once open, a KiwiSaver account can be closed in only limited circumstances: When the account holder dies, permanently emigrates, or dies.

'Although the children were born here, they, like me, are dual nationals of New Zealand and the USA, and have tax obligations to both countries,” Bacal says.

She blames the US for imposing a punitive tax reporting process to discourage foreign investments in favour of domestic ones, but says she's also annoyed there was no warning when she opened the accounts, despite the application forms asking for the applicants' nationality details.

'This will cost me $2000 per child, per year, for the required reporting. This is separate to any actual tax that is due. This is just what it costs to fill out the extremely, and deliberately,confusing forms.”

Failure to file can result in a penalty of US$10,000 (NZ$17,600) a year.

'I begged the Inland Revenue to allow the accounts to be closed, but this appeal for an exemption was rejected.

'I am trying to be a good citizen of both countries. As a single parent, we do not have a huge amount of disposable income under the best circumstances.

'I appreciate that like many other savings and retirement accounts, KiwiSaver is designed to prevent early withdrawal of funds, but surely it was never intended to force a family into financial hardship either.”

Her accountant David Tzimenakis, from US Global Tax, says KiwiSaver could work for some dual New Zealand/US citizens living their lives in New Zealand, but 'it comes with quite a lot of hooks attached”.

US citizens are treated by the US tax authority (IRS) as US residents for tax purposes, no matter where they lived in the world, Tzimenakis says.

-Rob Stock/Stuff.