Meghan and Harry face 'tax nightmare' from US officials

The US government is causing trouble for Harry and Meghan. Photo / Getty Images

The Royal Family faces a tax "nightmare" as US officials examine whether Meghan and Harry owe them a slice of their multi-million-pound fortune, according to reports.

The Duchess of Sussex is still an American citizen so has to pay tax in the US, and this could extend to anyone else she draws money from, including her husband.

This could deplete both her $5million US fortune and Prince Harry's main source of private wealth, a £300,000-a-year ($559,000 NZD) trust fund on which he pays UK income tax.

The probe could even extend to the Queen and Prince Charles as they provide funding for the couple, aides told the Sunday Express, which reported that the royals are set to employ a team of US financial consultants to deal with the issue.

"We're looking at a level of financial exposure the Royal Family has never had to face before," one of the aides said.

The US Internal Revenue Service is known for being extremely strict in tracking down people they believe owe them money.

Meghan is reportedly living in the UK on a family visa, but she will have a complicated tax status as long as she remains a US citizen.

Tax laws mean that even if Los Angeles-born Meghan lives full-time in the UK, she will still have to file a US return every year.

Meghan's last return, which would have to have been submitted to US authorities by April 17, would have detailed any money she and Harry have made since they began living together.

"Of course this raises the tantalising prospect of Uncle Sam getting a look behind the velvet curtain - and seeing the private finances of the Royal Family," US tax specialist Alistair Bambridge, of Bambridge Accountants, told DailyMail.com in February.

Meghan has to give the US taxman full details of her finances if she and her husband-to-be have joint assets, bank accounts or offshore trusts in excess of £143,100 ($266,000 NZD).

Perks she receives by joining the Royal Family such as the use of Nottingham Cottage, the grace and favour property in the grounds of Kensington Palace where she will live with Harry, need to be valued and declared unless she is paying rent herself.

And future TV income, such as repeat fees, will all be taxed by the US as long as she is a citizen.

Bambridge, who has offices in New York, London and Vancouver, explained: 'Duchess or no duchess, when it comes to the IRS, Meghan is like every other American citizen.

Meghan's ring is estimated to be worth over $120,000. Photo / Getty Images

"Each year she must file her tax return and pay any tax she owes to Washington.

"The US income tax system is citizenship-based, so as an American it doesn't matter where in the world you live and work - your tax affairs are always Uncle Sam's business.

"Clearly Meghan's case is a unique one, as she may be taxed according to the rental value of a home she lives in for free - Kensington Palace.

"Working out the market rental value of a royal palace is not a task for the fainthearted."

She may even have to declare personal items such as her engagement ring and wedding dress.

The diamond engagement ring Prince Harry gave Meghan has been valued at over £71,600 ($133,000 NZD) by royal watchers.

Because it is classified as a gift "from a foreign person", Meghan would have to declare it to the IRS on a Form 3520 or suffer a £7,160 ($13,000) penalty.

Kensington Palace declined MailOnline's request for comment. The IRS has been contacted.