Advice for my UK born adult children who have dual citizenship

My son and daughter were born here but have US citizenship as well.
Almost 3 years ago when my mother died they were given $5000, which they kept in the US  to fund visits to relatives there, none of us realising about the tax laws. These are earning interest.
My son has never worked in the US.
My daughter spent about 10 months there Sept 2008-June 2009, worked part-time about 6-7 months while there, so her situation is very different.
Neither of them ever plans to work in the US again.
Both are low-earners.
It appears that both of them will have to file 6 years of back taxes, right? Is this something they could do themselves to avoid losing a huge part of their little inheritance in paying someone else to do it?
If either of them were willing to give up their US citizenship to avoid having to file tax returns until they die, is that possible?
Any advice might help me sleep tonight. :-)

While I am not a tax advisor, I don't think you have much to worry about in the US as far as tax liability.
There shouldn't be any tax on the initial gift/estate because there's an exemption for transfers on death on amounts up to 1.5million.
The income from interest is taxable, but if it is their only source of income it is likely so small as to prevent them from having tax on it. 
Check out more info on the estate tax here:http://www.irs.gov/businesses/small/article/0,,id=98968,00.html

They may have a duty to file a tax return, but if they are low earners and paying tax in the UK then their income is likely exempt anyway.  (Foreign earned income exclusion or the tax treaty would support this.)

In short, even if they DO have to file for previous years, it is unlikely that they had tax liability in the states and therefore there aren't any big penalties.  You might want to have them give the IRS a call, especially your daughter, who may have more reason to look into the tax implications of her work performed while here.


Good Luck!

If either of them were willing to give up their US citizenship to avoid having to file tax returns until they die, is that possible?

They can expatriate but it can be somewhat a drastic response to an issue that isn't that complicated.  Under a lot of circumstances, because the UK tax rates are higher, they wouldn't pay US tax on top of that.  I would suggest that they need to get much more educated about filing tax returns in the US and the differences between the US and the UK systems, then chose.