Hello... and help!

If I had any hair left I'd be pulling it out right now! I recently discovered that I should have been sending tax returns and bank details to the USA but I never have and now I'm in panic mode!

Let me fill in some blanks.. My Mother was English, the family moved to the US in the 60's. I came along in 1970 but they family moved back to the UK in 1972 and I've lived here ever since.. 42 years of my young 44 years! I was raised here, schooled here, worked my entire life here. However my mother who sadly passed away from Cancer 4 years ago, never sorted my nationality out as she had no reason to believe it would ever cause me a problem.

I got together with my ex-wife at 19, had 3 British children by 23 and we finally married in 2007. sadly in 2011 we separated and as of may this year we are divorced. So that's complication no.1

Now I recently started researching what benefits I could get as a US expat in the UK, primarily I wondered if I could use the shops at us airbases as I moved near one recently. By accident I found a post about US tax for expats, started reading and once I picked myself up off the floor having almost keeled over due to the shock I went into panic mode. The questions filled my head... What was all this? How could I possibly have to send tax returns to a country I've never worked in and not lived in since I was 2, 42 years ago? Hang on, what on earth is this FBAR thing?

I have spent a couple of days searching and tried to get a basic understanding of all this and that's what I have... a very basic knowledge! Clearly I need to get "compliant" as they say, not that I am happy about this at all it must be said. I've paid my taxes to the UK my entire life, the idea that I have to file tax returns to a country I don't live in and may never live in seems grossly unfair. I understand the USA wanting to catch wealthy people avoiding tax but people like me, employees earning a modest wage who will unlikely owe tax anyway but will now incur an annual accounting cost to return forms seems extreme.

Anyway, to the point. I have found on here mentioned the streamlined process which it seems to me would allow me to get up to speed and hopefully deal with the situation as it stands. But I have a few complications!

1. I was with my ex, a non us citizen for 22 years. We had 3 children, now all grown up. We also had a joint current account and joint mortgage although I was the only earner paying in. The account was closed by the bank during the divorce last year and I have no access to that anymore! I had another account with them which was in my name and we set it up so that we could move some of the money out of the current account to stop us accidently spending it!

I don't know how this is reported? The money even in the account we setup in my name wasn't just mine obviously, it was ours.

2. The second concern is that last year I had to sell the house I grew up in as part of the divorce. I had bought that house from my parents back in about 1995. After the mortgage was paid the remainder was split in May this year as part of the divorce finances, the ex walking away with a nice large payoff. The amount I received has been in a bank since May. This will need to be included on an FBAR I assume, but I have no idea what the FBAR is used for, will I owe tax on my savings? I already pax tax on any interest on savings here? The money will of course be used to sort out my future housing needs etc..

3. Since I was married until December 2013, is there an increased allowance for married couples? Any additional things I can use to help with the tax allowances? I saw posts about housing needs or something?

Sorry it's a long post but all this has come as a huge shock and sadly I have have continued health issues which are blown sky high by stress! I've lost both parents in the last 4 years, had job security issues, a complicated and difficult divorce and this coming along just is the icing on the cake.

Thanks for any help/thoughts..

You have lived in the UK since you were 2? Do you have a US passport and Social Security number?

You have lived in the UK since you were 2? Do you have a US passport and Social Security number?

Yes, I was born in Illinois so I was given a US passport. I have a SSN, not that it's ever been used. I think stupidly I thought it would be cool to have it when I was about 16 so applied for one even though I had no idea what it was for! I have renewed my US passport in London 3 times since, never been told anything about tax forms, never had a letter saying anything about it etc.. I had no reason to think otherwise.

So do you have a British passport as well? Or do you have another resident status that allows you to live in the UK?

It's worth noting that if you have been a US citizen since your birth (on the basis of being born in Illinois) then your children may be US citizens through inheritance depending on the circumstances of their births.

I know this is just Wikipedia but it's worth a look-see.  http://en.wikipedia.org/wiki/Birthright_citizenship_in_the_United_States#Statute.2C_by_parentage

@geeta, I have permanent UK residency but no passport although in theory I could apply for one although since the influx of immigrants to the UK that process is harder and a lot more expensive now. If I'd done it 20 years ago it would have ben simple!

Regarding the kids, from what I can tell they may not be automatically US since I wasn't married at the time and their mother is not a US citizen. All of them are over 20 now and were never registered as US.

As you only have a US passport and were divorced and also sold a house you will have provided your US passport to at least 2 solicitors in recent years, both of whom are potentially negligent for failing to suggest you took US tax advice on any US tax effects of both sets of transactions. Your ex-wife's solicitor equally should have suggested specialist US focused advice to her since she was divorcing from a US citizen.

As a US citizen you have been required to file US returns since you had income above the filing threshold.  You may owe US tax on the gain on the sale of a UK property in May 2014.

The United States tax system is drawn from a beautifully simple concept. Americans are subject to worldwide tax, on worldwide income and gains, forever.

Because substantial numbers of Americans overseas like you have overlooked this obligation, the new “streamlined” penalty-free procedure for those who might have fallen behind will be a worthwhile opportunity for many in your circumstances.

Where US returns have never been filed, or filing has lapsed at some stage, the question most frequently asked is: how many years back should be filed to enable someone to catch up? Under US law until a return has been filed for any year, the statute of limitations remains open for that year. On this basis, the law might suggest that every unfiled return should be completed today.

Given, however, that there is frequently little or no tax involved for someone living overseas, the IRS announced “Streamlined Filing Compliance Procedures” on 18 June 2014, which are a simplified process for US taxpayers who have not filed complete returns in recent years and who have non-US income and assets. In most circumstances, this is expected to result in no penalties.

Essentially, American taxpayers overseas will be welcomed by the IRS as long as they:
1.   Have lived outside the States for at least one of the three most recent calendar years for which a US tax return was due.
2.   Prepare and file three years of amended or late tax returns.
3.   Include any relevant payment of tax with the returns.
4.   Write a declaration “in red” on the first page of each return, announcing that the documents are filed under these procedures.
5.   File six years of late or corrected FBARs (Returns of Foreign Bank and Financial Accounts).
6.   Include a signed declaration certifying that any past omissions “resulted from non-wilful conduct”.
7.   Summarise within this declaration reasons why the “non-wilful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law”. (Wilful conduct by contrast is defined broadly as a voluntary and purposeful violation of a known legal duty.) The IRS has explained that the purpose of this section of the form is to allow a chance for a taxpayer to explain why accurate paperwork was not filed earlier. Providing that the explanation is clear and unless someone has done something wilful, it seems unlikely that the IRS will investigate further beyond possible routine enquiries. Where it is unclear if conduct might be considered wilful, legal advice may be sensible before approaching the IRS.

Given that the IRS has stated that it expects not to assess numerous possible penalties for most individuals using these procedures, the streamlined procedures will probably be the optimal method for many individuals in your circumstances to become US compliant.  

Hello cw1901, and welcome to the world of altered reality. I'm going to take a different approach to guya (post above), although in the end, his approach may be the method you will have to use.

First, do not panic! There are roughly millions of people who are at the moment going through the same experience as you. You can work through this. It will take a great deal of research and reading, but there is light at the end of the tunnel.

Second, do not rush into any actions! Be sure of your situation first. It may take weeks or months of research, but first reactions are not always the best plan forward.

Let's start with a basic question: are you still a US Person?

Yes, you were born in the US, and that confers automatic citizenship. But, you must first confirm whether you may have relinquished your US citizenship in any way. For example; in 1972, the US did not allow dual citizenship. Have you been in the UK military, or held a job in government (worked for a UK government agency)? Have you taken any oaths in order to procure such a position? Loss of US citizenship is not automatic if you have taken such an oath, but you may request that they be taken into consideration by relinquishing.

Also, make sure you were a dual citizen at birth, and that you are a UK citizen at present. It's tough now that your parent has passed away, but how were you allowed to enter the UK in 1972? Research if a mother can pass on UK citizenship to a child in 1972? What are rules today may not have been the rules in 1972. Did you by any chance go through UK naturalisation?

Relinquishment is by far the easiest way out of this situation for you, but it all depends if you wish to retain your US citizenship. Would you ever consider moving to the States in the future? If so, go the Streamlined route. If not, research all you can about relinquishment.

IMHO, your children are not US citizens. You did not live in the US for 5 years, with 2 being beyond the age of 14(? not sure on the age).

Any questions that may follow, such as filing the past 3 years of tax returns and 6 years of FBARS, please feel free to ask further. Depending on many factors, the mortgage/sale of the house may not cause complications.





   

I concur with theOAP - step back, deep breath, and don't panic.

Your first mission is to figure out what your status is here in the UK; things were a lot different immigration-wise back in 1972. (For that matter, they were different in 1993 when I first came here).

The marines are not likely to descend to take you to off Attica or Levenworth any time soon, and even if you do nothing, the likelihood of someone from the IRS ever knocking on your door (or sending you a letter) is slim, remote and almost none.

I'm not in any way suggesting that you say 'up yours' w/r/t US tax obligations - just don't rush into anything.

I am so sorry to hear of your troubles  - it certainly seems that the old saying "when it rains, it pours" applies in this situation.

Fortunately, getting caught up on your US tax obligation is not as difficult as it seems. There are thousands of individuals in the exact same situation and the IRS is trying to make it as easy as possible to get back on track.

The best method for getting on track now is the Streamlined program. Although more information can be found via this link (http://www.greenbacktaxservices.com/blog/behind-filing-us-taxes-abroad-irs-program/), it sounds as if you will definitely qualify.

On a positive note, you may even end up with some excess tax credits (as the UK rate is higher than the US tax rate) that you could use should you ever want to move or retire in the US.

I hope this helps!

Many thanks for all your replies, I appreciate the information and the support! I would like to add a few comments regarding the responses...

@guya Thank you for your detailed reply. Regarding the divorce, I doubt very much that the solicitors would have contemplated the impact of my nationality. These are local UK solicitors and very likely have no knowledge of US laws. Secondly I would like to clarify that I have never "overlooked" filing in these forms, I simply had no knowledge of them or the requirement, why would I? I grew up in England with my mother, who is English, in an English village. I was taught at an English school, learnt English history and economics, have worked in England abiding by the UK employment laws my entire life. If you met me you would immediately assume I was from London or the south and English. I have no American friends living in England and no American family as I don't know my birth father. Since I found this out every person I know has said they can not believe the US have these intrusive and archaic laws and policies for such a "free" country. My mother, god rest her soul, had assumed that leaving me with a US passport would give me a choice later in life if I ever wanted to try a life in the USA and I'm not ruling that out, it may be something I will try one day.

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@theOAP Many thanks for your clear and level headed reply! My life has been nothing but complicated that's for sure. I am as far as I am aware a US citizen, I hold a US passport and have never had a British passport. I have never been in the UK military (although I once wanted to be a pilot and almost joined the RAF!) To add to the complication, my father was never identified in my birth certificate and I have never known him. As such I don't know his nationality etc... Whether that has any affect on me I have no idea. However, growing up in a sleepy village in the south of England, as a kid, having a US passport seemed exciting, I was different even without the accent! I grew up proud that the USA was my country of birth and since I've had a fascination with space and aerospace my entire life then clearly I have looked up to NASA and the US who led the way. My dream job would have been to work for NASA or JPL or one of the space related organisations. Anyway, I'm waffling, the end result is I believe I am US by the virtue of birth in the USA, not due to my parents. Would I ever want to live there? Yes, possibly, it has always intrigued me. However life deals you a hand and sometimes the cards are not what you expected. Having 3 kids by 23 years old, spending the next 21 years raising them and running a home with little money hasn't allowed to me to explore everything life has to offer.

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@vadio Thanks for your kind words. I think sadly I am unlikely to be able to automatically get a UK passport. I only know the nationality of 1 parent and without further investigation I'm not sure the legal standpoint on that. I think I would get Naturalisation assuming I passed all the exams! As I have lived and worked here my entire life and there will be records to prove all that. But the cost of doing that has shot through the roof in recent years since the eastern European migration to England has become almost uncontrolled.

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@greenback Thanks for the links, I have been watching and getting a better understanding and I will be in touch to discuss my future actions to get this situation resolved!

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OK so finally to add further questions:

1. What is the purpose of FBAR? I have some money in the bank from the house sale, what was left when the mortgage was paid off and my ex-wife was awarded her "portion of the pie". So currently my account is over the $10k limit, something it hasn't been most of my life! That money is sat waiting for me to decided what I am going to do next, where I will live, will I buy or rent etc... For arguments sake lets say the house sold, the mortgage was cleared and we were left with £100k. She was awarded £75k and I was awarded £25k as the house was a matrimonial asset. What does that actually mean? I don't understand what I will have to pay anything on here as the reality is I will have pilled in many thousands of pounds into paying that mortgage for the last 18 years that the money I got back, I've not made money, I've lost money!

2. Looking at the tax side, I won't have exceeded this "tax allowance" of $95k or whatever the exact amount is as I don't earn enough. However, if I ever did, say I suddenly got my dream job or some other miracle, what would happen? If I earned $96k, I will be paying higher rate tax of 40% in the UK plus NI but I'd also have to pay tax to USA on the money I earned? Doesn't that just mean there's little point in wanting to be successful as you will be double taxed or am I not understanding this?

3. Since I've never worked in the US and there seems to be different tax laws all over the place how would my tax be calculated ever? Is it based on where I was born?

4. Is there likely to be any impact on my ex-wife? We have been separated 3.5 years but our joint back account wasn't closed until last year and the house sold this year when the divorce finally completed. Does that mean any money in the account can be seen as 50% mine and 50% hers during that time since we were still married? What about my account that I setup whilst married, I transferred some money into that account before we separated but it wasn't my money, it was ours left from a re-mortgage we had taken out some time before.

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The reality is I'm just a normal guy, spent my life struggling to make ends meet, raised a family when I was young and have always paid my taxes and bills. I don't have wads of cash hidden in Swiss bank accounts, I don't have shares or investments in fact I don't even have a home right now! I know I have to get this situation resolved, as much as it pains me to have to spend more money to do so.

It's funny, every person I know who is British or another nationality have been stunned by this, none of them knew either. I don't know 1 person who thinks this is the right way to treat people. And the fact that people who decide to give up citizenship because of the burden of filing taxes to a country they don't live in nor ever have especially when they likely owe nothing in tax, sees them deemed as traitors, unpatriotic, lepers! That's not true, a majority I would imagine would not want to give up their nationality but are being forced to make a choice, file returns, be double taxed (if you earn enough), deal with the consequences of being a US national abroad which from what I have read this week is becoming more and more difficult with banks turning people away due to this FATCA process. It's almost like you are being penalised for wanting to explore the world and the truth is we are all children of this world no? We should be able to explore, live and savour anywhere we chose in the short life we are given without penalty, our ancestors had more freedom than we do in that respect.

Sorry, started rambling on again... thanks again for your help.

Re: Double taxation - You've only mentioned one of the two parts of the tax law that gives expats a break (the Foreign Earned Income Exclusion or FEIE). For income that can't be excluded you can usually take a Foreign Tax Credit, or FTC, against what you'd otherwise owe to the IRS if you owe that amount in income tax to another country. Basically it means in most cases the most you'd owe would be the greater of the two tax rates (so it's not actually "double taxation"), and since the UK's tax rates are higher (in most cases) than the US's there would be only a few cases where you'd actually owe money to the IRS (e.g. income that is tax-exempt in the UK but not in the US).

Something to remember is the greatest "cost" with this citizenship-based taxation system for those living in the UK or other higher-tax nations mainly lies in the complicated forms you have to prepare and not so much in what you actually have to pay to the US government. Now if you lived in a low- or no- income tax country then you'd likely owe the IRS if your income exceeds the FEIE threshold or you have a significant amount of unearned income (more than what your exemption and standard deduction would take care of).

Many thanks for all your replies, I appreciate the information and the support! I would like to add a few comments regarding the responses...

@guya Thank you for your detailed reply. Regarding the divorce, I doubt very much that the solicitors would have contemplated the impact of my nationality. These are local UK solicitors and very likely have no knowledge of US laws. Secondly I would like to clarify that I have never "overlooked" filing in these forms, I simply had no knowledge of them or the requirement, why would I? I grew up in England with my mother, who is English, in an English village. I was taught at an English school, learnt English history and economics, have worked in England abiding by the UK employment laws my entire life. If you met me you would immediately assume I was from London or the south and English. I have no American friends living in England and no American family as I don't know my birth father. Since I found this out every person I know has said they can not believe the US have these intrusive and archaic laws and policies for such a "free" country. My mother, god rest her soul, had assumed that leaving me with a US passport would give me a choice later in life if I ever wanted to try a life in the USA and I'm not ruling that out, it may be something I will try one day.

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@theOAP Many thanks for your clear and level headed reply! My life has been nothing but complicated that's for sure. I am as far as I am aware a US citizen, I hold a US passport and have never had a British passport.

I find your two sentiments expressed here very contradictory.  By all accounts, you consider yourself British, as you described in your first paragraph. However, you hold an American passport as an American citizen, and you want to do so in order to allow yourself the flexibility to potentially live in the US one day. As such, you must abide by the obligations that accompany being a US citizen. One of those is to file tax returns on your worldwide income.  It's just part and parcel of being a US citizen.  You might not like it, but that's how it is.  You can't have your cake and eat it too.

@cw1901
I'll start by betting you I can ramble on longer than you! And, I'm about to prove it.

Thank you for replying. We have to begin by saying vadio is a lovely, helpful lady of a certain age with the associated common sense that accompanies experience in life. I'm just a grumpy old man. Neither of us are qualified in any way to give any type of official advice. We are not professionals in this area. Geeta, as far as I know, is also not a professional, but is very aware of the intricacies of immigration. The upshot is that you must treat us as strangers you've come across in a pub who have freely given you our opinion of your current situation. We're unqualified, and will walk out of your life at closing time. We're just giving you our honest, unqualified opinions because we all are aware of the difficulties people have when discovering and coming to terms with the certain realities of being a US citizen abroad. In some circles, it's known as the OMG (oh my God!) moment. We would like to help ease the shock by assuring you that you are not alone, and that many people around the world are having an OMG moment daily.

You seem to be clear in one mind set; you wish to remain a US citizen. Personally, I'm not sure you have any choice, but we'll get to that later. As a US expat, you have no choice but to be compliant with US tax and information reporting. End of story.

What does concern me is your status in the UK. You are culturally English. You've lived as an Englishman almost all your life, and I assume, given your children, you wish to remain an Englishman.

My suggestion would be to tackle this issue first. That may entail seeking absolute clarification of your right to remain in the UK. That's a hell of a thought to drop on someone, but you need to be certain. In the last year, I've seen at least 3 reports of individuals who were brought to the UK at a very young age by a UK mother from the US, and who lacked a clear understanding of their British position. One, from the Black Country, had taken naturalisation at the age of 68. Sort this out.

Given the complications you've had, and are having in your life, I would suggest tackling this one additional complication at a time. The US obligation isn't going away, and you can tackle that once you are certain on your position regarding UK right to remain and citizenship. Keep the US complication in mind, and don't disregard it; but it can be resolved later.

I see others are beginning to comment on the US tax situation whilst I type this, so I'll leave that for now. Nonetheless, let me assure you that an average US expat can be compliant with US tax and reporting and live a prosperous, fulfilling life in the UK as well. I (and vadio) am living proof of that. I've lived here for over 30 years. The tax problem is not insurmountable, but it also can be somewhat of a PITA. We learn to live with it.

One concern, the new accounts you have opened recently. Disregarding their nature (yours alone or joint) were you required to provide any additional identification when you opened the accounts? Or, was it with a bank/building society you were already with, and no additional ID was required? The reason for this question has to do with FATCA, and the bank/building societies requirements under FATCA. If they suspect you are a US Person, they may be required to notify HMRC who will then pass the details on to the IRS. This may impact (and expedite) your need to tackle the IRS problem. But sort out the UK situation first!

As regards the absurdities of filing returns to the US, in my case, you're preaching to the choir. It appears not all may agree. 

   

 

Geeta, as far as I know, is also not a professional, but is very aware of the intricacies of immigration.

Absolutely - I am not a tax professional and do not wish to come across as one! As theOAP said, these are merely my observations.