Accidental American panic

I am an accidental American who never knew about American tax requirements until very recently when I read about Boris Johnson IRS issues.  

To cut a long story short I am basically not worth much at all (<15k) but with complex filing requirements. For example, I have two UK ISAs and a pension plan which may be PFICs.

I am worried as hell!!!!!!!! How much could this cost me? Aren't ISAs made of several separate things that each one of them could be a PFIC? Am I looking at paying 10s of thousands of pounds in filing costs?

Please help. I need people who have gone through this to reassure me that it isn't the end of the world. I am literally nor worth much more than my monthly salary, I haven't got property or any way of paying for what seems like it could be 20k, 30k, 100k of filing requirements!!!! I am even worried because I contacted a CPA who told me details about things like PFICs and ISA implications, now this CPA knows all my details.

I'm struggling with my emotions right now, I am confident that I don't owe any taxes given the modest income that make. But I am so scared because I thought all about my life was 100% legal and now I have discover that due to no fault of my own that isn't the case and  I don't know if there's an easy way out... from what this CPA said (who now knows my details) this may cost me an amount of money which I cannot get hold of. Not at all!!!

This is a very normal first reaction. If you own investments that are not US "tax friendly" you are correct that the form-filling is horrid. However this will be a one-off catch up job; after which you may decide to renounce to simplify your life.

I am - reassuringly - scheduled to speak about the psychological trauma of advising Americans in your position at a conference this Spring, as that is my day job. There are methods to deal with the current stress; but I suggest in terms of paperwork that your returns should be handled here in the UK.

You can prepare them yourself if you'd like to give it a go...and save money.

Thanks for the reply.

I need to figure out how to deal with the stress, you are right.

Do my homework and maybe do as much of it myself, thanks.

I spoke to a CPA who gave me what sounds like some incredibly high estimates Specially the ISA side of things. Seems crazy that I make have to spend tens of thousands to prove I owe zero.

I regret calling the tax advisor in the emotional state that  I was before posting something in a forum like this.

RULE #1  Do not become paranoid.

You've entered a playground with a very large bully. It's something we all have to deal with. Everyone may deal with it differently, but it's one of those times you need your wits about you.

This is in no way meant to underplay the situation, but you are not alone. This morning, there are tens of thousands around the world who are in the different stages following what has been termed as the OMG! moment. Like you, they have, for the first time, realised they have a tax obligation; an obligation they had no idea existed. There are supportive websites out there, and you'll find a full spectrum of responses as to how different people are dealing with it. It's OK to be shocked, and it's OK to be angry. It is not as if the US has made any effort to adequately inform people in your situation. Give yourself some time to get used to the reality, and then, as you say, start doing your homework. There is light at the end of the tunnel, but you're going to have to put forth effort, and possibly some money.

The amount of money, in your situation, will depend on how you react and how much homework you're willing to do. It could be a lot, or it could be minimal. It will depend on how you approach resolution, and to do that, you need to become focused and determined about resolving the situation.

You don't mention how you attained US citizenship (and you need not respond). There are sooo many different ways to approach your situation, and you need to be aware of all of them before you act.

One of life's surprises. Is it fair? At this point, it doesn't matter whether it's fair or not. You have the situation. It's all up to how you deal with it, and there are ways out of this mess.

Thanks for the reply theOAP. I was born in the US to non US parents and left at 4 years old. I have had a US passport and only been back to the US once as an adult.

I do want to know ALL approaches, the accountant that I called told me about the streamlined process. But painted a really bleak picture in terms of my ISAs and pension plan. It sounds to me like it involves tens of thousands of pounds that I haven't got. I'm a typical father of two young kids, I've got ISAs that I never thought would be a problem. 

Is this really the case? Are ISAs made of of multiple PFICs and it is in effect impossible for people like me to file because the costs of doing so as so high?

PS: I will try to be less paranoid, I know I am a tiny little person worth nothing who just made a simple mistake.

Is this really the case? Are ISAs made of of multiple PFICs and it is in effect impossible for people like me to file because the costs of doing so as so high?

There are several types of foreign investments that require detailed filing for the IRS. Unfortunately, a stocks and shares ISA is one of those accounts. For Americans in the UK, a stocks and shares ISA has been termed 'toxic'. Others may be able to give you a better idea of what is involved for the form required, but from others who have been through it, it is involved. It's generally accepted that a cash ISA is fine and is treated as a regular savings account.

The pension plan may be a subject of debate. It very much depends on the type, and ones reading of 'accepted' practices.

The person you have talked to may, or may not, be attempting to take advantage of your situation. It is not unheard of for back filing in order to become compliant to cost £15,000 to £20,000, but it is not the norm. If you employ an advisor to solve this, and with 3 years of back filing, be prepared to pay £2,000 to £4,000 at least. It may be more, it may be slightly less. It all depends on the number of your ISA's.

For quick compliance, the current streamlined programme is the best available, right now. It means 3 years of back 1040 returns and 6 years of back FBARS (FinCEN 114). The FBARs are not a difficult problem, and you may do those yourself.

You may also wish to consider whether or not you want to retain US citizenship. Regardless, you will have to do at least 3 years of back filing (5 to renounce), but the type of acquisition of US citizenship (assuming you were born a dual citizen) may be to your advantage if you wish to relinquish.

There is an interesting passage in the latest Presidential Budget Proposal, but it is not law; and with the dysfunctional politics in the US, it may never be law. But for someone in your position, it would be an advantage.

A much more risky scheme would be to rid yourself, now, of the stocks and shares ISA's, and file going forward for 2015. This is a very risky and not kosher, and you would be opening yourself to severe potential penalties if discovered. 

If the OP has no need to visit the USA then the simplest strategy may be to do nothing. Do not use a US passport or acknowledge being a US citizen.

I have no need to visit the USA, no close family there, or even friends. However, this feels like one of those things I should take care of properly if I can.

I've not set out in life to be a criminal, yet it feels like I have been criminalized by an unfair system.

I've never felt American, but I also didn't think that the blue passport that I used once to go on holidays carried so many issues with it.

PS: I do wonder if the accountant I called (from what I can work out a well known one listed in many places) is trying to use my panic to charge me over the odds. The figures that I was quoted were much more than what theOAP suggested.

Your UK pension is almost certainly not a PFIC and easily dealt with.

If you have a stocks and shares ISA there will be PFIC issues if it is invested in a collective fund rather than individual stocks.....cash ISAs have no issues.

As a US citizen you should be filing US taxes if your taxable income is above the filing threshold. You most likely won't owe any taxes to the US because of credits you get for UK tax you pay, but there are possible penalties for not filing informational forms with the IRS and Treasury dept.

Yes please do not worry, you are in a very common situation and one that can be remedied simply with paperwork. Plus there are beneficial programs in place right now that make it easier than ever to get back on track with the US system (the Streamlined Program).

TheOAP is right, for the Streamlined you will file three late years of taxes and 6 years of FBAR. There are accountants (such as Greenback) who can file for much less than typical brick and mortar firms, and the FBAR's are pretty straightforward so you could save even more filing on your own.

If the costs are still to high another option would be to pay an accountant to file one year and then use that return as a guide to file the additional years on your own.

If you would like a good overview of how you will be taxed as an American living in the UK, I would recommend this article: http://www.greenbacktaxservices.com/blog/expat-taxes-explained-filing-taxes-as-american-uk/

I hope this helps and good luck!

Yes please do not worry, you are in a very common situation and one that can be remedied simply with paperwork. Plus there are beneficial programs in place right now that make it easier than ever to get back on track with the US system (the Streamlined Program).

TheOAP is right, for the Streamlined you will file three late years of taxes and 6 years of FBAR. There are accountants (such as Greenback) who can file for much less than typical brick and mortar firms, and the FBAR's are pretty straightforward so you could save even more filing on your own.

If the costs are still to high another option would be to pay an accountant to file one year and then use that return as a guide to file the additional years on your own.

If you would like a good overview of how you will be taxed as an American living in the UK, I would recommend this article: http://www.greenbacktaxservices.com/blog/expat-taxes-explained-filing-taxes-as-american-uk/

I hope this helps and good luck!

Excellent advice!

If the OP has no need to visit the USA then the simplest strategy may be to do nothing. Do not use a US passport or acknowledge being a US citizen.

That usually won't work if your place of birth was in the US, since with very few exceptions anyone born in the US gets US citizenship at birth (now whether that should be the case is another subject worthy of debate).

The OP is surely a US citizen from birth (unless his parents were diplomats). But the point is he doesn't look like a US citizen. He won't have what are called US indicia - no history of financial transactions and postal addresses with the USA. He speaks with a UK accent and presumably has a UK passport. About the only thing that might give him away is the place of birth printed in his UK passport and sometimes this is not explicit. So if he has avoided this mark of Cain, then he won't get ratted out by FATCA. He can go back to the happy life he led before his unfortunate discovery.

There are many excellent American tax advisers based here in the UK, and qualified in both the US and the UK, able to assist in these kinds of circumstances.

You say that you spoke with a US CPA; this may not have been the optimum person to speak with, as only a handful of American CPAs understand UK ISAs and PFIC taxation.  This may account for the large fee quoted to you.

Good advice guya, thank you very much.

Weller, you are correct in pointing out that my British passport doesn't say I was born in the US. It simply says a city name, there is an American city named that, but there's also a British city of the same name. So in that respect, yes, my passport doesn't give me away.

However, I don't like the idea of hiding. Technology is getting better and governments are getting keener to follow our every move. Just because I am OK now doesn't mean that I will be OK in the future. Unjust as that is! Because really... I have done NOTHING wrong

PS: I am a family man, I want to do what's best for my kids. I don't think what's best is for them to grow up with a dad who is tainted, even if it is purely accidental and entirely freaking unjust! I think that if I can do something about it, I should do something about it.

If I couldn't at all (eg: filing costs would cripple me financially) that is a different matter. But if I can, I will!