UK born & raised, US citizen, just found out I have to file - please help!

Hello,

I have dual nationality UK/US. I was born and raised in the UK but am a US citizen through my American mother.

I've never worked in USA, nor have I ever filed a tax return. I've recently found out I have to file and have been researching like crazy the last couple days. I'd appreciate if anyone could confirm I'm headed in the right direction.

Background: I'm a UK homeowner, with a job paying £60,000, in 3 years time I will be earning £120,000. I have 5 or 6 UK bank accounts which add up to over $10,000 but not by much. I have very few investments (a little peer to peer lending) although I do have a workplace pension and a SIPP.

Questions:

1) As I haven't filed before but it's unlikely I owe any tax, am I correct in thinking that I should go for the streamline process? 3 years tax returns and 6 years FBAR.

2) For my income, I have the option of FEIE (foreign earned income exclusion) which is currently $100,000ish and subsequently would cover me at the moment. Should I perhaps instead go for the tax credit option? The high UK taxes would cover the US tax liability and also provide me with credits I can use against future years. In 3 years time I couldn't use the FEIE anyway.

3) Am I correct that filing FBARs doesn't mean I have to pay any tax on those accounts.  The IRS just want to know what bank accounts I have for some reason?

4) Do I need to report empty bank accounts by FBAR? I have some old accounts that I don't use but never bothered closing.


Thanks very much for any help

Kayvaan - you are describing a very complex problem. The first question to establish is whether you are a US person. You believe you are and have not relinquished.

Once you have reached this view you will want to decide if or when you will renounce as this will change the number of tax years you will want to file.

You hint at income reportable under IRC Section 402(b); but not that you have decided how to address this. You also mention a foreign grantor trust; ie your SIPP. Were you advised on this? If so why did any adviser fail to advise on US tax consequences.

Do you have a US Social Security Number yet?

Given the complexity and the risk it would be foolish to approach the IRS without professional advice.

Thanks for your reply Guru.

I am definitely a US person. I have not relinquished and really do not wish to, although if the tax turns out to be crippling I would consider it.

I do have a social security number.

For the income reportable under IRC section 402(b), do you mean my UK company pension? I understand it is exempt as a retirement vehicle. Or the peer to peer lending? Perhaps this counts as a PFIC? I don't think so?

The guide on this website suggests that SIPPs are a grey area and the IRS is yet to rule on whether they are PFICs or not.

Could you recommed an adviser?

Under NO CIRCUMSTANCES should an Accidental American enter the US tax system, full stop! I have recently spoken to some Accidental Americans who are letting fear and some who have some unfounded sense of “the right thing to do” by entering the US tax system. If the Accidental American is guided by the aforementioned “attitude and behaviour”, they will have serious financial difficulties. The risk is much greater entering the US tax system than not.

It is important to note that the Accidental American does not have a US tax problem, they have a US citizenship problem.

If your bank tells you that you must submit either a CLN (Certificate of Loss of Nationality) or a Social Security Number, please try to “self-certify” that you are not a “US Person” as outlined in your country’s FATCA IGA (Inter-Governmental Agreement) with the US. If the bank does not accept self-certification then request a Social Security Number SOLELY for satisfying your bank’s FATCA request so you can retain your bank account BUT DO NOT ENTER THE US TAX SYSTEM!

There is much work being done to relieve them of this unwanted US citizenship and by entering the system, they may not be included in the relief being work on at present. Example: the French Commission report which includes the plight of Accidental Americans is being presented to the US State Department hence the push back has begun.

Lastly, there are MANY US tax compliance professionals who scare-monger and manipulate facts in order to drum up business. Accidental Americans MUST stay away from US tax compliance professionals. The SOLE OBJECTIVE is to bring you into US tax compliance which is NOT what you are to do!

There are Accidental American cases which may need some counsel. If this is the case, then consulting a US citizenship and/or US tax ATTORNEY is the best route and one who does NOT live in the United States.

DO NOT let homeland Americans or homeland US tax professionals guide you, full stop!

If you would like to learn more about the issues and receive proper information, please consult the following groups on Facebook:

American Expatriates:
newcomer link: https://www.facebook.com/groups/AmericanExpatriates/ [nonactive]

Accidental Americans:
newcomer link: https://www.facebook.com/groups/accidental.americans/ [nonactive]

I very much appreciate your message. I will check out those links.

AS a US citizen you are liable to US tax on your worldwide income.

You probably don't owe any tax though as the earned income can be excluded by FEIE or the earned and other income tax covered by foreign tax credits. You will have to disclose foreign accounts if their aggregate is over $10k and you might choose just to file the FBARs...those don't go to the IRS, but to the Dept. of Treasury.

You can claim tax deferral on contributions and gains in the workplace pension and SIPP by using the US/UK DTA. There is debate about whether the SIPP is a pension or needs foreign trust filing.....I'd just treat it like a pension and see if the IRS is bothered.

The P2P is interesting as that might be a PFIC and a foreign trust depending on it's structure.