Never-resident dual-citizen caught by FATCA - HELP!

Hello there,

I am so glad I found this forum. Maybe now I can finally get some help!

I am a UK/USA dual citizen. I was born in the UK, my dad was a naturalised USA citizen only. I have never lived in the USA (apart from short holidays with USA based family as a minor/dependent). My dad is no longer with us and my American resident family have never lived outside the USA since becoming citizens (when they themselves were children) so cannot help me. I don't know any other Americans or green-card holders personally to ask for their help either.

I live in the UK and, stupidly, told my bank that I am an American too when they asked. Hence I was caught by FATCA, found out that the USA taxes it's citizens abroad, and now have this headache to deal with.

So after I got caught by FATCA, I went down to the US Embassy in London, showed them my (long expired) US passport and certificate of birth abroad, and got a Social Security Number.

I then contacted a few accountancy firms in the USA that offer their services to expats. I told them that I needed to make my first tax return, having just been caught by FATCA. They must have thought I was the Monopoly guy or something because they all wanted to charge $,000s for my first return.

I said I couldn't afford that (I can't) but could they please just tell me what form I need to fill out, I'll do the donkey work of filling out the form, and then could they please just check that I've completed the form correctly and send it to the right place?

I never got a response to those emails...

I'm not the Monopoly guy. I am a young man at the start of his career, making peanuts, with no knowledge of American systems or institutions. From what I have been able to gather, I should not be liable for any tax as I do not earn enough and my income is already taxed here. I still need to make the return though.

Hopefully someone here will be able to help me?

I have the following questions:

1. What's this Free File thing? Can I use that as an American abroad?
2. If not, what form do I need?
3. Do I need to file any state taxes? My longest period of time in the USA was as a child, a holiday of probably about a month split between Texas, Florida and New York State. Again, I've never lived there.
4. Assuming it's just federal taxes I need to file, can someone please tell me what form I need to use?
5. Do I need to file any other returns/forms given it's my first time?
6. I gather I need to file at least 3 years worth of returns. Do I need to do a separate return for each year or can I use the single form?
7. What are the relevant deadlines?
8. How many years do I need to make returns for before I can renounce my citizenship? (So that I can budget monthly savings for the renunciation application going forward - and, yes, I have thought about this carefully. Neither me nor my wife have any desire to live in the USA later.)

I think that's all I need to know, for now at least!

Thank you in advance, and thank you for reading my circumstances.

All the best,

Biged

Oh, and P.S. if anyone knows of a UK based tax firm that would charge, say, £300-£500, I could probably afford that between my wife and me just to get some help with this. Any recommendations would be welcome! Thanks again.

Are you 100% certain you are a US citizen at all? Was your father able to transmit citizenship to you? Have a look at transmission rules to start with.

The US passport does not prove citizenship; it may have been issued incorrectly. 

Hi @guya, thanks for your response.

Well, I was 100% certain that I was, until I read your response...

I have some certificate at home that my birth in the UK was registered with a US embassy. Like I said, I also have a passport. My mother certainly thinks they took all the necessary steps to ensure I obtained dual-nationality.

(They wanted me to have options when I grew up and, according to my mother, they were told by the man at the embassy that I would have to renounce one or the other citizenship once I became an adult. It sounds like this guy was wrong on that front.)

Are you questioning my dad's ability to transfer citizenship because he was a naturalised citizen rather than an American-born? My understanding was that naturalised citizens count as "1st generation", so can automatically pass on citizenship. As a 2nd generation myself, I understand that, if I wanted to ensure my children were American, my wife would have to travel to the USA to give birth there - I can't pass it on.

Edit: I just Googled "am I an American" and found this source: https://www.uscis.gov/us-citizenship/citizenship-through-parents [nofollow]

I fall into the following category:

In a general, a Child Born Outside the U.S. is a Citizen at Birth when the Child’s Parents Are Married to each other at the Time of Birth IF...

One parent is a U.S. citizen at the time of birth and the birthdate is on or after November 14, 1986   

AND...

The U.S. citizen parent had been physically present in the U.S. or its territories for a period of at least five years at some time in his or her life prior to the birth, of which at least two years were after his or her 14th birthday.

^The above applies to my dad. He immigrated to the USA as a child and obtained citizenship as a child along with his family. He then lived in the USA until he was done with university. I was born after the cut-off date in 1986.

At our swearing in ceremony for US Nationalization we asked and were told that our minor children (aged 15 and 17 at the time) automatically became US citizens.  We then applied for and got US passports for them.

At our swearing in ceremony for US Nationalization we asked and were told that our minor children (aged 15 and 17 at the time) automatically became US citizens.  We then applied for and got US passports for them.

Thanks. I think from the link I posted that I am a citizen from birth, despite being born outside the USA, for the reasons given. (See the edit in my post above - it may not have been there when you posted if you hadn't refreshed the page.)

Most people in these circumstances would use the IRS Streamlined Procedures.

The first rule is: don't panic. The IRS haven't bothered about you for all these years so take your time and get this correct.

Guya was trying to ascertain if you truly were a USC simply because we sometimes have people who think they are a USC, and have been told so, even by the US Embassy, when in fact they are not. Sadly, in your case it appears you are.

Before you go any further, you need to know that ridding yourself of US citizenship is costly. At a minimum it will be $2,350. If you wish to continue on this path it effects the number of years you will need of US tax returns filed. If you wish to remain a USC, you will need to file 3 past years. If you wish to renounce you will need 5 years of past returns.

Edit: I should add that in addition to the tax returns, you may have to file with FinCEN regarding any UK financial accounts. 6 years of past filings is required no matter which direction you go, but don't panic, this is easy to do and there is no cost. You can do these, if required, by yourself.

Most people in these circumstances would use the IRS Streamlined Procedures.

For a "Streamlined" procedure, it looks pretty damn complicated!  ???https://www.irs.gov/individuals/international-taxpayers/u-s-taxpayers-residing-outside-the-united-states

I'd hate to see the non-streamlined procedure!

Thanks for the suggestion. I'll look into it.

The first rule is: don't panic. The IRS haven't bothered about you for all these years so take your time and get this correct.

Guya was trying to ascertain if you truly were a USC simply because we sometimes have people who think they are a USC, and have been told so, even by the US Embassy, when in fact they are not. Sadly, in your case it appears you are.

Before you go any further, you need to know that ridding yourself of US citizenship is costly. At a minimum it will be $2,350. If you wish to continue on this path it effects the number of years you will need of US tax returns filed. If you wish to remain a USC, you will need to file 3 past years. If you wish to renounce you will need 5 years of past returns.

Edit: I should add that in addition to the tax returns, you may have to file with FinCEN regarding any UK financial accounts. 6 years of past filings is required no matter which direction you go, but don't panic, this is easy to do and there is no cost. You can do these, if required, by yourself.

Hi there.

I'm not panicking, don't worry. (Well, maybe my first post was a bit histrionic!) I'm just finding this entire process completely impenetrable and frustrating. There is no clear information anywhere! You'd have thought that the USA would want to make the process simple to understand and execute. I guess there must be a very effective accountancy lobby in the USA that is interested in maintaining itself! 

Yes, it would have been nice if Guya had been correct. Oh well, such is life.

I'm aware of the cost of a renunciation application, hence my question about the number of years of returns I need to make. If it's 5 years of returns, then I guess I can make my last 3 years of returns under the streamlined procedure, then make annual returns for the next two years, and renounce in 2019/2020? Or does it have to be 5 years of regular returns under the normal (non-streamlined) procedure?

FinCEN...? Is that the FBAR thing? So I can't do an FBAR along with my tax return to the IRS, it has to go somewhere else?

I guess there must be a very effective accountancy lobby in the USA that is interested in maintaining itself! 

I've never once heard any CPA complain!

I'm aware of the cost of a renunciation application, hence my question about the number of years of returns I need to make. If it's 5 years of returns, then I guess I can make my last 3 years of returns under the streamlined procedure, then make annual returns for the next two years, and renounce in 2019/2020?

Yes, that is correct.

FinCEN...? Is that the FBAR thing? So I can't do an FBAR along with my tax return to the IRS, it has to go somewhere else?

Yes, FinCEN refers to what in the past was the FBAR. It's now FinCEN form 114. FinCEN stands for the Financial Crimes Enforcement Network, but don't be alarmed, all who have foreign financial accounts totalling an aggregate of $10,000 must file this.

http://bsaefiling.fincen.treas.gov/NoRegFBARFiler.html

Let's try to answer some of your questions.

Streamlined filings must be submitted on paper. That doesn't prevent you from using online software and then printing the resulting forms off and mailing them in. Free File may work for you, but there are limitations on income, age, and foreign residence according to which you might be able to use.

https://www.irs.gov/uac/free-file-do-your-federal-taxes-for-free

There are also other more popular tax software packages available (TurboTax, TaxAct, etc.) which may have free options.

They will walk you through form filling, but you will need a basis of understanding to make sense of them. It's probably best to start with Publication 54.

https://www.irs.gov/pub/irs-pdf/p54.pdf

I hope you have a tolerance for reading somewhat stupefying language because you'll need that basic understanding.

Cost for professional preparation can range from $400 per year (the cheapest I've heard of, and cheap may be an appropriate word) to $thousands.

You need a separate return filed for each year.

Before starting, review what types of income and investments you may have. Some income is earned (a salary), and some may be passive (child benefits). Some investments (Stocks and Shares ISA) are toxic, and others (normal savings account or Cash ISA) are simple. What is tax free in the UK will likely NOT be tax free in the US.

You've not mentioned your marital status, but most persons married to a non-USC (UKC for example) file 'Married Separate'.

A basic starter kit, depending on your unique situation, would be:

Form 1040:
https://www.irs.gov/pub/irs-pdf/f1040.pdf
and instructions:
https://www.irs.gov/pub/irs-pdf/i1040gi.pdf

Probably Form 2555: (tax free for 'earned' income up to $100,000+)
https://www.irs.gov/pub/irs-pdf/f2555.pdf
and instructions:
https://www.irs.gov/pub/irs-pdf/i2555.pdf

Possibly form 1116: (for 'passive' income taxed by HMRC for tax credits against US tax, OR, for 'earned' income taxed by HMRC if you wish to file this form instead of 2555)
https://www.irs.gov/pub/irs-pdf/f1116.pdf
and instructions:
https://www.irs.gov/instructions/i1116/index.html

If you have any bank accounts in the UK (current or savings) you'll need to file Schedule B, especially Part III:
https://www.irs.gov/pub/irs-pdf/f1040sb.pdf

You'll also need Form 8965 to be excepted from paying a penalty for not having US health insurance: (yes, it defies logic!)
https://www.irs.gov/pub/irs-pdf/f8965.pdf
and instructions:
https://www.irs.gov/pub/irs-pdf/i8965.pdf

You may also find this publication useful:
https://www.irs.gov/pub/irs-pdf/p17.pdf

You will not need to file any State tax form.

Hope this gets you started, but review your situation carefully and how you wish to proceed.


 

*snip*

Wow, thank you so much for all those links and helpful summaries of the forms. You are an absolute star. I'll review that "stupefying" document - I should hold up, I read some Kant at University and his writing is almost completely impenetrable - and the other links.

I wish there was more than just a "like" on a forum that I could give you.   

But more importantly, have you read Kafka?

Given that you are a US citizen; did you read the US Constitution. The 16th Amendment, ratified in 1913 is what is giving grief; but it is hardly new. 

Unless the OP plans to move to the USA, the best option is to do nothing. Try opening an account at a small building society and avoid revealing your US citizenship if possible.

There is no known instance of the IRS chasing accidental Americans overseas so your risk is minimal. They are not interested in you as all they will get from you is a massive stack of forms and little if no money. If you go through the compliance process, it will cost you a great deal of time, money and frustration for no good reason.