# US naturalized citizen - filing taxes, FBARS, FATCA etc etc



## mr_wolf (Feb 3, 2021)

Hello,

I am a naturalized US citizen, now in my 40s. I obtained US citizenship through my parents when I was a teenager. From what I remember, I received a green card upon my first stay, and later applied for a passport, without taking any oaths etc. (as my parents already were US citizens at that time). America back then was the iconic "land of opportunity" (still is for many), in its "golden era" (at least I view it so) of the 80's and 90's, so my parents planned we will all end up living there. Life wrote a different scenario though. I have come back to my home country in Europe to finish highschool and university. This inevitably lead to putting roots here. At that point I thought that maybe, just maybe, I will go back to the US for a bit longer to at least try to make a professional career, and taste the American way of life in its full. But shortly after I graduated, the financial crisis of 2008 kicked-in, the US has become far less attractive in my eyes, so that idea died. I have been in the US maybe four times in my life, last time over 15 years ago. Mostly it was for work over vacations from school/university.
One day I was setting up a new account in the bank, and the clerk asked me a question about my "tax residence status". I thought this was some new piece of paperwork they had to fill in- procedures change all the time. So, because I have not worked abroad for many years, I paid all taxes in my home country, I have answered truthfully (at least in my opinion) that my tax residence is my home country. But it kept me wondering why did the bank start asking such questions. When I came back home, I looked up on the web, and found information about the FACTA treaty. This way I found out all about my tax responsibilities as a US citizen. The more I read, the bigger the headache I got. Not only should I state on the bank form I just signed a few hour ago that I am a US citizen (so my "tax residence" is not really my home country), but also I have to file taxes on money earned outside of the US, and file some annual report if an aggregate of my savings accounts exceeds 10k$ (even if the account is shared with a non-American)...? This way I came across this forum.
As I have mentioned above, I do not think I will ever go back to the US, maybe except for some one life-time vacation with the family. My main center of interests is my home country. My wife and kids do not have US citizenship, so they will not be able to come with me to the US if anything changes dramatically and we turn our lives 180 degrees around. I thought of passing the US citizenship onto my kids, so maybe when they grow up they have the opportunity to taste what I have ultimately not tasted in terms of the "American dream", but I do not comply with the rule stating I should have visited the US five years prior to their birth (I was in the US 15 years ago). Also now knowing what I know about the tax and reporting responsibilites, I don't think I would impose it on them. I earn around 20-25k$ yearly, rent a flat (no real estate owner), have a savings account around 12k$. So nothing really big. I do not have any US bank accounts, no debts in the US, no major family ties (so no possible ihneritance opportunities).
After reading all threads on the forum regarding taxes, the choices I have are:
1) Renounce US citizenship - which costs 2350$ (which is quite a lot for me) + I have to file taxes/FBARS 5/6 years back anyway in order to get some confirmation form I am clear from the IRS, don't care no more;
2) Keep US citizenship, file taxes/FBARS 3/6 years back, and going forward file with US taxes every year, change my FACTA status on my bank accounts (so they are reportable if the bank decides to keep them, and does not end up denying me service, as this sometimes happens to US citizens) - but as I read on the forum, this option may become more and more problematic and burdensome for me further down the road - if I buy a house, if I have enough money to invest in something (interest rates on simple savings accounts are taxable?), European pension plans are taxable in US eyes (?) etc. etc. I have no clue about US taxes, and they seem very complex, so I would probably have to hire a tax advisor. I doubt I would find any here good enough to know US taxes, so probably would have to go for a US-based one, which I assume costs a few hundred $ - and even so, there might be some legal differences he may not know on taxes in my home country.
3) "Lay low" - don't file or report nothing, don't change nothing, act as if my home-country's citizenship is my only one.

I would appreciate if you could advise what is the best choice in my case.


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## Bevdeforges (Nov 16, 2007)

No one can tell you which option is the "best" for you - certainly not without knowing a whole lot more about your personal life and situation than you probably ought to be revealing on a public forum like this.

Let me just say that you have to consider all the ramifications of all the options. Yes, $2350 is a lot of money - but some consider it an "investment" in peace of mind. OTOH, renunciation is not reversible if you, for any reason, change your mind. You would still be able to travel to the US, as long as you your home country passport shows a non-US birthplace.

The matter of backfiling US tax and FBARs is kind of moot. Lots of folks don't bother with that side of things after they renounce, and nothing happens to them. The one "risk" might be if you have financial assets of any sort in the US - bank accounts, investments or such things. But if you don't have any of those, once you walk out of the Consulate you're free. They send you your CLN (Certificate of Loss of Nationality), which you must guard carefully, since they won't re-issue it and apparently they don't even retain a copy anywhere. 

Your 3rd option is also a possibility. Unless you get famous like Boris Johnson or something and flaunt your US nationality just before selling a very expensive house, you should basically be OK.


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## mr_wolf (Feb 3, 2021)

Thank you for your reply. I understand the choice is solely mine, with all of its consequences. I would only like to know a bit more about what these consequences might be, and the likelihood of their occurence.

I have a few more questions.

Filing.
If I were to file, as I understand the Foreign Earned Income Exclusion would apply in my case, because my income is well below the ca 100k$ threshold. But to claim FEIE, I would have to be the party starting the filing of my taxes. If the IRS contacts me asking "why are you not filing", I would not be able to claim FEIE anymore, even if I decided to backfile- correct? What "form" would I have to file then?
If I fail to back-file, the IRS contacts me about non-complying, and it turns out I owe 0$ tax - do they impose any fine? Or the value of the fine depends on the due tax (so X% out of 0 is 0)?
FEIE only covers earned income (so job contract, sole trader). But it does not cover any gains from capital. So if I keep whatever small savings I got in my bank, and there is some small interest on it (although it is alread taxed here) - this small value would have to be documented on another form, and undergo taxation on US terms?
Is the 3 year back-filing period some kind of "standard" on overdue filing? Or the 3 years are part of some kind of "amnesty program" for non-filers, which might come to an end?
If I inherit property in my home country (and pay taxes from acquiring it), does it get taxed in the US as well- so I have to fill in another form if such thing happens?
How much does a tax-advisor in the US take for preparing your tax forms? (if I were unable to do it myself)
Is it really such a burden later on to file your taxes each year as an expat?

Renouncing.
If you only have to confirm that you are compliant 5 years back, and they do not even bother to check or take any further actions to undermine that statement, then it is quite straightforward, if it weren't for the price tag. Do you have to receive some form back from the IRS confirming you are compliant apart from the renounciation certificate?

Renewing my passport.
I have done this twice now at the embassy and cannot remember whether they requested my SS number before. I think that in some threads on the forum I saw this was always the case in terms of filing a request at an embassy/consulate. But I have also read there is some new law, introduced in 2017/18 or so (so after I renewed last time), that you must provide the SS number now (previously you could enter 0s if you did not remember your SS number or not have it issued at all), as they make some kind of check-up in the Treasury Department on you regarding overdue taxes (above 50k$). Can this check-up have any implications like "oh, look, this guy never filed his taxes, let's ask him why"? Or they just type the number into some database of debtors and if you are clear in the books, they do not bother asking other questions? I have a SS number, so putting it on the form will not be a problem.

Other in regards to filing/reporting.
As I stated, I am living a simple life, not one of a millionaire. And if I win a lottery and get those millions, I will probably come to terms with US taxes, as I will afford to hire the best tax advisor.
What are the chances the IRS or other US agencies will ever have any interest in contacting me regarding not filing taxes or reporting FBARS?
I do not have ANY financial ties to the US - bank accounts, property - nothing. So how will they acquire any fines/penalties if any are issued
What means do they have to check how much I have on my bank accounts (can they as a foreign-to-where-I-live-instutution?) and whether I need to report FBARs, how much income I have, what property I own?
How does the IRS check your filed taxes from income abroad? Do you have to show tax forms you submitted in the country you filed your taxes? Or they just take your word for what you file?

It seems to me the most reasonable now for me is to take my time and keep the status-quo. Act as only a citizen of my home country. Hopefully the future brings changes for expats and Accidental Americans, a residence-based taxation system, or at least creating some legal concepts regarding US Citizens who left the US a long time ago, never or hardly lived there, but are forced to comply with a costly and to some extent painful and costly proces of tax-complience. Although looking at the past years, hopes are small. Both political parties had possibilities of making the change, yet they chose to ignore the problem many US citizens living abroad are facing.


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## Bevdeforges (Nov 16, 2007)

mr_wolf said:


> What are the chances the IRS or other US agencies will ever have any interest in contacting me regarding not filing taxes or reporting FBARS?


Basically, 0 to none. Unless someone in the US notifies the IRS that you have income from the US there is very little way for the IRS to even know of your existence, certainly not of any foreign bank accounts or whatever. 

The IRS tends to operate on a "shock and awe" basis. Big press releases publicizing arrests made for failure to file, generally shortly before the filing deadline in the US - but there is little interest in that sort of thing outside the US. (Canada may be the sole exception just because it's so close.) FATCA reporting for banks and financial institutions overseas was supposed to scare the overseas residents into filing because they "expected" that the foreign banks were handing over the same information that US banks hand over - but in practice the information "exchange" is very limited and so far at least there is no reason to believe that anyone does any sort of routine run of info received from foreign banks against US filing information.


mr_wolf said:


> It seems to me the most reasonable now for me is to take my time and keep the status-quo. Act as only a citizen of my home country.


I think you're probably right there. As long as you don't owe any taxes, you can pretty much keep everything on hold. As you say, the fine for "late filing" is a %age of the amount due, so even 500% of 0 is still 0. The issue of "failure to file" probably wouldn't come up unless they somehow came to believe that not only didn't you file, but you owed a bunch of taxes. (And by "a bunch" I mean something well over that $50,000 threshold where they can take away your US passport.)

But you don't actually have to "prove" that you have filed anything in the last 5 years. That comes later - after renunciation - when you are supposed to file a form 8854 (to prove you are or are not a "covered expatriate" based on income or asset levels). I know a number of people who renounced and never bothered with the 8854 form. There are valid reasons that you would not have to file, so you could easily be "fully compliant" without having filed a return for years.


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## Nononymous (Jul 12, 2011)

I'll post a more detailed answer later today. Your situation is pretty typical. The good news is, you have a non-US birthplace on a non-US passport, and it doesn't sound like you have any US assets or potential US inheritance to worry about (but more on that later). So you can safely forget about the IRS, if you want to.

Here is an overview of your options:

1. Do nothing. Just pretend that you are not a US citizen. Doing so requires lying to banks if they ask the FATCA question, but that's generally not a big deal. If you have told a bank that you are a US citizen, it's not the end of the world, just close all the accounts and start fresh somewhere else. (This is what I do, and what I've recommended that my child also do.)

2. Renounce US citizenship. The bad news is, this costs $2350. The good news is, if you file any sort of return for 2020 you are probably entitled to the $1800 stimulus (likely soon rising to $3200) which will nicely offset the cost. Otherwise you are not required to be in tax compliance to renounce US citizenship. You could do the whole 5 years of returns plus Form 8854 thing to formally exit the US tax system after renouncing, or you could just forget about it.

3. Become a law-abiding, tax-filing US citizen until the day you die, despite not living there. This is a stupid idea, please ignore it.


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## canadiannephew (Feb 1, 2021)

Nononymous said:


> If you have told a bank that you are a US citizen, it's not the end of the world, just close all the accounts and start fresh somewhere else. (This is what I do, and what I've recommended that my child also do.)


I believe once you've told one bank, all the other banks in the country know


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## Nononymous (Jul 12, 2011)

canadiannephew said:


> I believe once you've told one bank, all the other banks in the country know


That is not my understanding. In Canada, at any rate, banks query their customers for US person status (thankfully it's very easy to lie to them as they don't ask for ID showing birthplace) then report FATCA data to CRA; CRA in turn collates data from all banks and sends it off the IRS. CRA has neither the legal authority nor the mechanism to transmit information about individuals' US person status to all other banks in the country.


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## canadiannephew (Feb 1, 2021)

Nononymous said:


> That is not my understanding. In Canada, at any rate, banks query their customers for US person status (thankfully it's very easy to lie to them as they don't ask for ID showing birthplace) then report FATCA data to CRA; CRA in turn collates data from all banks and sends it off the IRS. CRA has neither the legal authority nor the mechanism to transmit information about individuals' US person status to all other banks in the country.


It's not the bank that forwards the information, it's the CRA.
When another bank sends info to the CA excluding the US stuff, the CRA asks them why they didn't include it


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## mr_wolf (Feb 3, 2021)

canadiannephew said:


> It's not the bank that forwards the information, it's the CRA.
> When another bank sends info to the CA excluding the US stuff, the CRA asks them why they didn't include it


From the research I've done, it varies between country, and per financial insitution. Some banks choose to log-in to some IRS platform to provide this data directly (at least that was some idea, I don't know whether this platform is operational), others report to the local revenue administration. But from what I understood, the reporting only takes place when you exceed the 50k threshold on the account/accounts in one bank/bank group (having one owner and sharing info on clients; if you have accounts in various banks, then it is hard for them to tell whether you exceeded the 50k overall limit). Otherwise the statement is just kept in the bank, your account is flagged as reportable, but not really reported to the revenue administration until the threshold is reached.
As I mentioned, because they got me by surprise in the bank, I answered my tax residence is my home country. You have to show an ID/other document here to open up an account, but I do not have a US-birthplace, so nobody really considers me an American citizen.


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## Nononymous (Jul 12, 2011)

canadiannephew said:


> It's not the bank that forwards the information, it's the CRA.
> When another bank sends info to the CA excluding the US stuff, the CRA asks them why they didn't include it


Could you cite a source for that information?

There's a gigantic flaw in your logic: under FATCA a bank will not send information "excluding the US stuff" to CRA, because if a customer is not identified as a US person, there's no reporting required, and nothing to send to CRA (in other words, the only information that is ever sent to CRA is "the US stuff").

You may be confusing FATCA and CRS (similar reporting for tax residents of most other countries, which the US is not a part of). I don't believe that CRA does any cross-checking. They don't even look at the data - I know this from seeing results of an Access to Information Request - but simply bundle it up and ship it south of the border.


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## Nononymous (Jul 12, 2011)

mr_wolf said:


> From the research I've done, it varies between country, and per financial insitution. Some banks choose to log-in to some IRS platform to provide this data directly (at least that was some idea, I don't know whether this platform is operational), others report to the local revenue administration. But from what I understood, the reporting only takes place when you exceed the 50k threshold on the account/accounts in one bank/bank group (having one owner and sharing info on clients; if you have accounts in various banks, then it is hard for them to tell whether you exceeded the 50k overall limit). Otherwise the statement is just kept in the bank, your account is flagged as reportable, but not really reported to the revenue administration until the threshold is reached.
> As I mentioned, because they got me by surprise in the bank, I answered my tax residence is my home country. You have to show an ID/other document here to open up an account, but I do not have a US-birthplace, so nobody really considers me an American citizen.


You did the smart thing, albeit accidentally. Congratulate yourself on having had the instincts to answer "correctly" when asked about tax residency. At some banks it's a flat-out citizenship question, which can trap the unwary. Lots of people know that they are US citizens but don't realize that this also makes them US "tax residents" - I'd like to believe that the smarter banks do this on purpose, keep it deliberately vague.

A note about FATCA: in some countries (those with what is called a Model 1 IGA - Intergovernmental Agreement) banks report FATCA data directly to the IRS. In many (most?) other countries, banks doing so would violate national privacy laws and be subject to legal challenges. The nasty workaround (the Model 2 IGA) is to have banks report to the national tax national authority, which then forwards the data to the IRS once per year. As I understand it banks are not required to report accounts under $50k but it's possible that some do, because they'd rather just dump the data than apply a filter or risk sending incomplete records. Note also that many tax-deferred savings or investment accounts (like the ISA in the UK or RRSP/RESP/TFSA etc. in Canada) are specifically excluded from FATCA reporting, under each country's IGA. That being said we don't know exactly what banks do and don't report, which is a problem.


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## Nononymous (Jul 12, 2011)

A few more thoughts on your situation:

Bev really covered everything, but I'll just reiterate a few points.

If you are not subject to FATCA reporting, the IRS receives zero information about your economic activity in Country X. Nothing about any form of income, assets or capital gains after the sale of a home. It's essentially an honour system - they only know what you tell them. (If you are subject to FATCA reporting, the only information the IRS receives is the year-end balance plus any interest/dividend income for FATCA-reportable accounts only - nothing else.)

Penalties are with very few exceptions completely impossible for the IRS to collect, assuming no US assets or income sources, of course. (The exception being if you lived in Canada, France, Denmark, Netherlands or Sweden and were *not* a citizen of that country, and you were extremely unlucky, you could be subject to collection assistance by the national authorities.) The US government cannot simply march into another country and stick its fingers in someone's bank account.

In your situation, you are completely off the radar, and you should probably just keep it that way. If you wanted to renounce you could do it without any tax filing at all. But honestly, as long as you can hide your US citizenship you won't have FATCA issues, so why bother? To save money you could of course file something for 2020 to claim the stimulus benefit ($1800 now, $3200 soon) to cover the fee.

Are your parents still in the US, and do you expect to inherit anything from them? If they have left the US but expect pensions or Social Security, they themselves might want to stay in compliance. If they have left and have nothing in the US, they too can revert to non-compliance. In this case do ensure that US citizenship is kept secret from any estate lawyers, who may get all fussy about hiring accountants to file US returns as part of that process.

Finally, children. Here are the rules about how you do or do not transmit citizenship to children born outside the US: Acquisition of US Citizenship at Birth by a Child Born Abroad. I don't believe there's any rule about your having been outside the US too many years before the birth of the child; rather the important question is whether you lived 5 years in the US as a citizen, 2 of which after age 14. I suspect you don't qualify, but if you did it's still not a problem: as long as the birth is never registered with the consulate, the US government knows nothing of the child's existence. And even if you signed them up for an SSN and passport, it doesn't really matter because they can do what you have done: use their non-US citizenship with non-US birthplace to safely ignore FATCA and the IRS.


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## mr_wolf (Feb 3, 2021)

Thank you Nononymous for your feedback and confirming my choices as the ones most sensible giving the circumstances. I do not know much about US taxes, or the mechanisms on how the IRS works (especially in terms of operating on foreign grounds), so good to know all the things you have laid out. Never thought I would have any interest in knowing how this works

As for my parents, they will be retiring soon, and leaving the US, as they own a house here. They do not have any property in the US, so nothing keeping them there. Even if one day I will be inheriting something from them, it will not be in the US. They will be receiving pensions, but the decision on what to do (whether to stay compliant or forget about it) is still theirs to think of and make.

As for the children- they are young. So it still gives me some time to decide on what to do about their possible American citizenship. Maybe even have a discussion with them when they grow up a bit, and make the decision with mutual consent (don't have to make up our minds until they are 18). Also time to see where things are going in the world in the meantime...
I have been doing very quick research on the possibilities of obtaining citizenship for them, so I must have misread something. You are correct- there is an obligation of proving 5 years of presence on US soil, not being in the US 5 years prior to the child's birth. That does not apply to me either way, as I have only been in the US for short whiles. But I remember finding some information that obtaining citizenship through grandparents works the same way (the requirement is a US parent having custody over the child who cannot fails the "physical presence test" - so that would be me, and a grandparent US citizen with proven 5-year presence in the US - that would be either of my parents). Is this still an option, as I cannot see this on the page regarding acquisition of citizenship you mentioned in the above post?


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## mr_wolf (Feb 3, 2021)

Sorry, just read through the "acquisition through grandparent" stuff and the child must enter the US in order to make the application- you cannot apply for citizenship in an embassy.


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## Nononymous (Jul 12, 2011)

The grandparent route is fairly complicated, for those who qualify - the child essentially "immigrates" by entering the US with the sponsorship of a grandparent, then leaves again once the citizenship has been acquired. Definitely a bit of a process.


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## Bevdeforges (Nov 16, 2007)

I notice you mention the kids making a choice about US citizenship when they turn 18. That was the old rule a LONG time ago. But nowadays either the kids are US citizens from birth (i.e. if born abroad, with at least one parent eligible to transmit their nationality) or they can choose to be naturalized either through residence in the US or via the grandparent route (which is, as Nonoymous notes, pretty complicated).


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## Moulard (Feb 3, 2017)

Above the age of 18 a parent cannot do a Consular Report of Birth Abroad, however I do believe in that instance a person who has reached their majority can still apply for a certificate of citizenship on their own behalf and thus "reclaim" their US citizenship so long as they can provide proof that they were a US citizen at birth under INA 301 or 309.


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## mr_wolf (Feb 3, 2021)

Bevdeforges said:


> I notice you mention the kids making a choice about US citizenship when they turn 18. That was the old rule a LONG time ago. But nowadays either the kids are US citizens from birth (i.e. if born abroad, with at least one parent eligible to transmit their nationality) or they can choose to be naturalized either through residence in the US or via the grandparent route (which is, as Nonoymous notes, pretty complicated).


What I meant by that is they would have time until they were 18 to be naturalized as children of a US citizen (because 18 is the cap on when I can naturalize them being a US citizen). So as teenagers they could at least have some degree of understanding pros and cons of obtaining dual citizenship and agree/not agree to them. In contrary to me "imposing" a dual citizenship on them when they are very little and understand none of the implications.

But I wrote that because I thought the "grandparent route" could simply be an application made in the embassy, with some conditions met (parent being US citizen + grandparent being able to confirm 5-year stay in the US). That is not the case though, partially due to the complexity. From what I read yesterday it may take up to a year to prepare all paperwork after filing. Also the kids have to take an oath, so would have to work on their English. This option will also be out of reach soon, when my parents return for retirement (although the presence of the grandparent is not required, only documents confirming the 5-year stay, so we could do this by ourselves on some short trip to the US or something). Don't know whether children would be able to enter on tourist visas to complete the procedure, so we can do this when say going on a vacation, or it would have to be an invitation from a resident of the US (then you get another type of visa, allowing for far more - whatever that is called). So it seems there will be slim chance of making my children US citizens.


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