# US tax situation



## John.Chown (Jun 15, 2019)

Hi all,

I have lived in the UK for nearly 15 years and haven't filed a return since the first year. My wife and I filed the first year because we had spent a partial year working in the US before moving here. We revisited the situation the next year and found that we didn't owe any money so we didn't file a return. I was not a very sophisticated tax-payer at that point, I'd only ever filed the 1040EZ and hated to think and talk about money, taxes or any of that guff. My wife was a UK national and gave me permanent residency. I have since then lived in the UK with little contact with US nationals having settled into a rewarding post working in a UK government department, so discussions about US taxes and the need to file just didn't arise.


Fast forward 14 years later and I learn that I should have been filing my US taxes all along. I suspect that I won't end up owing anything as I don't make more than £50k a year. Looking at the IRS website, it looks like I have two options open to me:

1) Continue as I am and hope that the IRS doesn't come down on me with big penalties. They are said to be able to assess a $100k penalty for non-compliance. I don't think there is much tax I'd need to pay if any. But a large penalty could change my retirement plan entirely.

2) File streamlined: most recent 3 years and 6 years FBARs. Hope that the IRS doesn't try to stick it to me in some way. They are said to be able to audit the whole 14 year period within the first 6 years after filing streamlined. I think there is little benefit for them to do this as they would only likely be able to assess penalties as my income is not high enough to need to pay tax in both UK and US.

I think that I am capable of filing a return for myself but I’d need to invest a good deal of time and effort. I’ve spoken with a tax consultant about my problem and they have quoted over £8,000 to file streamlined for me. That is definitely too much to not worry about.

I’m visiting the US in a couple of months and I’m a little worried that US Immigration might arrest me at the border for tax fraud. Is there any precedence for this?

Any advice on this matter would be greatly appreciated.

Cheers,
John


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## underation (Oct 25, 2018)

John.Chown said:


> Hi all,
> 
> I have lived in the UK for nearly 15 years and haven't filed a return since the first year. My wife and I filed the first year because we had spent a partial year working in the US before moving here. We revisited the situation the next year and found that we didn't owe any money so we didn't file a return. I was not a very sophisticated tax-payer at that point, I'd only ever filed the 1040EZ and hated to think and talk about money, taxes or any of that guff. My wife was a UK national and gave me permanent residency. I have since then lived in the UK with little contact with US nationals having settled into a rewarding post working in a UK government department, so discussions about US taxes and the need to file just didn't arise.


I was in a similar position when I first heard of US citizenship-based taxation, a few years ago — except that I had been in the UK much longer.

I reasoned that the IRS could easily have got in touch with me if they wanted me to file pointless bits of paper every year. I renounced, to be able to open bank accounts normally, and filed the expatriation form, but I didn’t file any 1040s.



> Fast forward 14 years later and I learn that I should have been filing my US taxes all along. I suspect that I won't end up owing anything as I don't make more than £50k a year. Looking at the IRS website, it looks like I have two options open to me:
> 
> 1) Continue as I am and hope that the IRS doesn't come down on me with big penalties. They are said to be able to assess a $100k penalty for non-compliance. I don't think there is much tax I'd need to pay if any. But a large penalty could change my retirement plan entirely.


This is the only option you need. They can’t assess tax due, if you don’t have any US-source income you’re not paying tax on. There _is_ no tax due.




> I’m visiting the US in a couple of months and I’m a little worried that US Immigration might arrest me at the border for tax fraud. Is there any precedence for this?


They can’t arrest US citizens for not filing. They have no idea whether you needed to file. Many US citizens have no requirement to file because their taxable income is under the threshold for filing. 

Don’t worry - just decide whether you want to keep the citizenship or not. There are pros and cons both ways.


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## Bevdeforges (Nov 16, 2007)

Let me just add a little bit to the reply you've already gotten here.

First of all - there is no risk of being detained on entry to the US for not having filed. There are lots of reasons for that - including prohibitions on US government departments sharing information like that. But also because there are many reasons why a US taxpayer living abroad may not have needed to file a tax return in a given year.

OK, ideally, your best option (if you want to dot your i's and cross your t's) would be to file Streamlined. Which is actually "current year plus 3 years in arrears" plus the 6 years of FBARS. Unless you have really complicated finances to report, it should be possible to prepare your own tax returns. The charges that tax preparers make for streamlined filings are outrageous for most of us poor slobs.

But OTOH, it's rare that the IRS does much with the streamlined filings other than file them away (as long as you owe little or nothing) and clear your file. 

I note, too, that you work for the UK government. In that case, your primary tax liability is to the UK government. You'd have to check the US-UK tax treaty for the details, but it's sort of a double protection for you as far as owing anything to the US government is concerned. (Usually, even foreign government employees working in the US only owe income taxes to their home government.)

There is also the principle of "render unto Caesar" - whereby you file your US returns giving them only what they "need" to know to figure out that you're making a good faith effort to comply. (No paid tax adviser can do that for you.) The first couple of times through are the worst - just for getting yourself organized and getting familiar with how to fill them out. If you think you may ever "need" to return to the US (for residence) it's worth considering - at least before considering spending the $2350 it currently costs to renounce your US citizenship.

But doing nothing is also a viable option for the time being. The IRS has little or no "reach" outside the US - especially now that all the "international" IRS offices have been closed down and their personnel rotated back to the US.


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## underation (Oct 25, 2018)

Bevdeforges said:


> I note, too, that you work for the UK government. In that case, your primary tax liability is to the UK government. You'd have to check the US-UK tax treaty for the details, but it's sort of a double protection for you as far as owing anything to the US government is concerned. (Usually, even foreign government employees working in the US only owe income taxes to their home government.)


The UK treaty concedes taxing rights to the US if the UK government employee is both a citizen and a resident of the US. 

If the OP decides to start filing, while resident in the UK, I would suggest he should simply report his salary and claim credit for the UK tax paid - leaving nothing due to the US. 



> There is also the principle of "render unto Caesar" - whereby you file your US returns giving them only what they "need" to know to figure out that you're making a good faith effort to comply. (No paid tax adviser can do that for you.)


I suggest the problem with that approach (selective reporting) is the penalty-of-perjury jurat on the 1040. Of course the IRS will probably never know and probably doesn’t care, but why file perjuriously? 



> If you think you may ever "need" to return to the US (for residence) it's worth considering - at least before considering spending the $2350 it currently costs to renounce your US citizenship.


I agree that if the OP decides to keep the citizenship it would be reasonable to comply with the obligations attached to the citizenship - including the reporting obligations. At the simplest level, if you use the US passport, and want to keep using it, it’s reasonable to file the tax returns. But it’s also reasonable not to file, if you don’t owe US tax, since in that case it’s merely a pointless paper exercise.



> But doing nothing is also a viable option for the time being. The IRS has little or no "reach" outside the US - especially now that all the "international" IRS offices have been closed down and their personnel rotated back to the US.


I would say, doing nothing is a viable option because the US doesn’t have taxing rights on the UK-source income of a UK resident. No tax is due. It’s not a matter of not getting caught - there’s no wrongdoing to get caught for.


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## John.Chown (Jun 15, 2019)

Thank you underation and Bevdeforges for your helpful replies. You've certainly made me feel better about my situation.

The main issue that I now see is if I ever decide to go back to the US or if I should inherit.

It looks like job one is to finally apply for UK citizenship.


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## underation (Oct 25, 2018)

John.Chown said:


> It looks like job one is to finally apply for UK citizenship.


Once you’ve got citizenship, if you retire in the UK your UK government pension will be exempt from US taxation, and so will your UK State Pension. If you receive US SS, that too will be taxable by the UK alone - a mixed blessing since the UK taxes it at your top rate.

Just don’t sign up for any ISAs - especially stocks-and-shares ISAs - if you decide to start filing.


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## Nononymous (Jul 12, 2011)

I'd just ignore it for now, but slowly educate yourself about the issues. 

Inheritance won't be a problem unless it's US property or securities, then maybe. If it's just cash then the estate wires it to the beneficiary.

Do you have a US birthplace? If so, be aware that once your banks learn of your US citizenship (or if they look at your ID and/or ask when you open a new account) then you may have account information reported to the IRS under FATCA, and may also face restrictions on what types of account you can open. The only cure for these two problems is renunciation. But FATCA reporting is no reason to become tax compliant. If you have no US assets or income, the IRS cannot do anything to hurt you.


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## underation (Oct 25, 2018)

> ...face restrictions on what types of account you can open.


Indeed. As I understand it, FIs need to avoid selling non-UK-reporting offshore funds (including non-UK-reporting US funds) to US citizens. 

In brief - if the FI doesn’t want to sell it to you, you’re probably better off without it.


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