Accidental American tax problems have two main solutions. An accidental American who wants to keep US citizenship can catch up through the Streamlined Foreign Offshore Procedures: three years of returns, six years of FBARs and no penalty. One who wants to leave the US system can renounce and then use the IRS Relief Procedures for Certain Former Citizens, which waive tax and penalties if net worth is under $2 million and six years of US tax total $25,000 or less.
An "accidental American" is someone who is a US citizen by law but has lived their life elsewhere. Typically they were born in the US to foreign parents who soon left, or born abroad to an American parent. Many discover their status only when a UK or UAE bank asks for a US taxpayer number. Because the US taxes citizens wherever they live, they find years of unfiled returns behind them. This guide compares the routes available and the conditions for each.
Who is an accidental American?
US citizenship arises in two main ways. Under the Fourteenth Amendment, almost everyone born on US soil is a citizen. In addition, a child born abroad to a US citizen parent can be a citizen from birth if the parent met the physical presence requirements in US nationality law. Neither route requires a US passport, a Social Security number or any wish to be American.
How people find out
The Foreign Account Tax Compliance Act (FATCA) requires foreign banks to identify customers with US indicators, such as a US place of birth, and report their accounts. As a result, UK banks routinely ask such customers for a US Taxpayer Identification Number or proof that they are not US citizens. That letter is often the first sign of a problem.
Accidental American tax obligations
A US citizen must file Form 1040 each year if their worldwide income exceeds the filing threshold, and must file an FBAR if their non-US accounts exceed $10,000 in total. For most people living in the UK, little or no US tax is due after the foreign tax credit. However, the filing obligations exist regardless, and the penalties for missed information returns can be far larger than any tax. Our FBAR and FATCA reporting page explains those penalties.
The two main routes compared
| Feature | Streamlined Foreign Offshore Procedures | Relief Procedures for Certain Former Citizens |
|---|---|---|
| Aim | Become compliant and stay a citizen | Leave the US tax system cleanly |
| Citizenship | Kept, unless you renounce later | Must already be relinquished, after 18 March 2010 |
| Returns required | Latest 3 years, plus 6 years of FBARs | Year of expatriation and the 5 years before |
| Net worth limit | None | Under $2 million at expatriation and at submission |
| Tax limit | None; tax and interest are paid | Aggregate tax of $25,000 or less over the 6 years |
| Prior filing history | Allowed | Must not have filed as a US citizen or resident |
| Tax and penalties | Tax and interest due; penalties waived | No tax, interest or penalties assessed |
| Conduct | Non-wilful, certified on Form 14653 | Non-wilful |
Route 1: the Streamlined Foreign Offshore Procedures
The Streamlined Foreign Offshore Procedures (SFOP) suit an accidental American who wants to keep citizenship, or whose finances exceed the relief limits. You file the most recent three years of returns and six years of FBARs, pay any tax and interest, and certify on Form 14653 that the failure was non-wilful. No penalties apply. The IRS sets out the terms on its Streamlined Filing Compliance Procedures page.
The Social Security number requirement
Streamlined returns need a valid taxpayer identification number. For a US citizen, that means a Social Security number. Someone who has never had one must apply first, usually through a US embassy's Federal Benefits Unit, which adds time. Our guide to the Streamlined Foreign Offshore Procedures covers the residency test and the package in detail.
Route 2: Relief Procedures for Certain Former Citizens
The IRS introduced these procedures in September 2019 for people who gave up citizenship without ever having been in the US tax system. They are described on the IRS page for Relief Procedures for Certain Former Citizens.
The conditions
All of the following must be met. You relinquished US citizenship after 18 March 2010. Your net worth was under $2 million at expatriation and when you submit. Your aggregate US tax for the year of expatriation and the five preceding years is $25,000 or less, after exclusions, deductions and credits. You have no history of filing as a US citizen or resident. Finally, your past failures were non-wilful.
What you file
You submit the six years of returns, including the dual-status return for the year of expatriation and Form 8854, together with required information returns and your Certificate of Loss of Nationality. If you qualify, the IRS assesses no tax, interest or penalties for those years, and you are not treated as a "covered expatriate". Our guide to the US exit tax explains what covered expatriate status would otherwise mean.
The order matters
These procedures apply to former citizens. Therefore, the renunciation comes first, at a US embassy or consulate, and the tax submission follows. The State Department charges a fee for renunciation, which has been under review, so check the current amount before booking. Renunciation is irrevocable and has immigration consequences, so take legal advice as well as tax advice.
What about doing nothing?
Some accidental Americans choose to ignore the issue. The practical risks have grown. Banks may close or restrict accounts without a US taxpayer number. FATCA reporting means the IRS may already hold account data. Additionally, once the IRS makes contact about unfiled returns, the streamlined route is no longer available. In our experience, acting before that point costs far less than acting after it.
An illustrative case
Consider an illustrative woman born in Texas to British parents who returned to the UK when she was two. The facts are illustrative. She is 41, lives in Leeds, earns £55,000 and owns a home and a workplace pension worth well under $2 million combined. Her UK bank has asked for a US taxpayer number. She has never filed a US return. If she wishes to end her US ties, she can renounce and then use the relief procedures; her six years of US tax, after foreign tax credits, are far below $25,000. If she wishes to keep citizenship, perhaps for her children, SFOP is the route. Our guide to which years streamlined filing covers shows what that package includes.
If you have just discovered that you are a US citizen, book a consultation with our streamlined compliance team. We assess both routes and prepare whichever submission fits.
Frequently Asked Questions
What is an accidental American?
An accidental American is a person who holds US citizenship by law, usually through birth in the United States or through a US citizen parent, but has lived their life in another country. They are subject to US tax filing rules even if they have no US passport or Social Security number.
Do accidental Americans have to file US tax returns?
Yes. The United States taxes its citizens on worldwide income wherever they live. An accidental American must file Form 1040 if their income exceeds the filing threshold, and an FBAR if their foreign accounts exceed $10,000 in total.
Can an accidental American use the streamlined procedures?
Yes. The Streamlined Foreign Offshore Procedures are available to non-wilful taxpayers living abroad who meet the non-residency test. They file three years of returns and six years of FBARs with no penalties, but they need a valid Social Security number first.
What are the Relief Procedures for Certain Former Citizens?
They are IRS procedures, introduced in September 2019, for people who relinquished US citizenship after 18 March 2010. If net worth is under $2 million, aggregate US tax for six years is $25,000 or less, there is no prior US filing history and the failure was non-wilful, no tax or penalties are assessed.
Do I have to renounce before using the relief procedures?
Yes. The relief procedures apply only to former citizens, so you must relinquish US citizenship first and then submit six years of returns with Form 8854 and your Certificate of Loss of Nationality.
Can my UK bank close my account if I am an accidental American?
It can. Under FATCA, foreign banks must identify and report US account holders, and many ask for a US Taxpayer Identification Number. A bank may restrict or close an account if the customer cannot provide one or show that they are not a US citizen.
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