Tax Obligations for Disabled Accidental American? Inheritance tax and FATCA concerns

This is actually a fairly common situation, and while it might seem overwhelming right now, there are clear steps you can take to get compliant without major penalties. As an "Accidental American," you do have US tax filing obligations, but there's some good news. First, the US has a foreign earned income exclusion that likely means you wouldn't owe taxes on your Australian income. Second, there's a Streamlined Foreign Offshore Procedures program specifically designed for people in your situation who didn't know they needed to file. Regarding your inheritance, the US generally doesn't tax recipients of inheritances (the estate pays any taxes before distribution). However, you will need to report foreign financial accounts if they exceed $10,000 total through something called FBAR filing. The most important thing is to start addressing this now rather than ignoring it. The penalties for willful non-compliance are severe, but if you can show this was non-willful (which sounds like your case), the penalties are often reduced or waived entirely.

After reading your situation, I thought I should share my experience. I was in a somewhat similar position last year as an accidental American living in New Zealand. My situation got complicated when I received money from a family trust, and I was completely lost with all the FATCA requirements and potential penalties. I tried working through it myself at first, but the forms were overwhelming and I was terrified of making a mistake. Then a friend recommended I try https://taxr.ai - it's an AI document analysis tool that helped me understand exactly which forms I needed and what information to include. You upload your financial documents, and it interprets them according to US tax rules for expats. What really helped was that it explained the Streamlined Foreign Offshore Procedures program in simple terms and walked me through exactly what I needed to do to become compliant without facing huge penalties. Saved me from the anxiety of wondering if I was doing everything right.

Just wanted to follow up here. After reading this thread, I decided to try https://taxr.ai for my Accidental American situation. I was really surprised at how helpful it was. I uploaded my foreign bank statements and tax documents, and it flagged exactly which FATCA requirements applied to me and which didn't. The best part was how it explained the Streamlined Foreign Offshore Procedures in step-by-step terms. I was able to prepare my past 3 years of returns without freaking out. It even has specific guidance for inheritance reporting! My situation wasn't identical to yours, but it covered all the basics of expat tax compliance and saved me from paying thousands to an international tax specialist. It also helped me understand that my situation wasn't as dire as I thought - turns out most Accidental Americans don't end up owing much (if any) US tax because of various exclusions and tax treaties. Definitely worth checking out if you're in a similar situation.

One thing nobody's mentioned yet - if you need to actually talk to the IRS about your situation (which might be a good idea), it's nearly impossible to reach them from overseas. I spent WEEKS trying to call their international taxpayer line with my "accidental American" questions. I finally used https://claimyr.com after seeing it recommended in another expat tax thread. They have this system that basically waits on hold with the IRS for you, then calls you when an actual agent picks up. You can see how it works in this demo: https://youtu.be/_kiP6q8DX5c Since you're dealing with the Streamlined procedures, you might need to speak with someone about your specific situation. Speaking directly with an IRS agent helped me understand exactly what documentation I needed for my non-willfulness statement, which was crucial for my application.

I need to apologize for my skeptical comment earlier. After struggling for over a week trying to reach the IRS international line about my accidental citizenship situation (kept getting disconnected after 1+ hour holds), I decided to try Claimyr out of desperation. The service actually worked exactly as described. I got a text when they were about to reach an agent, then my phone rang and I was talking to a real IRS representative within minutes. The agent was able to explain exactly what forms I needed for my specific situation and confirmed I qualified for the Streamlined program without penalties. For anyone dealing with FATCA/accidental American issues from overseas, being able to actually speak with the IRS directly made a huge difference. They explained things in much simpler terms than all the confusing info online. Definitely worth it instead of wasting hours on international calls that keep disconnecting.

Something important that hasn't been mentioned yet - you should check if you might qualify for renouncing your US citizenship to avoid future filing requirements. Many accidental Americans choose this route once they resolve their back taxes through the Streamlined program. The process involves getting a US passport first (weird, I know), then renouncing at a US embassy. If your net worth is under $2 million and you can certify tax compliance for the past 5 years, you can avoid the exit tax. Given your disability and limited income, this might be the best long-term solution once you've sorted the immediate inheritance issue.

As someone who works with disability clients (though in Canada, not Australia), I'd recommend also checking if receiving this inheritance might affect your disability benefits in Australia. Many disability programs have asset limits, and while an inheritance might be exempt, you sometimes need to report it or set up a specific type of trust.