Hi folks, unwittingly got myself into a bit of a tax mess.
I lived in the US under a student visa 2015-2017, moving back to the UK full time in summer 2017. I moved back to the US in 2022.
This year, I have received a CP63 saying my refund is on hold because I did not file 2019 and 2020 taxes. I didn't file because I thought I didn't have to - I wasn't a US person, I lived in the UK, had no US-sourced income, didn't have a green card.
I see in my account "wages & transcripts" for these years. All but one of the amounts listed refer to RSU income from my job in the UK. The entire period from grant to vest I was a UK resident, so none of this income is taxable by the US.
In addition, I see $11 interest from a savings account I used to have which is just a miss on my part.

How bad of a mess am I in? I'm not sure what evidence they will need for the RSU income being non-taxable. Do I file with $0 for 2019 or just a letter explaining that I do not need to fiel? Then I need to file 2020 with $11 income 5 years late...how bad will the fine be?

Find a reputable CPA?

Others here know a lot more than me: advice.

I think what happened is that the IRS do not know that you were no longer a tax resident after you left the USA in 2017, so all they know is that no tax return was filed when they think it should have been. I believe you are supposed to submit an IRS form when you leave the US and are no longer subject to taxes (a sailing permit, or something like that). Normally it wouldn’t matter that you didn’t unless you return and become subject to US tax again.

There is no statute of limitations when a return has not been filed (and they think it should have been). Not sure why they only care about 2019 and 2020 but perhaps those were the only years in which income was reported to them. Perhaps your RSU income and/or interest? Anyway, I think all you need to do is to file the missing years as a Non Resident Alien provided you meet the criteria for an NRA. If so, there should be no tax to pay provided none of the income was generated in the US. If there is no tax due in the missing years then no fine or penalty will be assessed. However, the minimal interest of $11 may mean that tax is due because I don’t think you can claim the standard deduction as an NRA. There are multiple penalties and fines for failure to file when tax is due and all are based upon the amount of tax due. The tax due on $11 worth of interest will be about $1 and although the penalties and fines increase over time, it caps out at 100% of the tax due so I don’t think you need to worry about that, unless the RSU income originated in the US.

Bottom line is you should be able to fix this easily, but I would get in contact with a good domestic CPA and have them advise. Perhaps you can file the form that should have been filed when you left retrospectively, but I suspect the path of least resistance is simply to file all the missing years as a NRA using a 1040 NR. There may be other options. But, easily resolvable and not a major issue.

Thanks GG, appreciate your advice.
This year's taxes were prepared by a Big 4 company who were provided to me by my employer for the first few years after moving to the US in 2022. I am waiting to see if they will fix this for me and file the missing years. I suspect they'll say no, they're only contracted for 22/23/24/25. If they say no I'll talk to a local CPA to get it fixed.
Really appreciate the reassurance!

It may be a bit more complex. You should look at that RSU income more closely and what is was and its source. If it was UK source income as you imply, the IRS would not be notified and it wouldn't show on your W&I transcript. If it was US source income, then you would need to file a NR return (if you were non-resident) with that income declared and deal with it appropriately, e.g. claim a Foreign tax credit for the UK tax paid on that income.

I am happy to be corrected, but RSU income is apportioned to source according to the ratio of residence days between grant and vest. In this case, I was completely resident in the UK from grant to vest, and therefore it is entirely UK income.
My brokerage had a valid W8 BEN on file for me, and erroneously filed a 1099-B with the IRS which triggered the issue,

In fact...as per IRC Section 871(i)(2)(A) I actually don't think the $12 is even taxable either.

You are correct that according to the tax treaty US interest will only be taxed in the UK if received by a UK resident. I believe the same is true of the Capital Gains related ro RSUs. Therefore it should be as simple as filing a 1040 NR for the missing years with zero income. Trying to explain to the IRS that you were no longer a US tax resident for the missing years may take a lot more time and effort than just submitting those returns for which there should be no fines or penalties since no US tax will have been due. Be interested to see what your tax advisors come up with.

Yes this is definitely a concern. Especially since it was so long ago. I have been trying to track down old tenancy agreements (only partial coverage), utility bills (none to be found...Bulb even went bust in the meantime), council tax (nope) etc. Since (as of 2024) I am now a PR, I can't even get my I-94 travel history to confirm any days spent in the US since it was removed/deleted.
So far I just have payslips, credit card statements which may not be enough.
Waiting for some CPAs to come back to me.

I believe you can FOIA your travel records from the CBP even as an LPR. This is the reason why I took a copy of my i94 when my I-485 was pending so I had it, just in case... (I also now manually keep track in case I naturalize)

Great info thanks, I just submitted an FOI. I doubt it will come through in time (need to reply by May 1) but worth a try and to have it for my records. And if IRS asks for more info, hopefully it will have come by then.
I have some records on my BA transaction history for all BA flights 2018+ which is going to be decent. Any non-BA/oneworld flights obviously will be missing but I generally went with them. Schedule OI even asks for prior 2 years, so I need 2017 too in theory but CPA advises just leave it blank if I don't know.