You get citizenship based on being born in the US - jus solis - which this man was, until the State Department decided differently. The other way to become US citizen is by requesting it . That is possibe after five (in case of marriage three) years of living in the USA as a Legal Permanent Resident.

If US bureaucracy made a mistake and kept that mistake going for some 60 years, they should own it. Especially since this MD comes from Iran, it is not that he can get back to file for a passport there. The secret police could even have an open file on the parents. There is also a chance his father was officially not working in/for the Embassy, and Iran will treat him as a US citizen. After 60 years most of the relevant documentation will be lost and most people involved are either dead or suffering from memory loss. The US should give this man US citizenship ASAP.

Paying taxes has nothing to do with citizenship, but with residency. You can be a non-resident (for many years) for immigration purposes, but you are a resident for tax purposes after about one year in the US. Even illegal immigrants often pay taxes on earnings, using an Individual Taxpayer ID # (ITIN). It is true that the US is one of the few countries in the world that mandates its citizens and Legal Permanent Residents, no matter where they live, no matter where they earn, to file taxes. A number of those will have to pay additional taxes on that income to the IRS. Taxes taken to a foreign tax authority can be subtracted.