GIVING UP US CITIZENSHIP to avoid US Income Tax. Canadian-US-Global Income tax help - david ingram expert US CANADA cross border

 

XXXXX XXXXXX wrote:


Thanks for this, I'll be in touch.
Am considering giving up my American citizenship now that I've become a Canadian citizen, but that wouldn't happen until I get my Canadian passport.


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david ingram replies:

I am putting off cleaning my office so that is the only reason this is being answered. 

Be really careful about a decision to give up your US citizenship. In your job, it could be a disaster if you could not attend a conference in the US as one example.
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This three year old Q & A will give you an idea..
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Hi David,
 
I am distressed by reading your comments regarding my possible future obligations to the IRS as a dual citizen.  I was born in BC to US parents, grew up in the States from age 4 to 33 and have been living back in BC for the past 19 years.  I have a small IRA (12,000 USD) in the US, which I opened 20 years ago and have not added to since.  I have no other US assets, nor have I earned income there for 20 years. I have intermittently filed US income tax returns over the years - never owed them anything due to foreign tax credit.  I have not filed for the past two years because I changed accountants, I moved within BC and the new guy doesn't file US returns.  I have however, completed W8 forms with various investment firms. I don't have a US passport nor do I receive any benefits from the US. I never intend to reside in the US or seek employment there.   I have not voted since I left. However, my net worth is beginning to grow as is my income (earned and investment) and I do not want Uncle Sam to view me as an opportunity to pay for the many unfunded liabilities they have promised the aging babyboomers (I am one of those boomers) 
 
I am wondering whether I should relinquish my US citizenship and whether I can consult with you or would you recommend someone else to discuss my situation in detail? What fees might I expect?  I am in the Vancouver area. I want to know what potential ramifications there might be from a legal and tax perspective of relinquishing.  I imagine I would first collapse my IRA - pay the tax and then attend the US Consulate, complete a questionnaire, and take an oath, etc. but I wonder about any potentially negative implications?  Do I need to file the last 2 years taxes and next year's if I collapse my IRA?
 
I obtained US citizenship for my 10 and 12 year old daughters who were born in Canada by registering them for the US citizens born abroad program - so now they have dual citizenship. What do I do for them as I don't want them to be obliged to have to declare their world income to the IRS into perpetuity?
Would you please provide us a quote for back filing my US tax returns for the last 2 years, I have a copy of my CAD returns and don't owe $ to the IRS? I am a xxxxxxxxxxxxxxx employed by xxxxxxxxxx,
 
I own 3 rental properties in the Lower Mainland and had some stock investments (jointly with my wife) - all of our income has been earned in Canada and I have no ties to the US (except the IRA mentioned above). We are also wondering what it might cost to have you be our accountant to file our CAD and US taxes for 2007 and discuss relinquishing the US citizenship?
 
Regards,
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david ingram replies:
 
Do NOT expect replies as fast as this in the future. It was sent to an address that I do NOT answer questions from as well. I have over 700 unanswered email questions that arrived before yours.
 
However, this arrived as i was cleaning up my files so here goes.
 
Giving up your US citizenship to avoid income tax filing results in your being banned from the US in perpetuity.  It is usually not a good idea and fewer than 50 people a year actually go through the process because of the ramifications.
 
In addition, you trigger a 'departure' tax when you do and the rules are that you are supposed to keep on filing US returns for 10 more years.
 
What you are talking about is filing two returns.  More work, and more cost but rarely more tax. people in 43 states and the Province of Quebec file two physical returns and it does not kill them.
 
You should likely come and see me for a $450.00 / hour  consultation.
 
In general, for a current year, we charge $900 to $3,000 for a US / Canadian return.  If you have three rentals and capital gains, you are likely in the $1,500 range.
 
Doing the two old ones at this time of year would likely be under $1,000 unless you have multi stock trades, etc.
 
And you must do them.  Not filing form TDF 90-22.1 is now a stated minimum $10,000 penalty.  Not filing form 8891 for your RRSP is a fine of 35% of the principal plus 5% for every year not reported.
 
And, cheer up.  In another 9 years, you qualify for US social Security.
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This is the first question which prompted the giving up the citizenship comment.
 David Ingram wrote:
 

 


From: David Ingram [mailto:taxman@centa.com]
Sent: Monday, December 14, 2009 11:54 PM
To: xxxx xxxxxxxx
Subject: US and Canada tax advice for Canadian resident with estate coming from the USA - Canadian-US-Global Income tax help - david ingram expert US CANADA cross border non-resident immigration - income tax help - preparation by five tax experts' years of experience

xxxxxx xxxxx wrote:
 

I am an American and Canadian citizen.  My last surviving parent in Portland, Oregon has passed away.  I have been submitting American tax forms for the 20+ years I've been living in Vancouver, Canada.  My income has never exceeded the exemption so I've never had to pay any tax in the US.
My parents have a trust in Portland and a home and contents.  My sister and I are the recipients of the estate 50%50%.

Would your firm be able to assist in advising me?
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david ingram replies

What you are looking for is what we do.  I have actually been sitting at the same desk in this house for 40 years and 3 days and at the same desk for about 45 years doing US / Canadian Income Tax Returns.

If you have been doing your own returns, I trust that you have been filling in your TDF 90-22.1 forms to report your Canadian Financial Accounts to the US Treasury (see question 7 on schedule B which has a $10,000 penalty for not answering yes OR no) And that you have been filing form 3520 or the preferred 8891 as required if you have a Foreign Trust (an RRSP) as asked about in question 8).

If you have not been filing these forms, it is easy at this time to make a voluntary disclosure and catch up the next 6 years without penalty.  If you have been filing these, good going.

You can call (604) 980-0321 M to Friday from about 10:10 AM to 3:30 PM to make an appointment by phone or in person.

Read the following to see what I mean about the foreign account reporting rules. People do not always 'hear' what they are told.

Dave,

This kept being rejected by centa.com when I sent it
from my account , so I asked a
friend to send it from his account.  

Here it is:

Yes, the general requirements for a person to use
Schedule B are listed at the top of the instructions,
but, as with most tax rules, there are exceptions.
This exception is shown at the BOTTOM of the
instruction page
(http://www.irs.gov/pub/irs-pdf/i1040sa.pdf below the
final TIP box) and it says to answer NO to the
question of whether the filer has a foreign bank
account if "the combined value of the accounts was
$10,000 or less during the whole year."
 
I think what you have written is that, in effect, a
person who has only $10 in a Canadian bank would have
to file Form B and answer yes to question 7a, but that
is contrary to the IRS instructions. 
 
The H&R Block "Tax Cut" program does not select
Schedule B or check the YES box unless the $10,000
threshold is reached. (I tried it out to see, by
answering YES to foreign account, but NO to $10,000 or
more.) 
 
Doing a Google search on "SCHEDULE B" "FOREIGN
ACCOUNT" "7a", I find many articles stating that 7a
only applies to accounts of $10,000 or more.
 
Examples:
 
http://bankrate.com:
 
"Line 7a is straightforward. Basically, if you had a
foreign account, check "Yes" here. Even if you did
have such an account, the IRS says you can check "No"
if the average balance in the account was less than
$10,000 during the whole year." 

http://www.rpifs.com/AICPA/form1040b.htm:

"
...the answer to question 7a only applies where the total of all foreign accounts exceeds $10,000 at any time in the taxable year." Do you still say that ALL persons who have to file U.S. taxes and have a Canadian account have to file Schedule B and check YES to question 7a? Regards, Fxxxxxxx -------------------------------------------------------------------------------- david ingram replies:

I NEVER EVER SAID THAT!

I challenge you to show me where I said that a person with 'any' foreign account had to check off yes to question 7a.  You only have to say yes to 7(a) if the combined totals of all foreign financial accounts was over $10,000 US at ANY ONE TIME in 2007.  Because of the change in the exchange rate in 2007, if you had $9,500 Canadian in the account at the end of 2007 when the rate was 1.10 Cdn to a US dollar, you would have to say yes. even if the rate dropped back to 99 cents.

What I said and still say is that you have to file Schedule B if you have a foreign account whether it is in England, Spain, Iraq or Switzerland.   In other words, if you have foreign accounts and they were always less than a total of $10,000 US in 2007, you have to answer "NO" to question 7a on Schedule B but YOU HAVE TO FILE SCHEDULE B..

Of course, if you have $10.00, 100, 1,000, 10,000 or 100,000 in an RRSP, you have to answer "yes" to question 8 and fill in the 8891. 
 
And, if you had $10,000 in an RRSP, you would also be answering yes to 7(a).

And, if you are the contributor to a child's RESP, that adds to the amount for $10,000 and requires the filing of a 3520 because RESP accounts are NOT covered by the form 8891.

If you did not have 'any' other accounts but had put $1,000 into a grandson's RESP which you were the signing authority over, you would check NO to question 7a, leave 7b blank and say yes to question 8 and then fill in form 3520.

Your own question answers your own question. 

The top says file the form if you have a foreign account or were the grantor of a foreign trust - the bottom says answer no if the total is less than  $10,000.  Tell me where it says you do not have to file the form if the answer is 'no'.  You have missed the point that the IRS WANT S the 'no' answer in writing IF you have a foreign account.  I was also told by the Treasury rep that there is a  penalty for not filing Schedule B if you have a foreign account.  that penalty is $10,000 but i have never seen it enforced.  I have seen the $10,000 to $500,000 penalty for not filing a required TDF 90-22.1 imposed over 1,070 times now.  My favourite was the 105 year old lady in a Lynn Valley Nursing Home who was fined $10,000 for not reporting an Edgemont Village Royal bank Account.

For those who don't have schedule B handy, you can find it at: http://www.irs.gov/pub/irs-pdf/f1040sab.pdf

-----------------------------------------------------

The older bit is here.

Date: Mon, 11 Feb 2008 00:44:49 -0800
From: taxman@centa.com
Subject: Schedule B if you have a foreign account
To: fxxxxxxxxxxxxxxx


XXXXXXX wrote: 

BLU115-W16C96EC329AC4C1D5D30C8CD290@phx.gbl>

David,
 
In case you find this amongst the spam, I have a
comment about reporting interest on Schedule B. 
 
You state: 

"AND, they also made the point that everyone with
foreign accounts MUST file schedule B, even if there
is no earnings form the accounts."

But...the Schedule B instructions state that it is not
necessary to answer YES on Schedule B if an account is
less than $10,000.  So, when you tell people to file
Schedule B, shouldn't you add "if any of your accounts
have been worth at least $10,000 anytime during the
year"?  
 
Schedule B, part III instructions are here: 
 
http://www.irs.gov/pub/irs-pdf/i1040sa.pdf 
 

-----------------------------------
david ingram replies:

The instructions for who must file a Schedule B (top
right hand side of page B-1) that you sent clearly
state that Schedule B must be filed if you have a
foreign account.


• You had over $1,500 of taxable interest.
• Any of the Special Rules listed in the instructions
for line 1 apply to you.
• You are claiming the exclusion of interest from
series EE or I U.S. savings bonds issued after 1989.
• You had over $1,500 of ordinary dividends. 
• You received ordinary dividends as a nominee.
• You had a foreign account or you received a
distribution from, or were a grantor of, or transferor
to, a foreign trust.
Part III of the schedule has questions about foreign accounts and trusts. -


 
If your question was not answered fully or you wish to go further, I am available for individual consultations by phone or email or in person for $450 per professional hour. 

If you 'really' only have a single question requiring a 'couple' of minutes, you can try phoning me for free as part of the following.

-
Most Wednesday evenings, from 6 to 7 PM Vancouver (Pacific - LA, Seattle) time, I interview others and answer US Canada, Great Britain, Spain, Indonesia,  Mexico, etc.  Tax and immigration questions.  GOTO www.david-ingram.com - the North American phone number is (866) 980-0499 - the local number in the lower mainland is (604) 980-0321.-

or

-
You might try calling Fred Snyder's weekly radio programs for an answer. 

Fred Snyder's  "IT'S YOUR MONEY" radio show.on  CISL,  650 AM on the dial in Vancouver from 9 to 11:00 AM every Sunday - call 604-280-0650 or 1-877-280-0650  LISTEN LIVE IN SAUDI ARABIA AT WWW.AM650RADIO.COM (hit button in top left hand corner).

I guest on the shows on the First Sunday of each month.   Jan 3,  feb 7, Mar 7, 
Apr 4, May 6 and June 2, 2010

IRS Circular 230 Disclosure:  To ensure compliance with requirements imposed by the IRS, please be advised that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used or relied upon, and cannot be used or relied upon, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

Disclaimer:  This question has been answered without detailed information or consultation and is to be regarded only as general comment.   Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader and the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent and appropriately qualified legal practitioner or tax specialist for expert help, assistance, preparation, or consultation  in connection with personal or business affairs such as at www.centa.com or www.garygauvin.com.  If you forward this message, this disclaimer must be included."

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david ingram's US / Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
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My Home office is at:
4466 Prospect Road
North Vancouver,  BC, CANADA, V7N 3L7
Cell (604) 657-8451 -
(604) 980-0321 Fax (604) 980-0325

Calls welcomed from 10 AM to 9 PM 7 days a week  Vancouver (LA) time -  (please do not fax or phone outside of those hours as this is a home office) expert  US Canada Canadian American  Mexican Income Tax  service help.
pert  US Canada Canadian American  Mexican Income Tax  service and help.
David Ingram gives expert income tax service & immigration help to non-resident Americans & Canadians from New York to California to Mexico  family, estate, income trust trusts Cross border, dual citizen - out of country investments are all handled with competence & authority.
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