Filing back US taxes by a US citizen in Canada - Expert Income Tax help on cross Border tax and immigration and divorce and RRSP

 

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QUESTION: Hi David, you come highly recommended by a friend, so I'm hoping you are able to help me out. 

I have canadian and american citizenship, but only received my american passport in 2002. I've never been a resident there, have always been a resident in BC. 

I am planning to move to the US to work with my SSN however I have never filed taxes with the IRS and have just been informed that I will be required to pay back taxes for many years. Also I have a savings account with more than $10,000 in it and I was told I would have to pay a fine for not informing the IRS of my savings. I also have some mutual funds in a RRSP and was told that I should sell them then buy them back the next day before I move down there. Please advise on the steps I need to take to avoid paying penalties to the IRS.

Thank you very much!

 



david ingram replies:

When you applied for your American passport you reasserted your US citizenship and agreed to all the responsibilities of being an American citizen no matter where you live and no matter where your income comes from.  US citizens are taxable on their world income no matter where they live.

There are exemptions and foreign tax credits however so up to $100,000 of earned income in another country is rarely taxable if you follow the rules.

However,the US Treasury is verrry concerned about American citizens with foreign accounts of any kind.  Even an account for the Xmas party at work must be reported to the US treasury if you can sign on it.  Other accounts you might not think about are

*    a boy scout account because you are the scoutmaster or a girl guide account because you are the leader

*    a joint account with your mother or father to look after their affairs if there is a problem

*    a payroll account at work.

*    Your LIF, RRSP RRIF or other retirement account.

*    your cash account at the stockbrokers

*    a mutual fund you bought from the bank or credit union

*    an account you opened for one of your children or grand children.

Unfortunately, the minimum penalty for failure to file the form (TDF 90-22.1) for theses accounts is $10,000 per year per account.  The silly record in my office was a 105 year old lady back in 1995 (nothing new here).  However, I also know individuals who have received $100,000 plus 6 months in jail and $60,000 fines.

You should go to www.centa.com and read the Oct 95 newsletter (nothing knew) in the top left hand corner for a list of what you should have been doing.  You should also read the Oct 93 newsletter for an idea about dual citizenship.

When you received your passport, there should have been a notice in it telling you to file back six years of tax returns if you had not done so already.  Unfortunately, Canadians just do not get the fact that it means they have to file US returns and ignore it because they have been filing their tax returns.

What you should do now is file back six years plus the current year which means that you should file 2003 to 2009 US returns PDQ AND more importantly get the Foreign account reporting forms in sooner rather then late.  the TDF 90-22.1 forms are filed with the Dept of the Treasury in Detroit, are not part of the returns but have far more penalties involved.

Now, so far, I have not seen a single person penalized who came forward voluntarily. 

We, of course would be happy to assist you with the situation.

There is no reason I know of to sell your mutual funds within the RRSP before you leave that I know of.  BUT there are also special reporting rules for a Canadian RRSP which require you to file form 8891 and report the internal earnings every year to the IRS.  - again - read the Oct 95 newsletter for a list.

You will also get a lot out of reading the US Canada Income Tax section under the Features Section in the top left hand corner at www.centa.com

 

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