CEN-TA Cross Border Services - Tax, Visas, Immigration: IRS Manual on informant's rewards

My_question_is: US-specific
Subject:        A Canadian who buys US property.
Expert:         [email protected]
Date:           Monday February 19, 2007
Time:           09:33 PM -0500

QUESTION:

My neighbours parents have bought and sold 3 properties in the US and have not declared any of the profits that they made.What could be the tax consequences if the tax dept finds out?

What if Canadians purchase property and flip it and do not declare any of the profits in Canada? Thanks for your information.

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david ingram replies:

A non-resident of the US who sells a property is subject to US capital gains and Alternative Minimum Tax of up to 28% of the capital gains. Failure to file and report has serious US AND Canadian tax consequences.

A usual sale by a non-resident would result in 10% of the gross sales price being withheld and in most cases, this is enough to cover any tax withheld. However, failure of the non-resident to file the return (even with a refund coming) can result in a US fine of $1,000 to $10,000 per person.

You are in luck - there is a reward of 1 to 15% of the tax collected in the US. Canada has no reward system at the moment.

To get the most money, you need to give addresses and dates.

Read this older Q & A.

Sent: Tuesday, July 11, 2006 3:21 PM
To: [email protected]
Subject: CHED Radio, Edmonton

Hi David,

I heard your show with Leslie Primeau last night and I sure found it interesting and entertaining.

I was curious though, what are the rewards for reporting a US citizen for tax evasion? Is it a percentage of the total or a flat rate?

Thanks,
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david ingram replies;

Glad you enjoyed the radio show. It is actually hard to understand for some, but income tax preparation is an amazingly interesting business because of the people one deals with.

The United States pays rewards of from 1% to 15% of the actual tax collected for information provided.

15% is paid for specific and responsible information materially helping in the investigation and resulting in the recovery or was a direct factor in the recovery. This can even apply when the IRS is already involved in an audit and you come forward and give them an important direction to go.

10% is paid for information that causes an investigation or if already under audit caused an investigation of an issue.

1% is paid when you cause the audit but had no direct relationship to the determination of liabilities.

None of the above rewards shall exceed $10,000,000.

You can find the claim form 211 at http://www.irs.gov/pub/irs-pdf/f211.pdf

Good Luck! - Oh yes, even though the IRS does NOT withhold tax when paying the reward, it "IS" taxable in both countries because it is for services rendered.

The information for Informant's rewards can be found in the IRS Manual Part 25, Chapter 2, Section 2 at:

http://www.irs.gov/irm/part25/ch02s02.html
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IRS Manual on informant's rewards - A Canadian who buys US property.