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MessageSent: Friday, January 16, 2004 10:27 AM
To: [email protected]
Subject: RE: Dual citizen's tax.on $45,000 of US dividends - ArticleX of the US / Canada Income Tax Treaty - Reclassified Income
David,
IRS has consistently won recent court cases which hold that the various tax treaties DO NOT protect against AMT.
Have you found this to work against the re-sourcing rules, ultimately making them useless?
Andrew NXXXXXXXXX
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david ingram replies
Goodness knows that I am not an expert on AMT. In fact, our TURBO TAX program generated a $79,000 AMT bill for a client on Thursday and I could not figure it out for any money. Sonja Clark (CPA, LLB and CA in our office) was away and I faxed the offending file off to my old Ottawa Tax partner Gary Gauvin who now lives in Rockwall, Texas and just achieved Enrolled agent status. He pointed out our input error in the TurboTax program.
In this case, I can only say that in the last six years I have never had the IRS issue an AMT bill in a Treaty resourcing case and there have been enough that would qualify (Married Filing Separately with $100,000 US pensions as an example) that there had to be at least one where they came back. Secondly, 9 out of 10 of my resourcing situations have been where I have filed a 1040X retroactively changing another Accountant's work so the information was right up front.
What does my new Enrolled Agent friend Gary Gauvin think. (www.garygauvin.com).
Andrew, who wrote this pointed out an error I had made for a couple of years by the way. When he sends a comment, I pay attention and even though the nature of this list is about to change, I learn more form the questions and answers than anyone else does. I will get a question that intrigues me, figure out the answer and send it off and two days later a paying client will walk in the office with the same problem and I "have the answer".
Thanks again Andrew for pointing out AMT and the Treaty. Unfortunately, AMT is catching all sorts of people who were NOT intended to be the targets.
david ingram
However, with
-----Original Message-----
From: [email protected] [mailto:[email protected]]
Sent: Thursday, January 15, 2004 23:18
To: CENTAPEDE
Subject: Dual citizen's tax.on $45,000 of US dividends - ArticleX of the US / Canada Income Tax Treaty - Reclassified Income
QUESTION:
You've probably seen this one before - I've
looked through many pages of your website
and found much help, but I will ask my
specific question.
I am a dual citizen (US/Canada). I am single
and I live in Canada. I inherited an
American trust fund managed by Bank One in
Detroit. The dividends I lived off paid me
45000 USD. I paid Canadian tax and got a
tax credit for the American tax which was,
upon my accountant's insistance, only the
Alternative Minimum Tax. The IRS has been on
my ass for the last nine months demanding
more money, and my accountant keeps saying
they don't know what they're talking about.
The research I have done recently suggests
my accountant doesn't know what he's talking
about. Should I really only pay AMT in the
US? It's hard to believe...
Thanks,
Tim
=========================================
david ingram replies:
This one is actually very easy but since the Treaty was passed in 1980, I have NEVER - NOT ONCE - seen it come into my office prepared correctly by any office other than ours.
And I will admit that when I found the answer and wrote a minor computer program (8 days) that presented the information to the US IRS in a manner that anyone could understand, I was thrilled because up until that time in 1996, I was as flummoxed as every one else. I will also say that this is the only one that I do not spout out the whole recipe because it is my own fishing hole.
I will tell you that Article X of the US / Canada tax treaty governs your tax. You pay 15% to the US on your US dividends. NEVER any more than 15% although it can be less.. Therefore, your US tax should have been 15% of $45,000 or $6,750 which Canada will happily credit against your Canadian Tax.
You are correct, AMT has nothing to do with it. The secret is how you get the US government to accept the 15%.. Not once in 20 years did an IRS agent at the International Tax Office ever tell me how to make it work. I finally figured it out when I was typing part of the treaty out. Within a month I had retiled over twenty tax returns with an average of about $5,000 refund each. They came back like clockwork because the treaty over-rules just about everything.
I hate to be mercenary, but I would charge between $350 and $700 to straighten it out.
You could copy the method for 2003.
David Ingram's US/Canada Services
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
4466 Prospect Road
North Vancouver, BC, CANADA, V7N 3L7
Calls accepted from 10 AM to 10 PM 7 days a week
Res (604) 980-3578 Cell (604) 657-8451
Bus (604) 980-0321
[email protected]
www.centa.com www.david-ingram.com
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David Ingram of the CEN-TA REALTY Group
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
4466 Prospect Road
North Vancouver, BC, CANADA, V7N 3L7
(604) 980-0321 - Fax 913-9123 [email protected]
www.centa.com www.david-ingram.com
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