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Canadians getting caught up on late U.S. tax returns

Behind in filing US tax returns? Didn’t know you were required to file US tax returns given that you live in Canada? Just found out that as a result of being born in the US you were an American Citizen and had US tax obligations even though you had been living in Canada your entire life?

There are many reasons why American citizen’s living in Canada haven’t filed US tax returns. Generally, it comes down to the fact that they really didn’t know they had to file US tax returns.  Often they are surprised to learn that even though they had been working and living in Canada for their entire life and maybe had not even spent any time in the U.S in many years, were still required to file a U.S. tax return.

The IRS has simplified the method for some of these individuals to encourage them to get caught up on their US tax filings through the “Streamline Process.” Essentially, if you meet certain criteria which the IRS, you are able to file three years tax returns and six years of FBAR’s (foreign banking disclosure forms). Depending on your individual circumstance, you may have other information filing requirements, if for example you are a shareholder of a Canadian corporation (form 5471) or a beneficiary of a Canadian trust (Form 3520). Individuals who meet the criteria as low risk will have their returns pass through the IRS system in a more efficient manner, with less of the IRS resources and time being spent on these returns.

 To be able to file under the Streamline program as low risk you must meet all of these criteria:

  • You must be a non-resident US taxpayer who has resided outside of the U.S. since January 1, 2009 AND have not filed a U.S. tax return during the same period.
  • Have a U.S. tax liability under $1,500 in each of the three years being filed

The IRS will also assess whether your risk level increases based on factors including if:

  • You are claiming a refund of taxes on the U.S returns
  • You have “material economic activity in the U.S
  • You are compliant with your Canadian tax returns
  • You have financial interest or authority over financial accounts or entities outside of your country of residence
  • You have already been contacted or are under investigation by the IRS regarding late tax returns or FBAR’s
  • There is any indication of sophisticated tax planning or avoidance

An increased risk level still may allow you to file under the Streamline Program, however; the returns may not go through the system as quickly as the tax filings that are low risk. A questionnaire must be filed as a part of the streamline package sent to the IRS which the IRS will use to assess the risk.

What information must be filed under the Streamline program?

  • 3 years of income tax returns and appropriate related information returns (if required) with the first page of each tax return labelled “Streamlined” indicating that it is being filed under the Streamline program.
  • Payment for all tax due on tax returns
  • 6 years of FBAR filings
  • Streamline Questionnaire- risk assessment
  • Other disclosure forms, if applicable, such as requesting relief for late deferrals of income- generally related to RRSP or Canadian Pension Plans

Need to get caught up on your US tax filings? Are you considering filing under the Streamline program or have some questions? Send us an email or give us a call at 250-381-2400.

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Tony Theaker

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The information contained in this article is for general use only and should not be viewed as professional advice. Accounting and tax rules and regulations regularly change and individuals should contact a competent professional to obtain accounting and tax advice based on their specific situation.

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