Many U.S. citizens permanently living in Canada were not aware of their requirements to file annual income tax returns and FBAR forms. For instance, a U.S. citizen might have moved to Canada as a child with their family and never returned to the U.S. The person is now an adult and permanently residing in Canada on a full-time basis.
The IRS realizes that US citizens who permanently departed the U.S., or Canadians who acquired U.S. citizenship from their parents, may not have been aware of their U.S. income tax filing obligations. On June 26, 2012 the IRS introduced the “Streamlined” program to enable taxpayers, who meet the qualifications of the program, to become current with their U.S. filings. This program requires latest 3 years of US income taxes, and 6 years of FBAR disclosures. Previously, US citizens were required to go back as far as they had records, which was a very daunting task for most people, particularly with the complexity of interpreting U.S. and Canadian tax rules and regulations (not to mention locating paperwork).
The “Streamlined Program” introduced in 2012 has been expanded and modified by the IRS on several occasions, but remains in place as of July 2017. The streamlined procedures are available to both U.S. individual taxpayers residing outside the United States (the “Streamlined Foreign Offshore Procedures”) and U.S. individual taxpayers residing in the United States (the “Streamlined Domestic Offshore Procedures”). U.S. citizens living in Canada would typically be included in the Streamlined Foreign Offshore program. The key filing requirements of the program are as follows;
- Form 1040 U.S. income tax returns for the most recent 3 taxation years.
- Financial disclosures of all financial accounts for the latest 6 years. These are reported on FBARs which must be electronically filed using the BSA / FinCEN internet portal.
- Form 14653 certification that the failure to report all income, pay all tax, and submit all required information returns, including FBARs (FinCEN Form 114, previously Form TD F 90-22.1), was due to non-willful conduct along with an explanation of the situation for late filing.
- Form 14653 certification that the taxpayer was physically outside of the U.S. for at least 330 full days in any one or more of the most recent three years for which the U.S. tax return due date (or properly applied for extended due date) has passed, and you must not have had a U.S. abode.
Taxpayers who are concerned that their failure to report income, pay tax, and submit required information returns was due to willful conduct and who therefore seek assurances that they will not be subject to criminal liability and/or substantial monetary penalties, should consider participating in the Offshore Voluntary Disclosure Program (OVDP) and should consult with their professional tax or legal advisers.
After a taxpayer has completed the streamlined filing compliance procedures, he or she will be expected to comply with U.S. law for all future years and file returns according to regular filing procedures.
Taxpayers using the IRS streamlined programs will be required to file delinquent tax returns (1040, 2555, 1116, etc) along with appropriate related information returns for the past three years, and to electronically file delinquent FBARs for the past six years. The delinquent tax returns should be completed separately for each year, using the forms applicable to each of those taxation years and submitted to the required IRS taxation centre.
Keep in mind that the IRS has really ramped up their offshore compliance programs, and with FACTA, essentially forces Canadian banks to share information with the IRS regarding U.S. citizens. Our office has helped many clients through the streamlined program – all qualified, and aside from a few follow up queries from the IRS, all were accepted, and are now current with their U.S. income filings.
Our firm can assist you. We have years of U.S. income tax experience with the IRS Streamline Program.
Fees – they are reflective of the significant amount of analysis, tax laws, and manual tax filings that are involved for our firm to do this. It starts with the most recent three years of Canadian income tax returns, and the most recent six years of bank / financial accounts, and basically converting these to US filings. Wherever you reside in Canada is not a problem – scans, faxes, and couriers will do if we cannot meet at our office in Burlington, Ontario.
We hope this information is helpful to you.
From all of us here at Edelkoort, Smethurst and Schein CPAs – thank you for taking the time to read this brief overview.
We look forward to hearing from you and supporting you!