Backfiling of Canadian Investment Accounts

sparkytx · Post by **sparkytx** » Mon Jun 06, 2011 2:45 pm

I moved to the US ten years ago and have had my tax "professionally" done for the last eight. My three previous accountants did not know what do do with my NR4s and Canadian mutual funds and told me not to include them.

Now that I want to file Fbars on the accounts, do I have to pay the 25% penalty? That seems like pleading guilty and there was never any intent of hiding the accounts. I was just following advice from my tax preparer.

Is there any leniency for this?

thanks!

tsanaha · Post by **tsanaha** » Mon Jun 06, 2011 2:55 pm

If it is RRSP (retirement plan), you should be okay... simply do quiet disclosure (amending last 6 years f8891/FBAR/f1040x).

If it is non-RRSP investment, you should go OVDI and get ready on FBAR penalty -- 25% if over 75K total, 12.5% if under 75K or even 5% if you have never touched the accounts (like taking money out over 1000) -- and you did not open it while you were US person.

tsanaha · Post by **tsanaha** » Mon Jun 06, 2011 2:56 pm

by the way, if you have paid tax on these non-RRSP accounts, it should be fine... just file FBAR

sparkytx · Post by **sparkytx** » Mon Jun 06, 2011 5:04 pm

thanks tsanaha!

Luckily, my Canadian investor advisors froze all my account when I told them I was leaving the country. (I was not happy at the time) All of the advisors withheld Non Resident Taxes and sent me NR-4 slips but my accounts never knew what to do with them.

Do the NR-4 have to be translated into 1099-div forms?

I also merged two bank accounts together in the last 6 years. Would I need to declare my now dead bank account?

tsanaha · Post by **tsanaha** » Mon Jun 06, 2011 5:10 pm

I assume you would join OVDI (I think you should because you did not report Canadian income on your US return), if so, all your accounts between 2003 to 2010 should be included.

You should report all income from these accounts based on NR-4 on 1040x and then claim credit that you had paid to CRA..

tsanaha · Post by **tsanaha** » Mon Jun 06, 2011 6:02 pm

Let me take it back and here is a ref on if you should join OVDI or not

http://federaltaxcrimes.blogspot.com/20 ... stion.html

As for 5% FBAR penalty, please read discussion here

http://federaltaxcrimes.blogspot.com/20 ... nalty.html

If you do decide to join OVDI as I did, please prepare the worst outcome -- that is 25% penalty if you have over 75K. OVDI is not a place you can argue your case (such as you were not aware or due to your accountant error), it is basically you have to agree on IRS's ruling on your penalty or opt out for uncertainty...

Please do a lot homework before contacting IRS.... Good luck

nelsona · Post by **nelsona** » Mon Jun 06, 2011 6:09 pm

"Luckily, my Canadian investor advisors froze all my account when I told them I was leaving the country"

A frozen account in no way means that it was not geenrating taxable income throughout thos period.

nstudent · Post by **nstudent** » Mon Jun 06, 2011 6:26 pm

"If you do decide to join OVDI as I did, please prepare the worst outcome -- that is 25% penalty if you have over 75K. "

I think you can still opt out OVDI if you can stomach the uncertainty and, e.g. your mistake was caused by someone's ill advice.

ikeaidea · Post by **ikeaidea** » Tue Jun 07, 2011 12:29 pm

TD-F form instruction said as long as you provide reasonalbe cause, no penalty will be applied. If the interest or dividend income is very small, i agree with nstudent that opt out is better. The chance to be examed is not 100% if your 1040X has some back tax due. And if examed, you still has chance to show your reasonable cause. But be sure to include statement of reason when file deliquent TDF as instruction. As I heard of that in 2009 ovdi there are some quiet disclosure with back tax due of 1040X so far was not examed or penalized. However, everything is unsure. Be balance by yourself.

tsanaha · Post by **tsanaha** » Tue Jun 07, 2011 12:44 pm

The fact that he has mutual fund -- that is viewed very different by IRS what is income. It is PFIC, so even without div paid (or very little), the gain is calculated by MTM every year.

nstudent · Post by **nstudent** » Tue Jun 07, 2011 1:58 pm

tansha:

You are right. Mark-to-market of mutual funds will create a significant income gain/loss even though the dividends are only a few dollar a year (the banks didn't (and still do not) bother to send me the tax forms). However, I hope to use the default method in form 8621 (i.e. the excessive distributions taxed at the highest tax rate). The trouble is that my understanding of the form 8621 is rather limited and I think I need to consult a pro.