Do we need to file US tax return for telecommute income.

[yevdan]

We live in Thornhill Ontario.
In 2006 my wife provided the engineering consulting services to the firm in Atlanta GA by telecommuting (never been there). She reported the annual earnings of aprox 12000 USD to CRA as self-employed professional income. She didn’t have any other income in 2006.
At the end of 2006 the firm in Atlanta GA sent her 1099-MISC form showing that my wife's income has been reported to IRS as non-employee compensation expense. They also requested to sign W-8BEN form stating that she is "a resident of Canada within the meaning of the income tax treaty between US and Canada"

So the question is;
Does my wife need to file the income tax return to IRS if she didn't live and even visited US during 2006 taxation period?

And another question; What would be a penalty for the late submission ?

I would appreciate if somebody can give us some idea on what we should do

[Mark T Serbinski CA CPA]

If all of your services were provided while you were physically present in Canada, and if you have not travelled to the U.S. for the purpose of providing any services, then if you are not U.S. citizens or visa holders, you are not liable for tax in the U.S.

If you do start travelling to the U.S. to obtain instructions, present your work, or even to do some work, then you could also be exempt from U.S. taxation under the Treaty with Canada. In such a case, however, it would be advisable to file a return in the U.S. just to prove your exempt status.

Returns for non residents are normally due on June 15 of each year, without being considered late.

[yevdan]

Mark,

Thank you very much for your explanations and advice