US person in Canada, 14 years, never filed a US return

rlb · Post by **rlb** » Fri May 27, 2011 8:29 pm

From your comments:

At this point, I don't believe my children
should have to choose to accept their US citizenship.
For all intents and purposes, they were not born in the US,
not raised in the US and were born to a Canadian citizen and
for that fact, this is where I get defensive and feel that the
US has no claim to them.

And if I never get them a US passport, and ONLY get them a
Canadian passport, there's no way that they could be considered
US citizens.

Since your twins are around 6 years old, there is no urgency to resolve this yet except (a) for purposes of getting them an SSN now because of your tax situation or (b) if they have income that needs to be reported to the US.

However, citizenship is not a matter of choice but of fact. The rules for determining whether your children are US citizens or not can be a little complicated if they are not born in the US. For example:

A person born on or after November 14, 1986, is a U.S. citizen if all of the following are true (different rules apply if child was born out-of-wedlock):

The person's parents were married at time of birth
One of the person's parents was a U.S. citizen when the person in question was born
The citizen parent lived at least five years in the United States before the child's birth
A minimum of two of these five years in the United States were after the citizen parent's 14th birthday.

You don't "choose" citzenship by getting a passport. Each country defines who it considers are its citizens. In the case of the US, your children (if they have US citizenship) could renounce their US citizenship by doing so at a US consulate, once they are old enough to understand (in the opinion of the consular officer) the implications of what they are doing.

You indicated your current children are daughters. If you have a son, be aware that he must register with Selective Service when he is 18, even if he does not ever visit the US.

See: http://travel.state.gov/law/citizenship ... _5199.html

rlb · Post by **rlb** » Fri May 27, 2011 8:42 pm

"Me, although I disagree with it, I understand. But for them, unless they actually took advantage of anything the US has to offer, it disgusts me that they should need to have any requirements to the US govt.

regardless, at this point the way I'm running, this will never get done with how impossible it seems at this point."

I can sympathize with you personally. My wife and I were born Canadian, became US citizens by naturalization, and although in retirement we have relocated back to Canada again permanently, we will have to file US tax returns forever unless we renounce citizenship. We do not object to paying some taxes to both the US and Canada, but compliance with the complexities of the US tax code for US citizenship abroad is difficult, particularly as we age and are no longer as mentally competent as we were.

If your children are US citizens by US Federal law, and they do not want to be, they can renounce their citizenship. If they do so by their teens, there ought to be little or no problem.

There are serious consequences if they just ignore the situation. For example, if their US citizenship were ever discovered, they might be subject to onerous tax penalties. Although if they could show that they never knew they were US citizens, they would escape any criminal penalties and other penalties would be minimized, they would still have to file years of back tax returns with possible interest on any taxes that should have been paid. Plus non-compliance with FBAR regulations on reporting foreign accounts.

eortlund · Post by **eortlund** » Fri May 27, 2011 9:15 pm

OP, I used to be totally overwhelmed by all this tax stuff too. Canadian taxes were confusing, especially in the first year. US taxes were easy doing the foreign earned income exclusion, but trickier with the foreign tax credits.

Like I said, I paid a cross-border accountant to do the US taxes for me for a couple years--I wanted the additional child credit but I had a newborn baby and very little time/motivation to figure it out. If I recall correctly, I did not pay him until after I received the IRS refund--or at least it wasn't until after I knew I would be receiving a refund. I still came out way ahead even after paying the tax preparation fees. If you are feeling so overwhelmed, I would suggest going that route as well. Once you are all caught up, you will only have to do it one year at a time, and you will have a template for how to do it based on your tax records. If I can do this, anyone can!

nstudent · Post by **nstudent** » Sat May 28, 2011 11:29 am

OP, you could have nasty surprise with the FBAR requirement.

jbryanvancouver · Post by **jbryanvancouver** » Sat May 28, 2011 12:58 pm

I'm joining this thread a little late, but it is pretty relevant to me. My wife and I are US citizens who have been permanent residents of Canada since 2001 and both have jobs here. We have three children (including twins) who were all born here.

@ andsoitgoes: I feel your pain! I am a little more on top of it than you, but it is a yearly struggle for me. I agree that getting SSNs for the children was a BIG HASSLE. Moreover, I share your outrage that the US can tax people (like our children) who potentially will never live or work in the US. Sigh.

@eortlund: You have said that you use Turbotax and it sounds like it goes well for you. I have struggled with turbotax: I am getting errors and non-sensical results. I know this forum is not for software answers, so let me ask a concrete question. In your post about using Turbotax, you say that you use forms 1040, 1116, 8812, and 8891. So what about form 2555? Are you not taking the foreign income exclusion? How do you report foreign income without using the 2555 (particularly in turbotax)? Our income is above the exclusion, so we need to use the 1116. Our Canadian income tax is much higher than the US income tax so we should owe $0 US taxes. What is the simplest way to get to that $0?

nelsona · Post by **nelsona** » Sat May 28, 2011 3:46 pm

In order to get the child tax credit, you need to have sufficient UNexcluded income, that is likely why eortlund chooses to use 1116 instead of 2555.

If your income is over the esclusion, you need to use 1116 on the excess, but you can use 2555 on the first part. This should still get you the chold credit.
You need to always use 1116 on all other types of income (interest, gains, etc).

Even whe you use 2555, you always report all foreign income exactly as if it was earned in US wages go on one line interst goes on schedule b, extc.

2555 and 1116 are applied AFTER having reported all income correctly.

andsoitgoes · Post by **andsoitgoes** » Sat May 28, 2011 7:52 pm

Wait, so after all of this, if my income isn't over the exclusion I don't get the child tax credit? I got my hopes up for nothing, damn.

So I guess I don't have to go through any extra work, and don't have to register them for SSNs at this point, no need to claim them as dependants and all I need to do is file normally through TurboTax.

Just to summarize:

- I make under the exclusion
- Because of this, I will not get anything back from my children even if I claim them as dependents.
- This should mean that I don't need to rush into getting them their SSNs and waste a few hundred doing that.
- I can just file as basic as possible for my taxes, and be done with it.

nstudent - I'm not going to have any nasty surprised from the FBAR. I've never had a bank account with more than 10k in it. And from here on out, if that could ever possibly happen I'll simply ensure it's not in an account with my name on it and leave it only to my wife.

ONE thing I still don't understand is that I'm having to note that I'm filing separately from my wife, but it's asking for her SSN which she doesn't and will never have. What do I do here?

rlb · Post by **rlb** » Sat May 28, 2011 8:00 pm

"I'm not going to have any nasty surprised from the FBAR. I've never had a bank account with more than 10k in it."

Please note that the 10k guideline does not apply to a single account, but to the total of all your accounts. If the total of all accounts, bank, maybe CD's, brokerage, RRSP's, etc., exceed 10K on any day of the year, you need to file FBAR on all accounts for the year. This also includes any acounts in which you have power of attorney, for example, and elderly parent. This might not apply to you yet, but keep an eye on it (the total I mean) going forward.

And protect yourself by filing the proper disclosure forms with the US if you have any Canadian tax deferred accounts such as RRSP's (e.g., form 8891).

eortlund · Post by **eortlund** » Sat May 28, 2011 8:07 pm

I don't use the 2555 at all--I exclude none of our income. We make well under the amount that can be excluded.

eortlund · Post by **eortlund** » Sat May 28, 2011 8:10 pm

So if I used 2555, it would exclude all of our income. Then I wouldn't be able to get the child tax credits. So I apply 1116 and take foreign tax credits instead, thus qualifying us for the additional child tax credit.

andsoitgoes · Post by **andsoitgoes** » Sat May 28, 2011 8:10 pm

I have no RRSPs currently nor do I have any accounts that have come close to that amount.

I'll just ensure that if it ever got to the point where that might even come close to being possible, that it stays in only my wife's name.

Forutnately for me (yeah, right...) I've had a terrible go of it financially and have been in significant debt for the last 14+ years as well. Both my parents have passed away and none had a penny to their name.

Maybe in the next 15 - 20 years I might be going toward the positive side, but I'll cross that bridge when I get to it.

I have half a mind to gain my Canadian citizenship once my taxes are in order and then renounce my US citizenship shortly thereafter.

andsoitgoes · Post by **andsoitgoes** » Sat May 28, 2011 8:12 pm

[quote="eortlund"]So if I used 2555, it would exclude all of our income. Then I wouldn't be able to get the child tax credits. So I apply 1116 and take foreign tax credits instead, thus qualifying us for the additional child tax credit.[/quote]

Wait, what?

I'm confused here. SO I *CAN* claim the taxes, but I don't use 2555 but instead use 1116 if I make under the exclusion amount?

Great, now I'm even MORE confused...

eortlund · Post by **eortlund** » Sat May 28, 2011 8:13 pm

In Turbotax, I list our Canadian income in US dollars in the same place any US taxpayer would on the 1040, using the average exchange rate for the year. Then in the deductions area of the program, I list the Canadian taxes paid in the foreign tax credit section. I agree it's not as straightforward as it could be, but if you play around with it, you should find the applicable areas.

jbryanvancouver · Post by **jbryanvancouver** » Sat May 28, 2011 8:16 pm

Hi Nelsona - I was under the impression that we are not eligible for the child tax credit because our income is too high (mine is around $135K and my wife's is around $120). I think that you are supposed to compute your eligibility *before* applying the exclusion. In fact, I can see no advantage to me taking the exclusion since it then just reduces our tax credit on the 1116.

eortlund · Post by **eortlund** » Sat May 28, 2011 8:16 pm

I don't know what's best if you make over $80,000 or whatever the limit is for foreign income exclusion now. We make well under that. But I think the issue is that you have to have sufficient US income to qualify for the additional child tax credit. If you exclude all of your Canadian income, then that's that. But if you list it as I detailed, then the IRS counts it as if it is US income. You avoid being double taxed by taking a credit for Canadian taxes paid.

Perhaps some people can exclude most of their income with 2555, yet still have enough income over that to list it, use 1116, qualify for tax credits. I have no idea how that works.