Hello,
I became an official US citizen during the summer of 2016. I am currently a Canadian citizen residing in Canada. I will outline my current financial standings below and my filling questions.
[b]Financial standings:[/b]
Credit Union account:
$~20,000 CAD in checking account
$15,000 CAD in a TFSA which is invested in as "shares" in the credit union. Refered to as a "company share" or "share".
US Bank account:
$2000 USD
[b]Income Sources[/b]
2014
$7000 CAD total net income
~$2000 CAD self employment in Canada.
~$1000 CAD self employment in United States.
~$4000 CAD employment income in Canada
2015
$10,500 CAD total net income.
~$3500 CAD self employment in Canada.
~$3,000 CAD self employment in United States.
~$4000 CAD employment income in Canada
2016
$15,000 total net income.
~$15,000 CAD self-employment income. All from Canada
[b]What I believe I must do:[/b]
[list=]
Submit to the IRS 3 years past due tax returns
Submit FBARs for the past 6 years
Submit an IRS questionnaire
[/list]
Forms I must submit:
Form 1040 (Worldwide income)
Form 1116 (to claim Canadian Tax paid)
Form 2555 or 2555-EZ (Foreign earned income exclusion $100,800): This is a tricky one. This only applies if you are NOT in the USA when given rise to the income, even if its US source. I store inventory in the US and have them fulfill and ship it to US customers for me, so I was not present in the US during the rise in income. I believe all my income applies for the Foreign earned income exclusion.
I would be a Bona Fide Residence since I occasionally visit family in the states (a week at most per year). Is this an extra form or is it included with Form 2555 or 2555-ez?
FinCEN Form 114 (FBAR): I must submit if I have >10,000 USD in foreign bank at any time, which I do. I believe this would only be for 2 years, 2016 and 2015. I must submit through the BSA E-Filing system.
Form 8939 (FATCA): If I reside outside the US (Yes) only report if my assets are >$200,000 at any time. I do not have to file this form.
Form 3520: Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts
Form 3520A: Annual Information Return of Foreign Trust With a U.S. Owner
Both forms above must be filled to report my TFSA. Done annually. Due March 15.
Form 8621: Report Passive Foreign Investment Company: This is also a tricky one for me. A PFIC is a non US-company who gains most of its income form passive income such as Canadian Mutual Funds or ETF's. My TFSA holds shares in my Credit Union which is referred to as "shares" by both their investment department and the ownership papers I have for them. I talked to a tax professional and they said a PFIC would be for Mutual Funds and that my Credit Union shares would likely not apply - they advised to ask my Credit Union the exact terminology for the shares and they confirmed they're not a mutual fund or ETF and the own legal name is "shares". At the moment I am not sure if I need to file this or if my shares are considered PFIC's.
Form 5471: Ownership in a Foreign Corporation
[b]What I have done:[/b]
1) I talked to a tax professional and they quoted me $3000 USD to get me up to date, I do not think this is justified, especially because of my low income and that I wont even owe any taxes.
2) Talked to the IRS. They provide no phone support my forms and they do not have offices where they provide support on these forms which is what I was looking to do since I am on the border with the US.
[b]What I plan to do:[/b]
I plan on filing all these forms myself. I already file my own Canadian tax returns.
[b]Conclusion:[/b]
I am looking for advice on if the forms above and asking if they are all applicable for me and my situation and if my written statements are correct. Any other advice is greatly appreciated. [/b]
Recent US Citizen - Want to confirm I am doing this right
Moderator: Mark T Serbinski CA CPA
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speer
Just a note. I was issued citizenship on March 24th of 2016 but it states I've been a citizen since birth. This bears the question if I would still be obligated to back file all my previous years with the streamlined program or not.
This Certificate of Citizenship (Form N-560) says:
"-having applied to the Director of U.S. Citizenship and Immigration Services for a certificate of citizenship pursuant to Section 341 of the Immigration and Nationality Act, having proved to the satisfaction of the Director, that (s)he is now a citizen of the United States of America, became a citizen therof on April 25th, 1994 and is now in the United States.
Now therefore, in pursuance of the authority contained in Section 341 of the Immigration and Nationality Act, this certificate of citizenship is issued this 24th day of MARCH 2016 and the seal of the Department of Homeland Security affixed pursuant to statue."
This Certificate of Citizenship (Form N-560) says:
"-having applied to the Director of U.S. Citizenship and Immigration Services for a certificate of citizenship pursuant to Section 341 of the Immigration and Nationality Act, having proved to the satisfaction of the Director, that (s)he is now a citizen of the United States of America, became a citizen therof on April 25th, 1994 and is now in the United States.
Now therefore, in pursuance of the authority contained in Section 341 of the Immigration and Nationality Act, this certificate of citizenship is issued this 24th day of MARCH 2016 and the seal of the Department of Homeland Security affixed pursuant to statue."
Depends on whether "citizenship on application†OR “automatic citizenship
For example compare "a" in each of the below:
8 USC § 1433 - CHILDREN BORN AND RESIDING OUTSIDE THE UNITED STATES; CONDITIONS FOR ACQUIRING CERTIFICATE OF CITIZENSHIP
a) Application by citizen parents; requirements
A parent who is a citizen of the United States (or, if the citizen parent has died during the preceding 5 years, a citizen grandparent or citizen legal guardian) may apply for naturalization on behalf of a child born outside of the United States who has not acquired citizenship automatically under section 1431 of this title. The Attorney General shall issue a certificate of citizenship to such applicant upon proof, to the satisfaction of the Attorney General, that the following conditions have been fulfilled:
(1)At least one parent (or, at the time of his or her death, was) is a citizen of the United States, whether by birth or naturalization.
(2)The United States citizen parent—
(A)has (or, at the time of his or her death, had) been physically present in the United States or its outlying possessions for a period or periods totaling not less than five years, at least two of which were after attaining the age of fourteen years; or
(B)has (or, at the time of his or her death, had) a citizen parent who has been physically present in the United States or its outlying possessions for a period or periods totaling not less than five years, at least two of which were after attaining the age of fourteen years.
(3)The child is under the age of eighteen years.
(4)The child is residing outside of the United States in the legal and physical custody of the applicant (or, if the citizen parent is deceased, an individual who does not object to the application).
(5)The child is temporarily present in the United States pursuant to a lawful admission, and is maintaining such lawful status.
(b) Attainment of citizenship status; receipt of certificate
Upon approval of the application (which may be filed from abroad) and, except as provided in the last sentence of section 1448(a) of this title, upon taking and subscribing before an officer of the Service within the United States to the oath of allegiance required by this chapter of an applicant for naturalization, the child shall become a citizen of the United States and shall be furnished by the Attorney General with a certificate of citizenship.
8 USC § 1431 - CHILDREN BORN OUTSIDE THE UNITED STATES AND RESIDING PERMANENTLY IN THE UNITED STATES; CONDITIONS UNDER WHICH CITIZENSHIP AUTOMATICALLY ACQUIRED
a)A child born outside of the United States automatically becomes a citizen of the United States when all of the following conditions have been fulfilled:
(1)At least one parent of the child is a citizen of the United States, whether by birth or naturalization.
(2)The child is under the age of eighteen years.
(3)The child is residing in the United States in the legal and physical custody of the citizen parent pursuant to a lawful admission for permanent residence.
For example compare "a" in each of the below:
8 USC § 1433 - CHILDREN BORN AND RESIDING OUTSIDE THE UNITED STATES; CONDITIONS FOR ACQUIRING CERTIFICATE OF CITIZENSHIP
a) Application by citizen parents; requirements
A parent who is a citizen of the United States (or, if the citizen parent has died during the preceding 5 years, a citizen grandparent or citizen legal guardian) may apply for naturalization on behalf of a child born outside of the United States who has not acquired citizenship automatically under section 1431 of this title. The Attorney General shall issue a certificate of citizenship to such applicant upon proof, to the satisfaction of the Attorney General, that the following conditions have been fulfilled:
(1)At least one parent (or, at the time of his or her death, was) is a citizen of the United States, whether by birth or naturalization.
(2)The United States citizen parent—
(A)has (or, at the time of his or her death, had) been physically present in the United States or its outlying possessions for a period or periods totaling not less than five years, at least two of which were after attaining the age of fourteen years; or
(B)has (or, at the time of his or her death, had) a citizen parent who has been physically present in the United States or its outlying possessions for a period or periods totaling not less than five years, at least two of which were after attaining the age of fourteen years.
(3)The child is under the age of eighteen years.
(4)The child is residing outside of the United States in the legal and physical custody of the applicant (or, if the citizen parent is deceased, an individual who does not object to the application).
(5)The child is temporarily present in the United States pursuant to a lawful admission, and is maintaining such lawful status.
(b) Attainment of citizenship status; receipt of certificate
Upon approval of the application (which may be filed from abroad) and, except as provided in the last sentence of section 1448(a) of this title, upon taking and subscribing before an officer of the Service within the United States to the oath of allegiance required by this chapter of an applicant for naturalization, the child shall become a citizen of the United States and shall be furnished by the Attorney General with a certificate of citizenship.
8 USC § 1431 - CHILDREN BORN OUTSIDE THE UNITED STATES AND RESIDING PERMANENTLY IN THE UNITED STATES; CONDITIONS UNDER WHICH CITIZENSHIP AUTOMATICALLY ACQUIRED
a)A child born outside of the United States automatically becomes a citizen of the United States when all of the following conditions have been fulfilled:
(1)At least one parent of the child is a citizen of the United States, whether by birth or naturalization.
(2)The child is under the age of eighteen years.
(3)The child is residing in the United States in the legal and physical custody of the citizen parent pursuant to a lawful admission for permanent residence.
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speer
Nelsona is correct, neither apply. My mother applied for me when I was 21.
The birth certificate also states "I currently reside at 'xyz city'" which I do not.
I talked to another accountant and we both agree regardless I would have to file using the streamlined process.
After doing some research and talking to this account I have narrowed down my list of what I am obligated to file in my circumstance. We've come to the conviction that a TFSA is not a foreign trust and would not require form 3520. Instead I would file form 8858 and declare an proceeds from the TFSA as ordinary dividends on my schedule B.
Heres what I have written down as a guide when I file my taxes:
Obligations as US Citizen tax reporting
New procedures for enacted Sept 1st, 2012 provide relief for foreign citizens whom unknowingly neglected filling income tax. Must submit to IRS 3 years past due tax returns, FBARs for past 6 years and IRS questionnaire.
Form 14653 - Streamline Disclosure Form
Form 1040 - (reports worldwide income)
• Report your TFSA income on schedule B as ordinary dividends. Disclose in the footnotes of your return that you have elected not file form 3520 since the TFSA is a financial account rather than a foreign trust.
• Report your self-employment income on schedule C and take any deductions you would normally take.
Form 1116 - (Canadian Tax paid is used for foreign tax credit)
Claim any FTC, but note you have to reduce the amount of FTC claimed on the basis of any income you exclude using form 2555.
Form 2555 or 2555-EZ - Foreign earned income exclusion
Exclude foreign earned income and to exclude or deduct certain foreign housing amounts. You can receive the income anywhere, including the U.S., as long as you were in a foreign country when you performed the services that gave rise to the income. 2015 exclusion rate: $100,800 per person.
“You can choose to use Form 2555 on your SE income if you want (since you operate out of Canada I wouldn't worry about doing "business" in the US, this area is pretty complex but that's my sense). What I would do if I was you is see if you can eliminate any tax owing using the FTC. If not use this form I guess. It should be fine, but always best to stay on the cautious side right?â€
You must meet either the Bona Fide Residence or Physical Presence Test, and you must make a valid election.
FinCEN Form 114 - (formerly Form TD F 90-22.1) - FBAR (Foreign Bank and Financial Accounts)
Use if have more than $10,000 USD in foreign country bank. File by April 15 of the following year, with automatic extension to October 15 for all filers. Electronic filing is done through the BSA E-Filing System site.
Form 8858 - Information Return of U.S. Persons With Respect To Foreign Disregarded Entities
Use this to disclose your TFSA. Filed yearly.
The birth certificate also states "I currently reside at 'xyz city'" which I do not.
I talked to another accountant and we both agree regardless I would have to file using the streamlined process.
After doing some research and talking to this account I have narrowed down my list of what I am obligated to file in my circumstance. We've come to the conviction that a TFSA is not a foreign trust and would not require form 3520. Instead I would file form 8858 and declare an proceeds from the TFSA as ordinary dividends on my schedule B.
Heres what I have written down as a guide when I file my taxes:
Obligations as US Citizen tax reporting
New procedures for enacted Sept 1st, 2012 provide relief for foreign citizens whom unknowingly neglected filling income tax. Must submit to IRS 3 years past due tax returns, FBARs for past 6 years and IRS questionnaire.
Form 14653 - Streamline Disclosure Form
Form 1040 - (reports worldwide income)
• Report your TFSA income on schedule B as ordinary dividends. Disclose in the footnotes of your return that you have elected not file form 3520 since the TFSA is a financial account rather than a foreign trust.
• Report your self-employment income on schedule C and take any deductions you would normally take.
Form 1116 - (Canadian Tax paid is used for foreign tax credit)
Claim any FTC, but note you have to reduce the amount of FTC claimed on the basis of any income you exclude using form 2555.
Form 2555 or 2555-EZ - Foreign earned income exclusion
Exclude foreign earned income and to exclude or deduct certain foreign housing amounts. You can receive the income anywhere, including the U.S., as long as you were in a foreign country when you performed the services that gave rise to the income. 2015 exclusion rate: $100,800 per person.
“You can choose to use Form 2555 on your SE income if you want (since you operate out of Canada I wouldn't worry about doing "business" in the US, this area is pretty complex but that's my sense). What I would do if I was you is see if you can eliminate any tax owing using the FTC. If not use this form I guess. It should be fine, but always best to stay on the cautious side right?â€
You must meet either the Bona Fide Residence or Physical Presence Test, and you must make a valid election.
FinCEN Form 114 - (formerly Form TD F 90-22.1) - FBAR (Foreign Bank and Financial Accounts)
Use if have more than $10,000 USD in foreign country bank. File by April 15 of the following year, with automatic extension to October 15 for all filers. Electronic filing is done through the BSA E-Filing System site.
Form 8858 - Information Return of U.S. Persons With Respect To Foreign Disregarded Entities
Use this to disclose your TFSA. Filed yearly.
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speer
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speer
Heres an update I got from an account friend:
"Honestly, the TFSA classification is a very complex area of cross border taxation. The gist is that since it may qualify as a foreign trust (form 3520) it cannot be seen as a disregarded entity (form 8858), however if it can be considered a disregarded entity it would not be a foreign trust, so by that logic it wouldn't really classify as either. Therefore I believe the approach of treating the TFSA as a financial account is most appropriate, and my firm has not (as far as I am aware) encountered any trouble from the IRS with this position.
Edit: The IRS is mostly concerned with people hiding money outside the US using various loopholes, and I guess including the income from the TFSA on your return would indicate you have nothing to hide and therefore the IRS shouldn't give you a hard time."
Im going to follow his lead.
"Honestly, the TFSA classification is a very complex area of cross border taxation. The gist is that since it may qualify as a foreign trust (form 3520) it cannot be seen as a disregarded entity (form 8858), however if it can be considered a disregarded entity it would not be a foreign trust, so by that logic it wouldn't really classify as either. Therefore I believe the approach of treating the TFSA as a financial account is most appropriate, and my firm has not (as far as I am aware) encountered any trouble from the IRS with this position.
Edit: The IRS is mostly concerned with people hiding money outside the US using various loopholes, and I guess including the income from the TFSA on your return would indicate you have nothing to hide and therefore the IRS shouldn't give you a hard time."
Im going to follow his lead.