Dual-since-childhood
Moderator: Mark T Serbinski CA CPA
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dual_neverfile_notaxowing
- Posts: 10
- Joined: Mon Jul 18, 2011 11:28 am
Dual-since-childhood
I'm a dual citizen since childhood (Canadian resident and citizen continuously for the past several decades though born in the US); always paid Canadian income taxes, fully up to date with Canadian tax, but never filed US anything. As far as I know I don't owe any US tax. What should I do?
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dual_neverfile_notaxowing
- Posts: 10
- Joined: Mon Jul 18, 2011 11:28 am
I know this has been addressed before (e.g. oldgringo) but wanted to know more details on the basis/argument for QD. Is the idea that if you file for first time and are assessed as zero owing and your 9981 backfile (RRSP setup) accepted you then at that point meet the situation in FAQ 17, file the FBARs by Aug 31 and can resume 'normal life'?
Is my understanding of the following stuff correct?:
This procedure has to be assessed against going into an ODVI process that doesn't really seem designed for this case (e.g. FAQ52(3) example 1 - the so called expat exemption, the guy in that example could have lots and lots of US tax owing and he gets the 5% of financial assets penalty). If we go into ODVI although not owing any US tax we lose the ability to appeal to any reasonable causes within the program, and in theory could end up being bumped up to 25% of assets somehow with no feasible avenue for appeal.
On the other hand with FAQ17 we retain consideration of some type of reasonable causes if we were audited (such as, never having resided in US as an adult, having paid Canadian taxes for decades); but on the other hand the penalties in theory could be more than a person's total net worth, with it would appear recourse being to courts on the basis of FAQ17 only and not on reasonable cause? Hence whether FAQ17 applies to this case and would be an airtight basis for appeal matters quite a lot for those of us having to decide whether to enter the (criminal) disclosure process - ODVI - or do QD.
Is my understanding of the following stuff correct?:
This procedure has to be assessed against going into an ODVI process that doesn't really seem designed for this case (e.g. FAQ52(3) example 1 - the so called expat exemption, the guy in that example could have lots and lots of US tax owing and he gets the 5% of financial assets penalty). If we go into ODVI although not owing any US tax we lose the ability to appeal to any reasonable causes within the program, and in theory could end up being bumped up to 25% of assets somehow with no feasible avenue for appeal.
On the other hand with FAQ17 we retain consideration of some type of reasonable causes if we were audited (such as, never having resided in US as an adult, having paid Canadian taxes for decades); but on the other hand the penalties in theory could be more than a person's total net worth, with it would appear recourse being to courts on the basis of FAQ17 only and not on reasonable cause? Hence whether FAQ17 applies to this case and would be an airtight basis for appeal matters quite a lot for those of us having to decide whether to enter the (criminal) disclosure process - ODVI - or do QD.
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dual_neverfile_notaxowing
- Posts: 10
- Joined: Mon Jul 18, 2011 11:28 am
One reason why it's seen to be fair is because OVDI gives the taxpayer immunity from criminal prosecution - hence one could argue that there isn't a 0% option for that reason.
What is missing is a non-criminal disclosure process - in other words I don't get immunity from criminal prosecution (because I feel I do not need it) but I can come forward as an "expat" or "accidental american" to put my affairs in order and get into compliance without the risk of being bankrupted by penalties (like 100k, 10k multiplied by years or accounts etc that were originally designed for drug cartels and money launderers.
Just as a suggestion, for non-criminal disclosure process, this could use the "expat exemption" criteria (US income < $10,000, residence outside US, and having paid foreign taxes) with a range of 1%-5% financial assets penalty - presumably the 1% could be for people with no tax owing - where 1% should usually be enough to pay for the administrative cost of back-processing these procrastinators; and 5% of financial assets is for expats who have a lot of US tax owing because the country they're in has a low tax rate. Alternately instead of 1% there could be some minimum fixed amount like $5000 that a person has to pay for being a procrastinator when no taxes owing but FBAR disclosure is late. Spelling it out like this both equitable and better than what we have now which is confusion for most of the Canadian-type cases involving long term migration across a very long border - remembering that Canada is US #1 trade partner and 90% of Canadians live within 100 mi. of US border. It's not exactly a Switzerland.
I'm not surprised that US doesn't think much about Canada other than for hockey, so just pointing out that criminal immunity process like OVDI not appropriate for 99.99% of Canadians who need to clean up their responsibilities as dual citizen, with most owing no tax to little tax due to tax treaty plus Canada's higher tax rates. Globe and Mail article stated that there could be up to 1 million Canadians who need to clean up.
What is missing is a non-criminal disclosure process - in other words I don't get immunity from criminal prosecution (because I feel I do not need it) but I can come forward as an "expat" or "accidental american" to put my affairs in order and get into compliance without the risk of being bankrupted by penalties (like 100k, 10k multiplied by years or accounts etc that were originally designed for drug cartels and money launderers.
Just as a suggestion, for non-criminal disclosure process, this could use the "expat exemption" criteria (US income < $10,000, residence outside US, and having paid foreign taxes) with a range of 1%-5% financial assets penalty - presumably the 1% could be for people with no tax owing - where 1% should usually be enough to pay for the administrative cost of back-processing these procrastinators; and 5% of financial assets is for expats who have a lot of US tax owing because the country they're in has a low tax rate. Alternately instead of 1% there could be some minimum fixed amount like $5000 that a person has to pay for being a procrastinator when no taxes owing but FBAR disclosure is late. Spelling it out like this both equitable and better than what we have now which is confusion for most of the Canadian-type cases involving long term migration across a very long border - remembering that Canada is US #1 trade partner and 90% of Canadians live within 100 mi. of US border. It's not exactly a Switzerland.
I'm not surprised that US doesn't think much about Canada other than for hockey, so just pointing out that criminal immunity process like OVDI not appropriate for 99.99% of Canadians who need to clean up their responsibilities as dual citizen, with most owing no tax to little tax due to tax treaty plus Canada's higher tax rates. Globe and Mail article stated that there could be up to 1 million Canadians who need to clean up.
I guess what's happened in that a lot of "accidental Americans" living in Canada have been caught in a net that was meant for millionaires living in Europe trying to hide their money from Uncle Sam.
I'm curious though. How long have you lived in Canada? Do you have an American SSN and passport?
I'm just wondering how the IRS would know about the existence of these Americans in Canada that have lived there since childhood.
It's one thing to move to Canada when you are in your 40's and have until then lived and worked in the U.S. Quite another to have moved to Canada when you are 10, obtained Canadian citizenship and have never returned to U.S.
I'm curious though. How long have you lived in Canada? Do you have an American SSN and passport?
I'm just wondering how the IRS would know about the existence of these Americans in Canada that have lived there since childhood.
It's one thing to move to Canada when you are in your 40's and have until then lived and worked in the U.S. Quite another to have moved to Canada when you are 10, obtained Canadian citizenship and have never returned to U.S.
OVDI does not apply to "accidental" US citizens unaware of filing requirement; all they need to do file 3 yearsd past; 6 year if they happen to owe some tax.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
the key part of this penalty is FBAR which does not make any sense for expats Americans.
offshore or not should be relative to the taxpayer where he/she lives -- not to US.
Even if Uncle Sam taxes to all its citiaens, the penalty of under reporting with respect to "offshore" should be treated same as any other under report -- no FBAR penalty at all.
offshore or not should be relative to the taxpayer where he/she lives -- not to US.
Even if Uncle Sam taxes to all its citiaens, the penalty of under reporting with respect to "offshore" should be treated same as any other under report -- no FBAR penalty at all.
I somewhat disagree: if one has filed a tax return and not FBAR, that should be penalized if discovered by Treasury before taxpayer, regardless of geography.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
people by common sense do not think of the place where they live as "foreign".
that is why FBAR should be exempt for expats Americans.
What if expats American under report his other income (like wage/tips), should that be treated the same as their local banks income ?
in my view, offshore is not only a geography, but also a jurisdiction issue, so for expats Americans live in Canada, their bank accounts outside Canada should be considered as offshore.
that is why FBAR should be exempt for expats Americans.
What if expats American under report his other income (like wage/tips), should that be treated the same as their local banks income ?
in my view, offshore is not only a geography, but also a jurisdiction issue, so for expats Americans live in Canada, their bank accounts outside Canada should be considered as offshore.
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dual_neverfile_notaxowing
- Posts: 10
- Joined: Mon Jul 18, 2011 11:28 am
Is there another wrinkle here pointing to the 5% expat exemption NOT applying to most Canada-US duals who are never-filed-no-tax-owing (NFNTO):?
FAQ 52(3) states:
" .....This exception only applies if the income tax returns filed with the foreign tax authority included the offshore-related taxable income that was not reported on the U.S. tax return"
The offshore related taxable income that they are talking about is the income in the accounts, e.g. interest.
A Canadian who has registered accounts would not have included the "interest" related to these accounts on Canadian tax returns because that was what he was supposed to do in Canada - including not just RRSP but also registered pension plans including Direct Contribution Pension Plans which are controlled by the taxpayer.
So the Canada-US dual citizen NFNTO situation really does seem to be without guidance. As such, I can see why nelsona keeps saying to trust the existing process.
FAQ 52(3) states:
" .....This exception only applies if the income tax returns filed with the foreign tax authority included the offshore-related taxable income that was not reported on the U.S. tax return"
The offshore related taxable income that they are talking about is the income in the accounts, e.g. interest.
A Canadian who has registered accounts would not have included the "interest" related to these accounts on Canadian tax returns because that was what he was supposed to do in Canada - including not just RRSP but also registered pension plans including Direct Contribution Pension Plans which are controlled by the taxpayer.
So the Canada-US dual citizen NFNTO situation really does seem to be without guidance. As such, I can see why nelsona keeps saying to trust the existing process.
right nelsona,
i plea guilty on non-RRSP and pay OVDI/FBAR penalty.
i also ask for forgiveness on RRSP missing files inside OVDI.
logically, i just do not know how to break up these two problems -- so take them all to OVDI and to be a sitting duck for beating up -:)
as i have said many times, i believe i deserve the penalty and grateful for having this discovered before being caught for criminal prosecution.
share my story to all -- so anyone could learn the lesson.
i plea guilty on non-RRSP and pay OVDI/FBAR penalty.
i also ask for forgiveness on RRSP missing files inside OVDI.
logically, i just do not know how to break up these two problems -- so take them all to OVDI and to be a sitting duck for beating up -:)
as i have said many times, i believe i deserve the penalty and grateful for having this discovered before being caught for criminal prosecution.
share my story to all -- so anyone could learn the lesson.
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dual_neverfile_notaxowing
- Posts: 10
- Joined: Mon Jul 18, 2011 11:28 am
But tsanaha it sounds like your case probably not similar to the average NFNTO Canadamerican, perhaps, in terms of magnitude, though for sure your approach of dividing it into two peices and trying to address the confusion through just going in very instructive to all of us.
There could be hundreds of thousands of Canadamericans (Globe and Mail said up to 1 million) in this situation, so given that very few of them have heard of any of this stuff at this point, how can OVDI 2011, which closes in 5 weeks, be the last program for dealing with them?
What is actually driving this is FACTA (Canadian banks have to send lists of citizens to the US) in 2013+. What is going to happen to say 100,000 blissfully ignorant dual citizens at that point? They either have to lie about where they were born, or face what? being bankrupted?
It isn't just the current process where Canadian non-filers haven't been given guidance -- it's the entire multi-year process that hasn't been spelled out - partly because Canada and the Canadian banks are still in the process of objecting to the whole thing on the grounds of Canada not being a tax haven (Min of Finance in Globe and Mail mid-June) asking for a Canadian exemption to the entire thing - so far the answer was no - possibly with an RRSP exemption - see article in Globe and Mail from last week.
Maybe even though the little guys who wandered into OVDI 2009 got crushed, maybe we should trust in our good neighbours, cousins, and allies for the NFNTO (Never Filed No Tax Owing) Canadian-American dual group, meaning file normally, pay whatever reasonable late fees they invoice us, and help them clear out huge NFNTO overhang prior to FACTA -** it should reduce the total cost of implementing FACTA I would note**. The average Canadamerican is a Canadian who loves the US (often with extensive family connections), hence all the freaking out when suddenly it seemed like it changed. That being said, having it laid out better like for example with a non-criminal extension of 52(3) with fair but not tough penalties for the average joe who wholeheartedly supports Canada being your strongest military ally, would just be neighbourly - of course such an extension of the process need not just be for Canada. Thanks cuz.
There could be hundreds of thousands of Canadamericans (Globe and Mail said up to 1 million) in this situation, so given that very few of them have heard of any of this stuff at this point, how can OVDI 2011, which closes in 5 weeks, be the last program for dealing with them?
What is actually driving this is FACTA (Canadian banks have to send lists of citizens to the US) in 2013+. What is going to happen to say 100,000 blissfully ignorant dual citizens at that point? They either have to lie about where they were born, or face what? being bankrupted?
It isn't just the current process where Canadian non-filers haven't been given guidance -- it's the entire multi-year process that hasn't been spelled out - partly because Canada and the Canadian banks are still in the process of objecting to the whole thing on the grounds of Canada not being a tax haven (Min of Finance in Globe and Mail mid-June) asking for a Canadian exemption to the entire thing - so far the answer was no - possibly with an RRSP exemption - see article in Globe and Mail from last week.
Maybe even though the little guys who wandered into OVDI 2009 got crushed, maybe we should trust in our good neighbours, cousins, and allies for the NFNTO (Never Filed No Tax Owing) Canadian-American dual group, meaning file normally, pay whatever reasonable late fees they invoice us, and help them clear out huge NFNTO overhang prior to FACTA -** it should reduce the total cost of implementing FACTA I would note**. The average Canadamerican is a Canadian who loves the US (often with extensive family connections), hence all the freaking out when suddenly it seemed like it changed. That being said, having it laid out better like for example with a non-criminal extension of 52(3) with fair but not tough penalties for the average joe who wholeheartedly supports Canada being your strongest military ally, would just be neighbourly - of course such an extension of the process need not just be for Canada. Thanks cuz.