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Taxation of US Citizens Living in Canada: IRS Streamlined

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Updated on July 11, 2023

For several years now, the Internal Revenue Service (IRS) has been engaged in a vigorous campaign against international tax fraud and failure to declare bank accounts outside the U.S., including Canada.

IRS streamlined filing compliance allows US citizens living in Canada to update their tax obligations without incurring penalties.

As a U.S. citizen or tax resident (including green card holders) residing in Canada, what are your U.S. tax obligations and what solutions are available to you? To answer your questions, we have called upon the contribution of tax experts from the Raymond Chabot Grant Thornton network.

Q: What are the income tax compliance requirements for U.S. citizens living in Canada?

A: U.S. citizens and resident aliens residing outside the United States are required to annually file a U.S. income tax return and declare worldwide income to the IRS, insofar as this income is equal to or greater than the personal exclusion amount and the applicable basic deduction.

Q: In addition to filing a tax return, are there any other requirements to meet?

A: In addition to filing an income tax return annually, U.S. citizens and resident aliens are required to file form FinCEN 114 (Report of Foreign Bank Accounts) to disclose their interest in certain financial accounts held outside the U.S., if such interest exceeds US $10,000 at any given time during the year.

Furthermore, U.S. citizens and tax residents must also report certain information to the URS on their registered education savings plan, tax-free savings account, foreign trusts, and may need to file form if they hold an interest in a foreign corporation.

Q: What are the applicable penalties if these requirements are not met?

A: U.S. citizens and tax residents who have not or have only partially met their tax obligations become exposed to significant penalties and the risk of legal proceedings. For example, if you omit to file a U.S. income tax return, the IRS can tax you up to 25% of the amount due.

Additionally, if you omit to file the FinCEN 114 report without a valid reason, you may be subject to a civil penalty up to $10,000 per unintentional violation. For intentional violations, penalties may amount to the higher of $100,000 and 50% of the value of the foreign account.

Q: What can I do to adjust my situation?

A: To encourage taxpayers to take action and adjust their tax file, the IRS introduced a voluntary disclosure program in September 2012. This program, named Streamlined Foreign Offshore Procedures for Taxpayers Outside the U.S., applies to U.S. taxpayers residing outside the U.S. who have omitted to file income tax returns or information forms, as well to those who omitted to declare certain income.

The disclosure consists in performing all of the following:

  • Filing income tax returns (including all information forms) for the last three years;
  • Filing the FinCEN 114 bank account reports for the last six years;
  • Paying taxes due plus interest (all penalties are withdrawn under this program).

We can help lighten your burden!

The rules surrounding tax obligations for U.S. citizens and resident aliens are numerous and complex. If you are a U.S. citizen or resident alien and have not met your tax reporting or other obligations with the U.S. tax authorities, consult a Raymond Chabot Grant Thornton specialist who will help you find the best solution for your situation.

Do you have questions relating to U.S. tax issues? The tax experts of Raymond Chabot Grant Thornton can help you!
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