Do you have a United States (US) Tax Problem?
3 Questions to ask yourself:
- Are you a US Citizen already? (you may not know it – but you could be).
- Do you have a US Green Card or Expired Green Card? (work or may have worked in the US).
- Do you spend, on a 3 year weighted average basis, more than 183 days per year in the US? (Snowbirds can easily meet this test)
If you answer perhaps “yes” to any of the 3 questions, then you may have a substantial US tax problem.
Unlike other taxing countries which tax residents of that country on their world income, the US taxes its “citizens” and “residents” on their world income. In addition to annual US income tax return obligations, there are numerous information returns (disclosure forms that do not directly generate tax but that the IRS uses to track tax evaders, etc.) that need to be filed annually if you are caught by the US rules. In addition, there are some periodic filings that can result in Estate Tax issues (if you die your Executor can have these filing problems) and Gift Tax issues (transferring property to someone else).
While you may not actually owe US tax (because you are resident in another country – Canada for example – and your income is fully taxed in Canada), the neglect to file the annual US tax return, the annual information returns, and failure to file and pay Estate and Gift Tax can result in punitive penalties ($10,000 USD per information return per year as an example).
Are you a US Citizen?
Given that Canada is geographically close to the US, many Canadians may actually be US Citizens but not know it. Common situations include if you were born in the US but moved to Canada when you were too young to know it. There are also less common situations for example:
- You were born in Canada to two US citizens or,
- You were born in Canada to one US citizen and that US citizen resided in the US for certain periods of time (this varies depending on the date of birth of the child and the related US legislation in force at that time – there are many complex considerations)In the above examples, it does not matter that the you do not have a US passport, SSN, US birth certificate, etc. If your birth fits the facts, then you are automatically a US citizen and therefore responsible for US tax filings.
In addition, US Citizens living abroad who also own a significant percentage (10% or more) of non-US corporations in which more than 50% of the shares of that corporation are owned by US taxpayers (who each own at least 10% of the shares) have an enormous tax problem which is beyond the scope of this article. In essence, the US wants to ultimately receive taxes from these US Citizens on accumulated profits (retained earnings) earned by these related non-US corporations though a complex mechanism. This provision may well result in excessive amount of taxes owing to the US which may or may not be creditable on taxes owing in Canada. In other words, there is a high degree of probability of double taxation. See the following link on this GILTI Tax:
Do You have a US Green Card, Expired or Active?
Green card holders, including those with expired Green Cards who moved to Canada, may be treated as a US resident and again subject to all the US filing requirements. Unless you “Terminate” the Green Card, the filing requirements are still in force!
Spending Too Much Time in the US
Through a complex calculation, if you spend a lot of time (more than 183 days per year on a 3 year weighted average basis), then you are considered a US “resident” (even though you may also be resident in Canada!) and again are subject to all the US filing requirements. Canadian Snowbirds can often meet this test and be subject to US filing problems!
What Can You Do if You are Affected?
The failure to deal with any US filing obligations are punitive with severe financial penalties that do not go away even if you die (your Estate/Executor can be on the hook!). In addition, the likelihood of being “caught” increases each year as Canada and the US have cross-border information sharing requirements including between the CRA and IRS and even involving financial institutions (banks, etc.) who are also responsible for reporting to the CRA/IRS when there are special circumstances.
If you are affected, serious consideration should be made to Renouncing your US Citizenship or taking steps to eliminating your Residency Status in the US. Renunciation and Residency are very complex situations and are therefore costly undertakings. There are only a handful of qualified professionals in Alberta who we feel confident are competent enough to deal with the myriad of issues involved.
We would be happy to discuss your concerns and refer you to qualified professionals if you have a US Tax Problem. In addition, you can visit the below website for more information:
ROMANOVSKY & ASSOCIATES LLP
CHARTERED PROFESSIONAL ACCOUNTANTS
Keith M.J. Anderson* BCom, CPA, CA-IT, CITP
Chartered Professional Accountant and Chartered Accountant (Canada)
CA-Designated Information Technology Specialist (Canada)
Certified Information Technology Professional (US)
* Professional Corporation