Each year I help over 500 clients file their Canadian and US tax returns as well as plan for both their Canadian and US investment accounts. I also regularly help new US clients plan for their move to Canada.
I lived in Switzerland for a few years and I failed to file my US returns. I’m a US citizen, currently residing in the US but I have been living in Switzerland for a few years. I’m currently catching up with my delinquent US returns and I just have a small question for you, hopefully you can help.
In Switzerland, the government will assess you tax on a based amount if you don’t file your tax returns to prove to them how much income you actually earn. So for instance if you didn’t file your taxes they would assess you income on a base amount of $50,000 and apply tax to that amount and send you a bill.
If you fail to file a tax return showing them that you earned less income then you’ll just have to pay the tax. This is what happened to me in 2007. I failed to file my taxes and they assessed me on a base amount and I had to pay about $7,000 in tax. I neglected to file the tax return and I just went ahead and paid the $7,000 and left it. In fact, in that year I didn’t have any income at all.
So now when I get around to doing my 2007 US return, I don’t have any taxes or I don’t have income on the 1040 return however I’m wondering if I can use the $7,000 of Swiss tax I paid as a foreign tax carry forth to be used in 2008 where I had a significant amount of income. Does the IRS let me use this foreign tax carry forth although I didn’t have income on 2007?
Thanks for your help
It’s explicit in the US Tax code that for foreign taxes to be credible they would have had to been levied on income of that foreign country.
Because the taxes were not necessarily levied on income that you had in 2007, just the fact that you failed to file, it’s most likely gonna be difficult to have the IRA allow the foreign tax carry-forward from 2007 to 2008.
Hope that helps. Don’t hesitate to give me a call if you wanna discuss this further.
Phil Hogan, CA