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Phil Hogan, CPA, CA, CPA (CO)
Cross-Border Tax and Investment Specialist
I’m an American living in Canada that has not filed US tax returns for some years (based on my conversation with my friends I’m not the only one). I’m curious to know about how the IRS streamlined tax program works for amnesty.
Do you help clients file late taxes under this program?
For those in Canada that are US citizens that have yet to file US tax returns whether they have moved in from the US, or they’re born in Canada to US parents, or born in the US and then moved shortly after their birth to Canada, that are US citizens or green card holders. They are required under US tax law to file US tax returns every year, in addition to foreign bank account reporting forms and all other treaty-based disclosures or forms that might go into the tax return.
For those US citizens or green card holders that have yet to file tax returns or late in filing their tax returns, the IRS has a program that allows you to catch up on your late US tax returns as long as you meet me specific criteria. in order to be eligible for the Streamline Tax Filing Program, you’ll need to first declare and certify under penalties and perjury that you were nonwillful in your filing. essentially, you didn’t really know you needed to file and when you became aware of the filing requirement you decided to get caught up on your returns asap. You would have to have lived outside of the US for at least 330 days out of each of the last 3 years for which your filing these streamline tax returns. assuming you meet the criteria to be eligible for the Streamline Tax Filing Program, you’ll be able to file late tax returns under this program and you should, if filed correctly, be shielded from any tax filing late penalties, FBAR penalties.
Let’s walk through a little bit what it looks like to file under the streamline program. We’ll use an example of an individual, who’s not married, who’s a US citizen living in Canada. This individual is employed by a Canadian company. This individual may have me investments and maybe me RRSPs. Under the streamline tax filing program, this individual is required to file the last 3 years of US tax returns and the way you do that is you would file the last 3 years of US tax returns that are officially delinquent or late. if you haven’t filed for an extension for the year…let’s say we’re talking about 2017, maybe 2018. If you haven’t filed for an extension by June 15 of 2018 for your 2017 tax return, that year would be late. right now, if we had clients come in and they want to file late US tax returns, they could file – the last 3 years they could file 2016, because 2016 would be like 2015 and 2014 US 1040 income tax returns. you file the last 3 years of late 1040 income tax returns, then on top of that, you’ll need to file the last 6 years of late FBAR or Foreign Bank Account Reporting forms.
Many people are familiar with FBAR forms because they’re the ones that carry that terrible $10,000 per unreported account penalty. essentially on your FBARs, assuming the total highest balance on your accounts in that particular year is over $10,000, you’ll need to file an FBAR. You will report on your FBAR, the total highest balance in each financial account, in which a financial account is simply a bank account or an investment account or retirement account that is not located in the US, it can be a Canadian account but it can al be a Swiss account, it can be an account in the UK. anything that’s not a US-based account.
You’ll report the highest value in that account and you convert it to USD on the last day of the year. you’ll file 6 years of FBAR forms, 3 years of US 1040 income tax returns, and we can’t forget that the 1040 income tax returns – the US tax returns, will include a lot of other compliance forms in there. If the client has Canadian mutual funds, they’ll have 8621 forms. If the client has Canadian corporations or a shareholder on a Canadian corporation, they’ll have 5471 compliance forms… there’s a lot that you need to flush out before you really understand what you need to file for US purposes. once the tax returns are complete and the FBARs are ready to be filed, what we would do – we would file manually the 1040 income tax returns, the 3 years of income tax returns, the certification document outlining that this file was in fact eligible for streamline, that goes in the mail, that gets sent to the IRS. Then we’ll e-file, electronically file 6 years of the form, bank account reporting forms at the same time the IRS knows that it all goes in one package.
And unfortunately you won’t receive certification from or confirmation from the IRS that they’ve received the streamline package, which would be nice but they don’t do that. And in most cases, no news is good news, now you could al within a couple of months phone the IRS just to confirm that they’ve received the package. me would argue that that’s not a great idea but that’s certainly an option. once you filed the streamline package, FBARs are filed, you can assume at that point you’ll fully caught up and compliant for US purposes and you really have to make sure at that point, that you continue to file on a go-forward basis. Unless you want to renounce your US citizenship, which is an option, and then you would renounce but you’d still have a fine in your file. that’s pretty much it for Streamline Filing in a nut shell.