US Citizens have to file US tax returns. Period. Full Stop. The IRS doesn’t care about technicalities, residency, or your feelings towards Washington. If you’re a US citizen, some version of the Form 1040 is in your future. And if you don’t file, there are penalties.
But what if you are one of those “Accidental Americans.” Maybe your parents were Canadians who happened to give birth to you on US soil. Or maybe you were born in Canada but have two US Citizen parents. For of you who are what I call “Accidentals” and who haven’t filed a US tax return before, the IRS has a program called the Streamlined Foreign Offshore Procedures criteria. (Note: This program is also open to more than just Accidentals.)
This SFOP has been in place since 2012, and allows delinquent taxpayers the opportunity to come into compliance with the IRS and US tax system, without triggering the hefty penalties and fees that the IRS likes to bludgeon unknowing filers with.
DO I QUALIFY?
In order to qualify, you need to hit two requirements:
· Be a “Non-Willful” Person. Very generally, if you were unaware that the IRS actually needed you to be filing paperwork with them, you likely meet this item;
· Be a “Foreign Resident”. If you have been out of the US for at least 330 days, or do not meet the Substantial Presence Test for at least one of the last three years, you meet this item;
If you meet these two requirements, you qualify for a waiver of all FBAR and FATCA penalties.
Now you need to submit some paperwork. Here is what is needed:
· Three years of tax returns;
· Six years of FBAR (FinCEN 114) filings;
· Complete Form 14653;
WHAT ABOUT MY CORPORATION/BUSINESS?
Remember that the IRS treats anything that isn’t US-based as “Foreign.” Therefore, even though you are a Canadian Resident, and hold a Canadian Corporation, the IRS classifies you as owning a “Foreign Corporation.”
And the rule is if you are at least a 10% shareholder in a Foreign Corporation, you need to file a Form 5471. There are ugly penalties if you miss this, and you’ll want to make sure you disclose these holdings properly. (More bad news – You may also be subject to the deemed repatriation rules in Section 965.)
Usual Disclaimer: This isn’t tax advice. Tax is complicated. Don’t rely on this info to make tax decisions – Hire someone to help you.