A frequent contributor, Em, e-mailed her story to me.
I am Canadian (born in Canada). My husband is American (born in the USA) and became a Permanent Resident of Canada in 1996. We lived in the USA for 12 years after we got married in 1982. I was issued a green card that year which I never used — did not earn any wages in the USA — did not access any USA benefits — did not pay into Social Security and will not therefore be claiming it for myself in retirement. We came to Canada to visit my parents in the spring of 1994. My mother was taken to the hospital just hours before we arrived. Several weeks later she passed away but my father was not able to take care of himself and his home so I stayed to help.
I only got back to the USA on brief trips (a couple of weeks each) 3 times after that — all before the end of 1997. We had to winterize our house in the USA, bring belongings to Canada and prepare our USA house for sale (finalized in l997). I have not travelled into the USA in the past 15 years but my husband still makes frequent trips to the USA to visit his elderly mother. The years 1994 to 1997 were a particularly stressful time (my father also passed away) and the last thing on my mind was my green card status but it was a few years after I returned to Canada that I heard or read that if you did not keep your green card “active” when absent from the USA for a long period it would become null and void. All these years I have felt certain my green card was null and void. I put the card away — never used it — never realized I should have returned it and filled out a form of some kind. I just found my old green card recently and happened to discover that the IRS has a classification called “US person for taxation purposes”. Now this card has become kryptonite in my hands.
RE: USA tax filing … My husband and I have filed jointly all through the years (we included a note saying I am a Canadian citizen, formerly a resident alien of the USA) but now we’re thinking it might be best for him to file separately to allow me to be completely free of the system (I hope it’s possible). We didn’t really know how to untangle his income from mine so we just did what we thought was the right thing and declared both of our incomes on the 1040s so the numbers would match those on our Canadian returns. (We have always included a copy of our Notices of Assessment with our 1040s.) Like most couples, our accounts (merely chequing, saving and GIC), were all jointly held for many years but not so now as we decided a few years back to completely separate them with my husband having no signing authority over my individual accounts (not what we would like to do but we sensed it was better that way when we saw the change in the FBAR form).
RE: FBAR filing … My husband has always completed a FBAR with all of his individual and our joint accounts listed. I never did a FBAR for my individual accounts because I did not think I was “US person” of any kind since 1994 or at least 1997 (my last visit to the USA). Apparently the IRS considers me to still be a “US person for taxation purposes” because I still possess what I believed to be a null and void green card. I have never professed to be anything but a Canadian and I cannot afford to pay an “expert” to explain to me a safe way to disentangle me from this mess.
If I try to return my old green card at this late date to get an ALPRS (I-407) I think it might put up red flags and expose both my husband and myself to some “unknown unknowns” (audits?, penalties?, more intrusive forms?, IRS and/or Treasury Dept. harassment?). Whatever I do, I cannot jeopardize my husband’s ability to visit the USA to see his mother. (I decided years ago that I would never go to the USA for any reason.) Now FATCA hangs over our heads and yet another intrusive form (i.e. 8938) has arrived on the scene with penalties as severe as FBAR. We are in a Catch 22 despite our attempts to maintain IRS compliance. Meanwhile, the IRS continues to churn out complexities which are beyond all reason and ken and threatens everyone (including those who owe no tax) with bankrupting penalties. I simply want and believe I am entitled to complete freedom from the USA tax system. For now all I can do is tentatively trust the Canadian government to protect me from IRS penalties and hope some degree of sanity prevails in the USA regarding the large net the IRS casts out to catch the big offshore tax evaders (i.e. the “whales”) while entangling innocents living abroad (i.e. the “minnows”).
FBAR = Report of Foreign Bank and Financial Accounts
FATCA = Foreign Account Tax Compliance Act
ALPRS = Abandonment of Permanent Residence Status
Form 8938 = Statement of Foreign Financial Assets