For those waiting for further analysis on the new IRS Instructions [Published on Friday, 07 September 2012 15:59 Written by Roy A. Berg JD, LL.M. (US Tax)]
If you are a US person residing in Canada and are one of the unfortunate few who does not have a graduate degree in US tax and who is not related to a cross-border US tax professional you may have missed filing one of the myriad of tax forms that are required every year (the failure to file of which can carry dire penalties). If this is the case, the IRS may have a new streamlined procedure just for you. The bad news is that few will likely qualify and those who do not qualify face serious consequences just for applying.
The new streamlined procedure went into effect on September 1, 2012. Click here to see the full text of the streamlined procedure. The program is designed for expats with simple returns and little or no tax due. But whether by design or defect, it threatens to entrap most of its likely applicants. For those who qualify, the new program may be a breeze. But for those who do not, and we suspect most expats will not, the streamlined procedure is a lot like a lobster pot – easy to get into, hard to live in, and harder to escape
Moodys Further Analysis: Completing the Questionnaire, or Entering the Lobster Pot.
Unfortunately the IRS has not given guidance as to which of the above-listed risk factors or combination thereof, will increase the taxpayer’s compliance risk, and therefore disqualify him from the streamlined procedure. Further, the questionnaire raises a number of extremely serious issues of which every taxpayer considering this procedure should be aware.
*is a certificate of loss of nationality really necessary when Canadian citizenship was taken out 33 years ago ? It seems that there is confusion over what is reasonable evidence of relinquishment. Never voted, no US passport ever. Never did anything US like ever except being born there.
@John Green,
…and we were warned we were relinquishing US citizenship by taking out Canadian citizenship — the US then changed the rules. They not only can, they will, do it again in the future as I see it.
You’re still down to your two choices:
1. Claim your relinquishment; get a Certificate of Loss of Nationality; be free from the absurdities. They can only get worse.
2. Take your chances; look over your shoulder; continue wondering if a certificate of loss of nationality is really necessary.
@John Green,
Re reasonable evidence of relinquishment,
You write, “Never voted, no US passport ever. Never did anything US like ever except being born there.”
Sounds like your ducks are lined up. I don’t know if you’ve looked at form 4079 Request for Determination of Loss of Nationality. which is part of one’s CLN application. That form contains the criteria by which your loss of citizenship is determined. It’s decided on the balance of probabilities, and from what you say above it sounds like your case is clear-cut.
If there’s a factor in your case that you think isn’t clear-cut, ask here — someone else may have had a similar factor in theirs and can give you some insight into how it was handled.
The 4079, which you fill out in advance, basically has all the information they need, along with your supporting documents, to make this determination, so the actual meeting goes pretty quickly. You see a clerk for about 5-10 minutes, who photocopies documents and takes your forms, then you wait in the waiting area, then you have a brief meeting with a vice consul (mine was about 10 minutes), which is mainly signing forms. The vice consul reads your 4079 while you’re waiting, so unless something isn’t clear to them, the meeting goes really fast.
The application is officially approved in Washington, but for all intents and purposes the vice consul makes the determination while you’re there, based on your 4079, supporting documents and any questions they might have regarding your 4079 (which they generally don’t seem to).
@John Green. Calgary is correct. You can either get finality or bet that your ‘reasonable explanation’ will remain so in perpetuity AND that they don’t change the rules at some later date. Also, as pacifica says, the case you describe should be one of the easiest in terms of relinquishing and getting a CLN….at least under current practices. One thing I considered in my very similar case was what will financial institutions and authorities be doing in the future in terms of settling my eventual estate…at that time I will be unable to offer any ‘reasonable explanation’. So would my beneficiaries end up having to do battle with the IRS if there was no CLN on hand?
@Only a Canadian,
Excellent point regarding not wanting our beneficiaries to have to do battle or lose some of their inheritance, however big or small, to the US IRS. It is NOT theirs. It belongs to my kids.
@John Green,
Here is only one of the increasing “conferences” seen to get financial institutions ready to reel US Persons in: http://www.canadianinstitute.com/fatca
Some pretty big players as speakers and the costs for the privilege of learning all they need to know to give them the tools to “find us, guilty until proven innocent US tax cheats” is below. Similar conferences are taking place around the world. Does this give you confidence in wanting to take your chances; look over your shoulder; continue wondering if a certificate of loss of nationality is really necessary when you could so easily claim that relinquishment of 33 years ago?
Thank you all. The appointment is booked*
@John Green,
I hope we’ve given you enough information that your spouse can be confident in the decision.
‘A broken man on Halifax pier’ just commented to another: “It will feel better when it is done.” The monkey will be off your spouse’s back; your spouse will have that most important document to prove to anyone who really needs the proof (that both of you don’t really need) that your spouse is not a US citizen, not a US Person, not accountable to the IRS since 33 years ago. Good luck in your next steps. We’re here to try to answer any further questions you might have regarding the process.
Hi!
Does the new IRS Streamlined program that became effective Sept, 2012 apply to those that relinquish their US citizenship in 2012 & have never filed a US tax return? In this case the individual was born in the US & then moved to Canada at age 5 and remained in Canada for the past 58 years & was unaware of their US filing requirements. Can they now file only 3 years of returns under the IRS Streamlined program assuming they are a low risk liability instead of the 5 years noted on Form 8854, Part IV, Question 6? If so, how would you answer Question 6 in Part IV? Thanks!
Forgive the off-topic post, but is there some way to subscribe to an individual topic without actually posting to it? That’s why I’m making this post: so I can tick the “notify me of followup comments” box below.
@WhatAmI
You are supposed to be able to subscribe to the entire blog for new Posts, but I have found that it DOES NOT WORK, so unfortunately, you have to check. Don’t know why, as it did before we switched over to the .ca from .com.
The easiest way to check for new stuff, is to go to the top Bar, and look on Archives, and you then can quickly see what new posts have come in since the last time you checked. Also, you can check the column on the left for recent comments. However, you can miss stuff that way too. It is good to try to keep threads on topic, and a lot of question stuff is best asked on the Ask your questions links:
Expat Taxes and FBAR
Relinquishment and Renunciation of US citizenship
FATCA
Hope that helps
@just me
Like you, I don’t get new posts either since the switch either, the only way to know if there’s been any new topic posts for me is to keep refreshing Brock’s home page.
@whatami
ticking the box seems to be the only way to automatically receive new posts on a particular thread. I once had problems with even that until I realized that the new posts were going to my junk mail.
@ PATRICIA
Hang in there. Someone will get to your questions. If not, try posting them on this thread tomorrow …
http://isaacbrocksociety.ca/2012/01/13/ask-your-questions-about-renunciation-and-relinquishment-of-united-states-citizenship-discussion-thread/
@ Patricia
As far as I understand the “Streamlined Procedure” has nothing to do with renouncing, relinquishing or the 8854 form. The streamlined procedure will only bring you back into compliance with the IRS without any fines or penalties. If you a considering renouncing or relinquishing then you still have 2 more years of filing left in order to check yes for question 6/ IV on 8854.
You could use the streamlined procedure to come back into compliance with the IRS and file for the next 2 year and then renounce or maybe you could submit the last 5 years in the streamlined procedure and renounce after that. I don’t know what the IRS will think or ask when you send them 5 year of returns though 🙁
*one son was born in the US, lives there and serves in the US military. Will this make a difference to relinquishment in relation to any ties to the US, and where there are no other ties whatsoever?
@ John Green,
Having relatives in the US is no problem at all that I’ve ever heard of. It’s quite common for relinquishers to have close relatives in the United States, and of course you’re looking at the balance of probabilities in evaluating the existence of a relinquishment.
*is there any new news of the status of negotiations between Canada and the US on the IGA. There seem to be very few press reports and it is low on the radar screen.
@John Green…
Those discussions and news will probably happen on other threads, so you might want to keep a check here everyday to see what is new.
@Patricia –
It depends on how much certainty you want/need. I streamlined my own procedure by filing four years of returns plus FBARs without comment (all showing no tax due). My accountant: “If they want more, they’ll ask for them.” The IRS’s only response was to send me a cheque for $300, stimulus payment from a couple of years back. Eventually I got a letter from the FBAR people at the Treasury Department in Detroit asking for a reasonable-cause letter, which I sent them. Never heard a word from them again.
@Just Me
Only deafening silence that I know of. Some are speculating (hoping) that Flaherty may bring it up at the World Economic Forum happening as we speak:
Minister Flaherty to Highlight Canada’s Economic and Fiscal Leadership at World Economic Forum
I can’t seem to find and itinerary on the Forum on line…
* I have seen reference to the notion that we as Canadians can only spend a certain number of days each year in the US. If this number is exceeded one could be considered a US person and subject to filing and taxation. We often spend 3-4 months per year in the US. Are we vulnerable? What number of days are allowed?
@John Green
Non-residents who spend extended periods of time in the US can be deemed to have a substantial presence in the US and may be taxed by the IRS as US residents, subject to US taxes on their worldwide earnings. Basically, it is felt that anyone enjoying the comforts and benefits provided by the United States for an extended period of time has an obligation to contribute to the support of those amenities.
Non-residents that otherwise meet the substantial presence test may be exempt from being taxed as a U.S. resident if they are granted an exemption by reason of having a closer connection to another country.
For more info:
http://www.agtax.ca/canada-us-tax/the-closer-connecton-exception-and-substantial-presence-test/
How to Claim the Closer Connection Exception
If you anticipate going over the time specified for the Substancial Presence Test (below) (OR EVEN IF YOU DON’T I WOULD SAY, JUST IN CASE), each year you SHOULD MAKE SURE TO FILE Form 8840, Closer Connection Exception Statement for Aliens, http://www.irs.gov/pub/irs-pdf/f8840.pdf, to claim the Closer Connection Exception. “If you are filing a U.S. federal income tax return please attach Form 8840 to the income tax return. If you do not have to file a U.S. federal income tax return, send Form 8840 to the Internal Revenue Service Center (indicated in the instructions attached to Form 8840) by the due date for filing the income tax return.”
http://www.irs.gov/Individuals/International-Taxpayers/Substantial-Presence-Test
Substantial Presence Test
You will be considered a U.S. resident for tax purposes if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States on at least:
1.31 days during the current year, and
2.183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting: •All the days you were present in the current year, and
•1/3 of the days you were present in the first year before the current year, and
•1/6 of the days you were present in the second year before the current year.
Example:
You were physically present in the United States on 120 days in each of the years 2007, 2008, and 2009. To determine if you meet the substantial presence test for 2009, count the full 120 days of presence in 2009, 40 days in 2008 (1/3 of 120), and 20 days in 2007 (1/6 of 120). Since the total for the 3-year period is 180 days, you are not considered a resident under the substantial presence test for 2009.
Days of Presence in the United States
You are treated as present in the United States on any day you are physically present in the country, at any time during the day. However, there are exceptions to this rule. Do not count the following as days of presence in the United States for the substantial presence test.
•Days you commute to work in the United States from a residence in Canada or Mexico, if you regularly commute from Canada or Mexico.
•Days you are in the United States for less than 24 hours, when you are in transit between two places outside the United States.
•Days you are in the United States as a crew member of a foreign vessel.
•Days you are unable to leave the United States because of a medical condition that develops while you are in the United States.
•Days you are an exempt individual.
For details on days excluded from the substantial presence test for other than exempt individuals, refer to Publication 519, U.S. Tax Guide for Aliens,.
Exempt Individual
http://www.irs.gov/Individuals/International-Taxpayers/Conditions-for-a-Closer-Connection-to-a-Foreign-Country
Establishing A Closer Connection
You will be considered to have a closer connection to a foreign country than the United States if you or the IRS establishes that you have maintained more significant contacts with the foreign country than with the United States. In determining whether you have maintained more significant contacts with the foreign country than with the United States, the facts and circumstances to be considered include, but are not limited to, the following:
•The country of residence you designate on forms and documents
•The types of official forms and documents you file, such asForm W-9 (PDF), W-8BEN (PDF) or W-8ECI (PDF)
•The location of: •Your permanent home,
•Your family,
•Your personal belongings, such as cars, furniture, clothing, and jewelry,
•Your current social, political, cultural, or religious affiliations,
•Your business activities (other than those that constitute your tax home),
•The jurisdiction in which you hold a driver’s license,
•The jurisdiction in which you vote, and
•Charitable organizations to which you contribute.
Note: It does not matter whether your permanent home is a house, an apartment, or a furnished room. It also does not matter whether you rent or own it. It is important, however, that your home be available at all times, continuously, and not solely for short stays.
When You Cannot Claim Closer Connection to a Foreign Country
You cannot claim you have a closer connection to a foreign country if either of the following applies:
•You personally applied, or took other steps during the year, to change your status to that of a Lawful Permanent Resident, or
•You had an application pending for adjustment of status to Lawful Permanent Resident during the current year.
Indications of Intent to Change Your Status
If you have filed any of the following forms, this is an indication that your intent is to become a Lawful Permanent Resident of the United States, and is an indication that you are not eligible for the Closer Connection Exception.
•Form I-508, Waiver of Rights, Privileges, Exemptions and Immunities
•Form I-485, Application to Register Permanent Residence or Adjust Status
•Form I-130, Petition for Alien Relative
•Form I-140, Immigrant Petition for Alien Worker
•Form ETA-750, Application for Alien Employment Certification
•Form OF-230, Application for Immigrant Visa and Alien Registration
Is someone from the IRS sitting in their office making these calculations on visitors?*
I know, it’s absurd. I don’t “think” they have enough IRS staff to deal with all the issues they will have with expats ‘coming into compliance’ whether or not also ‘renouncing’. I do think your best course of action, given your time periods visiting the US, is to relinquish and thus have no US tax requirements from the date your spouse is claiming relinquishment, then to further protect yourselves with filing the Form 8840 each year.
But I also believe in the future of technology and eventually being caught up with at the border. It all points in that direction with all of the Canada – US “harmonization” of laws, usually to the downgrade of Canadian law. As I see it, filing the Form 8840 is the way to protect yourselves no matter if you have relinquished or not — especially since your spouse was ‘born in the USA’. I think we will witness many Canadian snowbirds tripped up by this sometime in the near future if they aren’t paying attention, whether they are Canadian only or dual or those who have relinquished or renounced US citizenship.
Canada and the United States announce Phase I pilot project to enhance border security at land ports of entry
Ottawa, Ontario, September 28, 2012 — The Canada Border Services Agency (CBSA) and the Department of Homeland Security (DHS) announced today that, effective September 30, 2012, both agencies will begin the Phase I pilot of the Entry/Exit initiative as outlined in the Beyond the Border Action Plan.
http://www.cbsa-asfc.gc.ca/media/release-communique/2012/2012-09-28b-eng.html