Death, taxes and the U.S. expat

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tax

It seems that no citizen can escape the long arm of the United States Internal Revenue Service (IRS), even if he or she has escaped to Canada! All citizens of our southern neighbor, even the so-called “green card” holders, are required by law to file income tax returns to the IRS regardless of whether they live under the banner of a Maple Leaf or a flag of a red, white and blue hue.

Surprising as it may seem, the IRS has a preference and that is the following: All the collective global income of U.S. taxpayers must be firmly within its grasp. If you fit into either of the above mentioned categories then you are likely under the proverbial thumb of the IRS. By the way, you are also conveniently labeled a “tax resident” under the auspices of a law called “FATCA” (more on that later).

In a nutshell, if you have a substantial presence in a foreign country where you make your money every year, your income is thus subject to American taxation. The litany of examples includes salaries, wages, dividends, interests, capital gains, revenue from a business, unemployment compensation, rental income and, honestly, practically any and every way to make a buck.

Conveniently, (for the IRS), there is a program in place to help get people caught up by filing three years worth of back taxes. Innocuously referred to as the “The IRS Fresh Start” program, it makes it easier for U.S. taxpayers to embody the second syllable of their designation and cough up delinquent taxes (and avoid terrifying tax liens that can be initiated by their command). Kind of reminds me of “customer service” when paying a parking ticket…

In order to ensure that resistance is futile, (I mean that compliance is in place), back in 2010 the IRS created what they named the “Foreign Account Tax Compliance Act” (or FATCA).

As previously pointed out, if you are an American who lives abroad, whether as a citizen or as a holder of a prized green card, you must file your tax form on or before the June 15 Expat American deadline. Additionally, lucky recipients will be mandated to turn in form 8938 in which they must list all foreign stocks, bonds, bank deposits and other financial assets.

Keep in mind that you would be wise to follow through with all this rigmarole because with FATCA, Canadian banks as well as all other foreign banks are now also required to report to the IRS. If you’ve been living abroad under the comfortable assumption that you are immune to all this, even if you have called Canada “home” for decades and decades, even if you have not so much as been sent a post card from them, you might be in for one rude awakening.

 

Written by Eric La Cara, Managing Partner and Tax Practice manager for Capital Tax. www.capitaltaxltd.com

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