— US Taxation Abroad (@TaxationAbroad) October 27, 2014
The article referenced in the above tweet details why Canadian Snowbirds are not eligible for the IRS Streamlined Compliance Program. The article will put “the fear of God” in Snowbirds and may cause them to rethink spending their winters in and and spending their money in the United States.
In any event …
The reasoning, which is explained in the article is simple.
Since June 18, 2014 there have been two versions of Streamlined Compliance.
1. Streamlined Compliance for Non-Residents: In order to qualify for “non-residence” one must not have spent more than 35 days in the United States in any of the previous three years. The whole point of being a Snowbird is that you will spend more than 35 days a year in the United States.
2. Streamlined Compliance for U.S. Residents: In order to qualify you must have filed a 1040 (U.S. tax return) the three previous years. Canadian snowbirds do NOT file U.S. tax returns and are therefore not eligible.
Therefore – QED – Canadian Snowbirds are NOT eligible for Streamlined Compliance.
The article the points out that the only compliance options for Canadian Snowbirds are the Offshore Voluntary Disclosure Program (which no sane Snowbird would do) or just filing the past due returns (clearly the better option for those didn’t know they were in violation of the laws of the USA).
Obviously this dilemma would apply only to Canadian snowbirds who have met the “substantial presence test” (which is a complicated test) and have NOT filed the Form 8840 “Closer connection form”.
It would also apply only to a Snowbird who was aware of this dilemma.
Frankly, I think it’s unlikely that:
1. A snowbird would enter any kind of IRS compliance program; and
2. Still want to be a Snowbird.
What does all this mean?
It’s hard to believe that the IRS would want to put Canadian Snowbirds who just happened to meet the “substantial presence test” in a worse position than Americans abroad (after all the U.S. does want Canadian money doesn’t it?).
Hence, I am inclined to regard this as the result of trying to construct overly-precise rules – an “unintended consequence”.
What the IRS really should do is:
Simply have a general amnesty for those U.S. taxpayers who were unaware of their filing obligations! This is NOT a new idea. It has worked in other countries, why not the USA?
Advice for Canadian Snowbirds:
My advice to a Canadian Snowbird would be to fly somewhere other than the USA for the winter. You won’t need a lawyer to advise on your every move.