Monthly Archives: October 2014

To fly to the USA or not to fly to the USA – the question for Canadian #Snowbirds

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.

Taxation abroad of US Social Security – Are you are US person or non resident alien?

The above tweet references a great post on Social Security benefits. As always, the question is whether you are ot are not a “U.S. person”. The article includes:

A portion of your Social Security retirement, survivors, or disability benefits may be subject to Federal Income tax. Supplemental Security Income (SSI) or Special Veterans Benefits (SVB) are not taxed. Generally, SSI makes monthly payments to people who have low income and few resources and are age 65 or older; blind or disabled. Disabled or blind children also can receive SSI. SVB can include a monthly compensation paid to veterans who are hurt or who acquire a medical condition during military service.

Under current law, no federal income tax is paid by any person (whether US or non-US) on more than 85 percent of his or her Social Security benefits. The federal income tax rules and filing requirements are different for US persons and non-US persons.

Read the complete post here.

#PFIC and Canadian mutual funds revisted – Are they or aren’t they?

The purpose of this post is to highlight four articles on PFICs and how they may apply to the lives of Americans Abroad.

1. A post written by a CPA – Good practical advice on how to deal with them

The above tweet references a nice post by Tax Samurai. It’s a “no nonsense” post that discusses:

– the December 2013 8621 requirements (or not)

– whether a Canadian mutual fund is a PFIC or not (noting that the IRS has not ruled that a Canadian mutual fund is a PFIC)

Of particular interest is:

The remaining of this article is written under the assumption that Canadian mutual funds (treated as trusts under Canadian law) are PFICs. It is however noteworthy to note that while Canadian mutual funds definitively meet the “passive” part of the PFIC definition (income test & asset test discussed below), it is debatable that it is a corporation.

The IRS says that it is a corporation if it is not a trust (Section 301.7701-2(a))1

A Canadian mutual fund might or might not be an investment trust as described in 26 CFR 301.7701-4 (c)(1) – in which case the mutual fund will not be a PFIC2.

The IRS has not ruled on whether Canadian mutual funds are trusts or corporations in the context of PFIC (and the ruling found was a private ruling letter, hence even in exact same context, would not set precedent to other taxpayers) – so no precedent exists.

In 2 instances, the IRS ruled that Canadian mutual funds were corporations:

– Private Letter Ruling 200024024:

– Memo (UILC: 2103.00-00):

The IRS has not issued a revenue ruling on the subject so in theory it would still be possible to roll the dice on that but the above should show strong indication that the IRS sees most Canadian mutual funds as corporations.

Also, if unsure if you have a PFIC, you can make a protective statement (described under “Protective statement regime” on page 5 of the instructions – if it later turn out to be a PFIC, the protective statement allows the taxpayer to make a late election)

2. A post written by a CPA – how to deal with the basic 1291 PFIC fund

3. Richardson submission to the Senate Finance Committee – Attempt to explain the punitive nature of PFIC Taxation/Confiscation

4. Stephanie Ray (a law student) writes on the policy aspects of treating Canadian mutual funds as PFICs



For permission to file U.S. taxes you need a TIN which is either a SSN or an ITIN

Many Americans abroad have not aware of their obligation to file U.S. taxes. Some categories of people who are NOT “U.S. persons” are also obligated to file U.S. taxes. Basically without some kind of TIN (“Taxpayer Identification Number”) you can’t file a U.S. tax return period.

The Acronyms:

TIN – Taxpayer Identification Number

SSN – Social Security Number

ITIN – Individual Taxpayer Identification Number

The question becomes:

Which kind of TIN should you have? Should you have a SSN or should you have an ITIN?

U.S. tax lawyer Virginia La Torre Jeker explains explains this very well in her post:

Help I’m Trying To Become Tax Compliant But Have No SSN – IRS Provides A Solution

Her answer includes:

The Taxpayer Identification Number (TIN) for U.S. citizens is their Social Security Number (SSN). An alternative Taxpayer Identification Number is the Individual Taxpayer Identification Number (ITIN), which is often issued to so-called resident aliens or nonresident alien individuals who may have a US tax reporting obligation. U.S. citizens are not eligible for this type of identification number and should not apply for an ITIN. In order for US persons to fill out a tax return, they must have a SSN. Many US citizens living abroad did not receive a SSN as a child, and after the age of twelve it is particularly difficult to get one. This causes big problems when trying to file US tax returns or pay taxes later on in life.

The necessity of having a SSN to fill out tax returns also leads to problems for people who wish to renounce their US citizenship since doing so requires five years of tax compliance prior to expatriation. The number of people who are renouncing their American citizenship is rising, in part, due to the implementation of the Foreign Account Tax Compliance Act (FATCA), a law which puts greater scrutiny on foreign accounts held by U.S. persons. With more people renouncing their American citizenship, there is a greater number of people without SSNs who are scrambling to get one, in order to fulfill their tax duties. If you wish to read more about the US tax consequences of expatriation or the latest legislative proposals heaping additional sanctions on certain expatriates, read my blog postings here, here, here and here.

In any case, you can read the complete post here.

Update for those claiming “dependents”: