I am a U.S. citizen and have resided in Canada for years and have not filed U.S. Returns. What can I do or what could happen if I do nothing?

Answer

U.S. persons including U.S. citizens or green card holders residing in Canada who are not up to date with their U.S. filing obligations should consider the available programs in an effort to become tax-compliant.

The updated streamlined procedures announced on June 18, 2014 modified changes to the 2012 streamlined program, now known as the Streamlined Foreign Offshore Program (“SFOP”) requiring the filing of 3 years of past-due returns (with required disclosures and international information returns) plus 6 years of FBARs.

There were also modifications to the 2012 Offshore Voluntary Disclosure Program (“OVDP”) and a new streamlined procedure called Streamlined Domestic Offshore Program for U.S. persons residing in the United States.
The advantage of utilizing SFOP is that civil penalties including tax related penalties or information return penalties will be waived unless examination results in a determination that the original non-compliance was fraudulent and/or the FBAR violation was willful. Only tax payable, if any, and interest is due with the SFOP submission including all required international reporting forms. Upon filing under the SFOP, if there is a tax deficiency, tax related penalties could apply to the tax deficiency.

You may refer to www.irs.gov/Individuals/International-Taxpayers/Streamlined-Filing-Compliance-Procedures for detailed information.

Your exposure if you do not become tax-compliant

With FACTA between Canada and the U.S., the sharing of financial account information becomes effective July 1, 2015 as Canadian financial institutions began their due diligence procedures in 2014. The financial information is provided to CRA who then may provide such information to the IRS in accordance with the Exchange of Information provision of the Canada/U.S. tax treaty (“treaty”). The sharing of financial information could cause an IRS examination. You may refer to www.fin.gc.ca/n14/14-018-eng.asp for information on FACTA.

If the IRS has initiated a civil examination of a taxpayer’s returns for any year regardless if the examination relates to undisclosed foreign financial assets, the taxpayer will not be eligible to use any of the available programs.
Civil penalties including those that are tax related (failure to file/pay/accuracy related), information return or FBAR related and potential criminal penalties could be significant if the normal assessment procedures applied.

Contact your professional advisor prior to implementing any of the outlined strategies.

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