U.S. citizens living in Canada: Understand your crucial U.S. tax forms and obligations

Over time, there have been lots of articles composed reminding U.S. citizens living in Canada to annually file a U.S. 1040 tax-return as well as the the FinCEN Report 114, Report of Foreign Bank and Financial Accounts (FBAR). While the U.S. 1040 and FBAR are crucial documents most U.S. ex-pats must complete, there are other U.S. tax filings that regrettably and all too frequently, are missed or not filed properly. A great deal of these missed tax filings relate with U.S. citizens living in Canada who possess/have an interest in Canadian companies or unlimited liability corporations, Canadian partnerships, Canadian trusts, RESPs and TFSAs or even owners of Canadian traded mutual funds or ETFs held in a non-retirement account.

Here are seven key forms to be aware of that in many cases are missed by U.S. tax filers living in Canada:

Form 5471: Information return of U.S. persons with respect to certain foreign corporations

This form is filed by any U.S. individual who is more than a 10% direct or indirect investor in a foreign company or any U.S. investor in a controlled foreign company (CFC), which broadly is a foreign company, more than 50% of which is owned by U.S. men. A U.S. citizen or resident who's an officer or director of a foreign corporation might also have a filing requirement if a U.S. person got stock in a foreign company. So, for instance, in the event that your business or you owns a business organization in Canada, then you will desire to file this type otherwise the penalty for not filing could not be as low as $50, 000.

Form 926: Filing demand for U.S. transferors of property to a foreign corporation

Any U.S. individual who transfers property to a foreign corporation and owns more than 10% of the inventory, or any amount of stock if money transferred is more than $100,000, should file this form with his or her U.S. tax-return. This form would use, for example, if a U.S. individual only was to contribute cash in exchange for stock to form a fully owned foreign company.

Form 8858: Information return of U.S. individuals with respect to foreign disregarded entities

A U.S. person that directly, indirectly or constructively possesses a foreign disregarded entity (FDE) must file this form. A FDE is an entity that's not created or organized in the United States and that's disregarded as an entity separate from its owner for U.S. tax functions. For instance, one member Endless Liability Company in Canada possessed by a U.S. individual would trip filing this type.

Form 8865: Return of U.S. individuals with respect to certain foreign ventures



This form should be submitted with a U.S. person who owned more than a 50% interest in a foreign venture during the year or owned at least a-10% interest if the venture was controlled by U.S. persons owning a 10% or greater curiosity. A U.S. person also has a filing requirement if he or she given property in exchange for a partnership interest if that person directly, indirectly or constructively possesses at least a-10% curiosity, or the worth of the property contributed exceeds $100,000.

Form 3520-A/3520: Annual information return of foreign trust with a U.S. owner

Form 8621: Information return by a stockholder of a passive foreign investment company or qualified electing fund.

A foreign trust with a U.S. operator, which can occasionally contain foreign pension plans, Registered Education Savings Plans (RESPs) and depending on how you may interpret the IRS Regulations, Tax-Free Savings Accounts (TFSAs), should file this form independently with the IRS by March 15 following the year to which it relates. Moreover, if a supply or alternative payment is received from the trust, Form 3520 might be needed (and needs to be filed together with the taxpayer's tax-return). Failure to file these forms topics the U.S. owner to an initial penalty equal to the greater of $10,000 or 5% of the gross value of the trust assets considered possessed by the U.S. person at the close of the tax year.

Any interest in an foreign "passive" inc (50% or more of its assets produce passive income or 75% of its income is inactive) has to be reported with this form. This type of investing includes other issues such as whether to produce a mark to market or qualified electing fund election, and afterwards how gains and earnings are taxed. As we mentioned in an earlier post, even owning shares in a Canadian mutual fund or Exchange-Traded Fund (ETF) could activate filing this type.

Form 8938: Declaration of foreign financial assets



A U.S. person must file Kind 8938 if he or she is a given individual who has an interest in given foreign financial assets and the value of these assets is more than the applicable reporting threshold. If they have recently been reported on among the forms listed previously, like the 8891, 3520 or 5471 some assets usually are not required to be individually recorded. Beginning with 2013, U.S. entities will be required to file this form as well as individuals.

As a U.S. tax filer, it's really important that you fully disclose all of your global fiscal interests to your U.S. tax preparer, so that they've a complete understanding of your financial affairs and can correctly address all of your U.S. tax filing obligations. Failure to file the above mentioned U.S. tax forms can lead to substantial non-compliance penalties. Additionally, make sure you constantly work using a professional preparer including a U.S. Certified Public Accountant (CPA) or an Enrolled Agent with the IRS who has a complete comprehension of Canadian and U.S. tax regulations and has expertise servicing U.S. citizens living in Canada. At Cardinal Level, we concentrate on helping U.S. citizens living in Canada with their complex cross-border tax filings and financial planning challenges.

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