# Married to a US citizen who never filed since leaving abroad



## Vit

First of all I want to thank all of you who contribute to this forum as it is very helpful. I have read multiple threads to try to get some answers to my multiple questions. I did find some partial answers but decided to ask my questions to get more specific answers.

I am the Canadian gay (I am only mentioning this in case it has tax implications) spouse of an American citizen and we live in Canada. I just discovered that unlike most other citizens, American citizens are subject to taxes not only in the country where they reside but also to US taxes permanently. Until now I thought that when we immigrated to Canada (for me from Europe) by paying our taxes to our home countries at that time, we had settled the tax bill with both governments. I was obviously wrong for the US.

I have some questions which I hope some of you may be able to help with:

1. As a non US person (to use the legal term I saw on the IRS website), my understanding is that I do not have to file a tax return with the US government although I am married to a US person. Am I correct? My only "presence" in the US is a chequing account that we opened a couple of years ago with a subsidiary of our Canadian bank for easy access to US cash when we travel south of the border. It pays no interests and a US credit card is linked to it for convenience as well. I (alone) have directly invested about USD 2,000 in US stocks that pay dividends for which the US taxes are deducted at the source and for which I pay Canadian taxes as well.

2. My spouse is not working due to grave illness and has never worked enough in Canada to even pay taxes here (he earned so little when working some years ago that the Employment insurance and the Canadian Pension Plan contributions that were deducted from his pay cheques were actually "returned" to him at tax time). He has therefore no "direct" income. Where it gets somewhat confusing for me is regarding our multiple joint accounts:

2a. We have a couple of savings accounts that accrue meagre interests for which I pay taxes to CRA (Canadian Revenue Agency). Would he need to declare these interests to the US government and although they are joint accounts would the whole amount of the yearly interests be taxable by the US?

2b. Somewhat similar to 2a, we have some direct investments (about CAD 20,000) in Canadian stocks that are held in "joint ownership with right of survivorship" enabling either one of us to become automatically (and outside of the estate) the sole owner if one of us would pass away. Although I pay the entire Canadian tax bill on the dividends, would the whole amount of the dividends be considered as income for him by the IRS? Also, if he were to pass away (which sadly will likely be sooner rather than later due to his illness), although the "transfer" of ownership to me would not have any tax implications in Canada due to the " right of survivorship" ownership, would this force me (as the survivor) to pay estate tax to the IRS although the investments are in Canada?

2c I opened a spousal Registered Retirement Savings Plan (RRSP) for him (about CAD 2,700) a few years ago and the interests are not subject to taxes in Canada since the money is in a RRSP. Are they subject to US taxes? I am not sure as I read in several places that as part of the tax treaty between the US and Canada, there is no taxes to be paid by Canadians who invest in the US as part of their RRSP and no taxes to be paid by Americans who invest in Canada as part of their 401K. Would this apply in this case? What would the consequences be? Would filing Form 8891 be sufficient to prevent taxes?

2d He has invested in a mutual Fund as a Tax Free Savings Account (TFSA) (about CAD 20,000) and no taxes is owed on that in Canada since it is in a TFSA. Would he owe taxes to the US on the distributions? I tend to think he does as I read that the US does not recognize Canadian TFSA accounts as "sheltered" accounts but I just want to make sure because since the mutual fund is in a TFSA, he is not provided with a T3 or T5 for tax purposes and it will therefore not be simple for us to figure out what the exact "income" is from it as well as what type of income (dividends, capital gain/loss or interests). I have read that reporting income from a non US mutual fund is nightmarish as we need to complete Form 8621 every year. Also if he were to pass away and although for Canadian Tax purposes I am the Successor Holder, would the IRS apply an estate tax based on capital gains as if the mutual funds had been sold right before the death? Should he sell the mutual fund now and simply put the money in a “simple” savings bank account (at least the interest reporting would be easier) even though the interests earned will be much smaller? 

I learnt about the tax filing when reading about FACTA that is becoming effective on July 1st. I also learnt that in order to comply with Canadian privacy laws, Canadian banks will not report account information of potential US persons directly to the IRS but will instead report it to CRA who will then report it to the IRS; but CRA has officially excluded RRSP, RIF, TFSA and other registered accounts from their reporting to the IRS.

3. Because we have major medical expenses due to his illness, would we be able to claim some of the expenses on a US tax return and therefore lower whatever amount of taxes may be owed, if any?

4. Should we take advantage of the Streamlined Filing Compliance Procedures announced of few days ago?
While I want us to comply with tax laws, I feel that because I am the sole income earner, it is my income that is actually being taxed by a foreign government. I am not sure what to do. 
Thank you.


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## Nononymous

First off, you have no direct responsibility for any US taxes. It's your spouse's obligation, and your spouse's decision. 

Your only concern would be that if you report your joint accounts via FBAR, you'll be sending the US government some of your personal and financial data. Some spouse's don't have a problem with that, some absolutely refuse and either get rid of the joint accounts or the US spouse renounces citizenship.

Typically on joint assets or accounts it would only be 50 percent counting for the US half of the relationship. Can arguably be less if you made the bulk of the contributions.

On the surface, it sounds like your spouse might not even be required to file a return if his/her income (solely from investments) is under the threshold. That number varies depending on filing status. So that might be very easy. Then the only requirement is to file FBAR forms for the various accounts, but as you rightly note, TFSA and RRSP accounts will not be reported under FATCA, filing FBAR is pretty much optional at this point - an act of conscience if you will.

And finally, with my condolences, if your partner's life expectancy is not long, why would you both want to bother going through all of these paperwork hoops. Likely no money is ever going to be owed to the US. Estate taxes should not be an issue at all - how would the US even know about any of this? (If there are no US assets, nothing would "force" you to pay the US anything, estate or otherwise. The IRS can't collect against Canadian citizens in Canada.)


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## Bevdeforges

I'm more or less with Nononymous - with just a little bit of clarification.

It's only your American citizen spouse who has any obligation at all regarding US taxes. And if he has not been earning sufficient income to have to file ($3500 in a year, filing as married, filing separately) I'd just ignore the whole thing.

Gay couples are now treated for US tax purposes just like any other married couple. (There is some hope for the way things are going back there!) OK, technically that means that your spouse should file an FBAR if the combined total of all non-US accounts held jointly with you exceeds $10,000. But FBARs are completely separate from the income tax filing and are just an informational return. If it makes him feel better to file, then do so.

The interest on the jointly held accounts could be reported as interest income - and he'd have every right to report only one-half on his income tax return. But if the total is under the $3500 threshold, there is no filing requirement anyhow. It could also be argued that, if you are the source of all the funds deposited in the accounts that the interest actually "belongs" to you and as long as you're reporting it to the Canadian tax authority, there's no need for him to report it anyhow. 

As far as inheritance or estate tax is concerned, there is nothing to worry about until and unless your partner's estate amounts to at least $3 million or so (might be $5 million by now - but a big number in any event). Below the threshold figure you don't even need to file an estate tax return for the US.
Cheers,
Bev


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## jbr439

The mutual fund in the TFSA is likely considered to be a PFIC (passive foreign investment company). PFICs have absolutely horrid tax implications to the point that it makes no sense to hold "foreign" mutual funds outside of a RRSP.

So, not only is the TFSA *not* considered to be a tax-free savings vehicle by the US, but any PFICs ("foreign" mutual funds) in it are taxed in a manner unlike anything that makes sense. Having said that, I *think* there is some kind of threshold involved in PFICs, so your spouse's CAD 20,000 may fall under that threshold. 

Basically, the only tax-sheltered savings vehicle the US recognizes is the RRSP (when the appropriate election is made). TFSAs, RESPs, RDSPs, are not recognized.

Note also that RESPs, RDSPs, and TFSAs are considered to be "foreign trusts" and thus come with special reporting requirements (see forms 3520 and 3520-A). FWIW, some folks say the TFSA may not really be a foreign trust and thus not have these reporting requirements (a position that makes sense to me, but IANATL).


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## Vit

Thank you very much Nononymous, Bev and Jbr439 for your quick, encouraging and complete responses. I will not worry about it anymore especially because of the CRA's position regarding the reporting on their part of Canadian registered accounts. I just have one final question to put my mind finally at rest. Could we be prevented from entering the US should the IRS decide to go after us?


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## Nononymous

Conveniently, all those RRSPs and TFSAs are not being reported under FATCA, so you don't have to enter that particular paperwork hell because you think you're going to be found out. It's purely voluntary compliance. Were I in the OP's partner's shoes, with income so low as to probably not require a return, I wouldn't be too interested in filing FBARs and opening myself up to all that PFIC nonsense.


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## Nononymous

Being held up at the border is the big unknown. It seem highly, highly unlikely. They would have to find him, claim he's done something wrong, then pursue further, by which time you'd have plenty of warning. Very unlikely for the small sums involved. (And entirely possible that he's not required to file anyway, so he's not actually done anything wrong as far as the IRS is concerned, FBARs aside.)

Pretty much the only time the US is made aware of his existence outside the US is when he renews his passport, every ten years. And it's by no means clear that passport application data is actually shared with the IRS.

I've been a cheerfully non-compliant dual citizen for years and never heard a peep. The only trouble was entering the US with a Canadian passport, apparently a no-no for US citizens. Otherwise nothing.


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## Vit

Thanks again Nononymous. It 's interesting that you have had problems entering the US with a Canadian passport because that is exactly what my spouse has been doing for the past few years when we go there and he has never had a problem. Only once the customs officer reminded him that by entering as a Canadian citizen he was subject to the same "stay limitations" as a "regular" Canadian citizen and he stamped his passport accordingly.

Thanks again for all your help.


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## Nononymous

The passport business is still pretty loose, but getting tighter. The law states that US citizens *must* enter with a valid US passport. A US birthplace on a Canadian passport can trigger questions. I had cited to me the "Western Hemisphere Travel Initiative" and the relatively new(ish) requirement for passports when crossing from Canada.

My story is amusing. My US passport expired, I didn't want to renew it until I figured out whether I wanted to become tax compliant (currently I don't) and there used to be a little declaration on the passport application where you listed your SSN and swore (on pain of a $500 perjury fine) that you were current on taxes. I crossed on my Canadian passport a dozen times with no issues. Sometimes I was asked about my citizenship (dual - I replied truthfully) and sometimes not. Then once I was denied entry on a business trip - my meetings were supposedly "working" and when I moaned that we do this all the time, he looked at the birthplace and started asking questions. I had my expired US passport with me, and got through on that, but was told to get a new one, pronto. Subsequently I traveled half a dozen times on the Canadian without ever being asked or troubled; last fall I renewed my US passport, but with a European mailing address, just to cover my tracks a little. Interestingly, though, the tax declaration is gone, they only want your SSN, you don't swear a little oath. My sense is that the State Department isn't too interested in playing tax collector, and supplies little or no information to the IRS.


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## Bevdeforges

Vit said:


> Thank you very much Nononymous, Bev and Jbr439 for your quick, encouraging and complete responses. I will not worry about it anymore especially because of the CRA's position regarding the reporting on their part of Canadian registered accounts. I just have one final question to put my mind finally at rest. Could we be prevented from entering the US should the IRS decide to go after us?


Before you would have any problems entering the US, you would have received at least a letter (or two or more) from the IRS asking the relevant questions. They aren't supposed to be able to put you on the list of "tax evaders" until after thy have raised the issue with you - and you have had the opportunity to respond.
Cheers,
Bev


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## Vit

Sorry to bother you again. I just need your opinions on something that just happened today. I logged in to our joint accounts on Computershare (Transfer Agent) where our $20,000 of Canadian shares are and they added an alert requesting that we fill out a W9 form (I guess they want to be ready for the July 1st implementation of FACTA in Canada; the alert was not there three weeks ago). Should I ignore the request and run the risk of having our accounts reported as “reluctant to provide information” to the IRS? Computershare is not considered a financial institution and may have to report directly to the IRS (without the CRA “buffer”) or should we provide my spouse SSN and have it then reported to the IRS? Any idea what may happen in either situation? I am also considering transferring all the shares into my name only but I am not sure Computershare would let us do that without filling out the W9 first.


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## Nononymous

That's interesting. I wouldn't ignore this, but would call Computershare and find out what's going on. Maybe they're doing this to everyone, maybe they have some US indicia for your account. Transferring the shares to your name only before 1 July should be an option, but who knows? These be uncharted waters.


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## Vit

Thanks for your great advise Nononymous. I called them and as soon as I mentioned that I had an alert on every single share account, the customer representative asked me what the alert said. I mentioned W9 form, She then simply asked me if I lived in Canada, I said yes. She just said not to worry about it and that the system had applied/sent the alert to all Computershare accounts.


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## Nononymous

Interesting. I'm sure there will be a lot of this going on in the weeks to come, and a lot of puzzled/angry phone calls.


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## Vit

Small update/twist in this story. I logged in to our account this morning (using the Canadian login page) to track some dividend transactions that had taken place on June 30 and noticed that the Alert was gone. After logging out I realized that I had forgotten to check something and therefore clicked on the "log back in" link on that page and was taken to the US login page (which seems to be the default page) and logged in through it and then the alerts showed up with a different wording than last week.It stated that due to FACTA, account holders needed to certify their US (or non US) status. (In the past the only difference between the US and the Canadian login pages was that if I logged in through the US page it was a "read only" type login (sufficient to look at transactions but not able to make any changes). I logged out and logged back in through the Canadian page and still no alert there. I am wondering whether they removed the alert from the Canadian Login Page because they received multiple complaints from Canadian account holders.


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## Nononymous

Do keep us posted. The thing I'm quite curious about, and will experiment with soon, is what does "certify non-US status" really mean? I have a feeling that some institutions, for smaller accounts at least, will regard having asked a yes/no question as being compliant - they will make no effort to validate the answer. So while I wouldn't necessarily lie on a W9 form (since that's telling the US government a direct falsehood) I and others might be more comfortable with the lesser sin of lying to a Canadian bank.


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## Nononymous

As something to do over breakfast I just attempted to open a Tangerine (formerly ING) savings account with a dummy identity. Nothing was asked about citizenship or US personhood. They take your Canadian social insurance number, of course.

This is info is buried on the site somewhere under legal:



> How will Tangerine know if the Canadian Tax Regulations related to FATCA apply to me?
> 
> If you have an existing Tangerine Account or are opening one, and there is an indication that you may be a U.S. Person based on the U.S. tax law definition, then we may ask you to provide additional information or complete a form to confirm your tax status.


Seems pretty loose, and I expect it will continue that way.


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## Vit

I took a quick peak at the process for Computershare. It involves filling out a W9/W8ben form. However until really forced to do so, we (since each of us would have to do it) are thinking of simply not complying with filling out the form (we do not want to lie on the form). We are aware that it will mean that the accounts will be classified as "“reluctant to provide information” and will be reported to CRA which in turn will likely report them to the IRS but with limited info. If need be, we will transfer all the shares under my name only.
I also read some articles over the weekend (notably in the Economist) in which it was stated that even the IRS is worried about the potential massive influx of information they will receive and how much money it will cost them to process it especially following a substantial budget cut.


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## Nononymous

The discussions of consequences are, for now, purely theoretical. What I expect will happen is that in about a year's time, a pile of DVDs will be couriered to IRS headquarters from all corners of the globe, and they'll sit on some poor *******'s desk while they figure out what to do with them.


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