# Dual Citizen filing taxes for the first time



## BornInTheUSA

Hi, I’m a dual citizen (Canada-US) – I’ve lived up in Canada since I was five and I have never filed US taxes. The ‘recommendation’ given on the 1040 forms – ie if you make more than a certain amount you should file – usually disqualified me from filing at least for the last decade or so.

I just recently found out about fbars though and since my dad died in 2003 I would have fallen into the fbar filing requirement because I received some money in an inheritance so I would have had a few years where, in my bank account, I was above the 10,000 minimum allowed.

I haven’t been above this limit for the past 3 years – am I still required to file all six years of the fbar to become compliant or would just the years I was above be ok? Would there be any ‘danger’ of just doing the taxes and ignoring the fbar? I don’t want to end up with huge fines because I look ‘unwilling’ to report something - at the moment there’s nothing to report – but there was back from 2003-2009 – from about 50Kin 2003 to 12K in 2009.

I’ve seen mention of a publication 54 on a couple of threads so I will download that – do we write the dollar amounts in American or Canadian funds when we report our ‘income’ or balances?

Thank you!


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## Nononymous

Why would you bother to file? If you've lived in Canada since you were five and never filed before, you basically don't exist as far as the IRS is concerned. Think long and hard before giving up than anonymity.

(One possible caveat - if you travel to the US and have a US birthplace, sooner or later they're going to ask that you use a US passport, and you'll be marginally on the radar when you renew or apply for a passport.) 

There appear to be no known instances of anyone being assessed an FBAR fine, and the Canadian government has stated that it will not assist in collecting such fines, as they are not covered by the tax treaty. So don't lose sleep over that. If you want to become compliant, file the FBARs for those years. There's nothing to be gained by not filing them - it's not like you're going to be taxed on your bank balances. 

I would assume that US forms should show US dollar amounts.


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## Bevdeforges

If you decide to file, you must convert all money amounts to US$. You can use any "standard" exchange rate. There is a rate table on the IRS website. Or just use a standard like XE.com or any other similar site.

And should you decide to file FBARs, you only need to file for those years where your accumulated balance in all foreign accounts exceeds $10,000. But like Nonomymous says, I really wouldn't bother in your case. The full freight of the FATCA regulations doesn't come into force until next year, and the fact that you're not even on the IRS radar is definitely on your side.

They're looking for big time tax evaders with fancy, tax-evading investments (like Mitt Romney has - his tax returns online are a real revelation!). And, with all this sequester nonsense going on, even the IRS is short staffed these days.
Cheers,
Bev


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## BBCWatcher

Nononymous said:


> There appear to be no known instances of anyone being assessed an FBAR fine....


Your information is out of date. Ask an individual named J. Bryan Williams. His case went all the way up to the Fourth Circuit last year, and he lost, badly -- after spending a fortune in legal fees, no doubt. That Fourth Circuit case was solely about whether Mr. Williams must pay a $200,000 fine for failing to file FBARs (plus interest). Answer: Yes, oh yes. (What was the proof that failure was willful? He checked the "No" box on a tax organizer his accountant sent him asking if he had foreign financial accounts to report. That was an expensive lie for Mr. Williams.)

Of course it probably didn't help that Mr. Williams has been an interesting character to the U.S. Department of Justice in many ways. But on the sole and narrow question of whether FBAR penalties are prosecutable and collectable, the answer is an emphatic yes.

Leaving aside poor(er) Mr. Williams and his place in tax compliance history, the U.S. government reportedly _routinely_ threatens FBAR-related prosecution (fines and/or prison) in order to "encourage" (ahem) tax settlements. A lot of individuals got caught up in the UBS disclosures, for example, and the IRS is still collecting money from holders of unreported Swiss bank accounts. FBAR has been darn useful in "persuading" such individuals to settle with the IRS quickly and at great expense. FBAR is also a useful tool in the government's Drug War prosecutorial arsenal.

This is a tradition at least as old as the Al Capone prosecution.


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## Nononymous

I was perhaps a bit glib. There are no known-to-me-via-the-forum-or-limited-searching cases of ordinary, decent, law-abiding, abroad-living, country-of-residence-tax-paying expats who've been fined for late FBAR reporting. High-profile cases, including UBS, are another matter.

The collection point still applies. The current Canadian government, bless its nasty wizened little conservative heart, won't cooperate on FBAR. So if you're a dual citizen resident in Canada with no US assets, paying such fines would be a purely voluntary gesture.


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## maz57

The FBAR really is a strange bit of legislation. When you think about it, the only FBAR that is of any use to the US government is the unfiled one. It's not illegal to have foreign accounts; many have them for perfectly legitmate reasons. The accounts themselves are not taxable, only the income they may produce. Anybody who takes the trouble to file the FBAR undoubtedly also declares the income and pays any tax owing as it would make no sense to do otherwise. For those who are tax compliant but skip the FBAR why would the government make an issue of it?

So the government is in effect saying, "come on all you criminals; file those FBARs and let us know all about your criminal activity. If you don't file your FBAR and we find out about it, we'll fine the living heck out of you". That saves all the trouble of a criminal prosecution which would be much harder to do (and more expensive) than a simple FBAR fine. I think it's safe to say that criminals don't worry too much about fines and prosecution! 

So that leaves the rest of us who didn't file an FBAR because we never heard of it or maybe we just didn't feel like it (because it's a gross violation of privacy). I don't think the US government is going to try to fine otherwise law abiding folks for failing to file a piece of paper. Even the US government realises it doesn't need that kind of bad press. Bottom line: it's uncollectable in Canada, they know it and they won't even try. However, if I lived in the US I wouldn't try that strategy.

To the OP: Personally I wouldn't bother with filing back FBARs; it's ancient history. Nobody cares, not even the US government. However compliance going forward might be a good idea depending on what sort of relationship you want to maintain with the US government.


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## Bevdeforges

Actually, what is now called the FBAR has been around for a LONG time now. Twenty years ago it was just referred to as "the Treasury form" - but back then it was pretty innocuous. You filled it out and sent it in and yeah, to some extent it was a reminder to make sure you had put your foreign bank interest income on your US returns.

When I was working for US companies abroad, they always sent me a letter saying that, because they had sent in all the relevant information on bank accounts where I had signature authority, I did NOT have to include the company accounts on my "Treasury form."

What has complicated the situation appears to be the FATCA legislation, which refers to the FBAR form and then adds a whole bunch of additional tax return forms that are supposed to be filed if you have various "investments" or "business interests" outside the US. 
Cheers,
Bev


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## BBCWatcher

maz57 said:


> When you think about it, the only FBAR that is of any use to the US government is the unfiled one.


Bingo. Truthful, complete filings aren't interesting. (So file them.) Unreported/underreported accounts? Well, THOSE are interesting.


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## Bevdeforges

My rule of thumb is, if in doubt report it. And, as long as it doesn't affect the tax calculation itself, better to err on the side of over-estimation than under. (Though these days, there are plenty of bank accounts that don't pay any interest, and investment accounts that show losses.)
Cheers,
Bev


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## BornInTheUSA

Thank you everyone for your input.

Nononymous I understand totally what you are saying about giving up the anonymity! I do have a passport (though it's out of date by decades) and an SSN but still I don't think I'm really blipping any radar and I always figured what can I tell them - uh income - zero - (after deductions etc)

It's some of the online scare stories that got me worried - a guy supposedly owing 100K when he only had 15k in the bank one year way back - because the IRS multiplied the amount by the years it was unreported - 

These were stories on sites that wanted to do your taxes and file your fbars for you so I'm glad to hear that there's not really a lot of reported cases of this happening - and that the present Conservative govt - 'nasty wizened little conservative heart' lol - I second that! - won't collect.

I do understand getting things sorted out so I may file but only the fbars that are over - and maybe wait until next year when I may have some income to report (although it probably will go to zero with deductions).

The reason this came up on my radar is that I started working with someone to create some ebooks and on Amazon for kindle direct publishing they say that Canadians get 30 percent taken from their profits unless the fill out some form (something to do with a treaty with Canada where royalties aren't taxed) - 

That made me look into the US tax situation and yikes - fbars! what is that - was about where I ended up.

Thank you for the information about American funds and how to caculate them - I've used XE currency converter before - 

Does anyone know what might be done if, next year, I have some income with kindle/amazon - It would be sales on Amazon - is that making money in the US (seems so if they take taxes) and then is that foreign income on my Canadian taxes but not foreign on the American ones?

All I've heard so far is that the online stuff is not really understood that well with the IRS even so maybe getting compliant this year before i start to irritate them with it next year might be good!


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## Bevdeforges

IIRC Amazon will withhold 30% for anyone they believe to be a "foreigner" (though I suppose it depends whether they are paying you from their US entity or their Canadian entity). You probably want to fill out the paperwork so that you can be withheld at the lower rate (or not at all, which I think is an option).

But as to where the money was "earned" - if it's "royalties" on the sale of your books, then the money is considered to be "earned" in the country where you were physically located while doing the work (i.e. writing or editing them). So, it should still be subject to the FEIE for US tax purposes.

The one "trick" is that unless you have a business entity of some sort set up so that you're paying into the Canadian social security system (social insurances, basically), you may get hit for "self-employment" taxes (which is US Social Security - but paying both the employer and employee portions). There are ways to reduce your exposure to this, but I'd advise you to read through Pub 54 carefully and possibly the IRS publications about "self-employment tax."
Cheers,
Bev


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## BBCWatcher

The U.S.-Canada Social Security treaty stipulates he'd pay into Canada's system if he's self employed and residing in Canada. There's not actually a choice: Canada will want contributions from that income. There are not any particular business entity requirements.


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## Bevdeforges

As long as he's declaring himself as self-employed and paying into the Canadian social security system, he should be ok. Just know the rules and be ready to explain should the IRS ask the question. (Whether or not they will is anyone's guess - but I have a theory that if you have the proper explanation available, it makes it less likely they'll ask the question at all.)
Cheers,
Bev


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## Nononymous

Actually I'm a bit curious about that. When one works as a freelancer in Canada, you bill and later remit GST (aka VAT) but you do not make either pension (CPP) or employment insurance (EI) contributions. So as self-employed you're not actually contribution to any social security scheme (health insurance is funded by premiums and income taxes). On that ground I've always assumed (though frankly without bothering to do much research or run the numbers) that my self-employment earnings might be subject to US tax, which is one reason, though not the only one, why I've chosen to remain non-compliant. 

Can anyone verify whether a Canadian with a salary income approaching FEIE level ($90k) and, say, $5k in self-employed income on the side, would actually pay US self-employment tax, or would it just disappear under some basic personal exemption?


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## quincy

You do pay into CPP in Canada when you are self-employed. The amount is calculated when you file your tax return. If you have a regular job that deducts your CPP in addition to having self-employment income, then perhaps you have reached the maximum contribution level for CPP through that employment and you never have to add anything additional to CPP. My spouse is only a freelancer and he has always paid into CPP. He has the CPP statement of contributions to prove it. Since 2011, EI contributions are optional for the self-employed. 

As to your question, I would think that as long as you are contributing maximally to CPP then you wouldn't be liable for US self-employment tax. That is just my opinion. Don't know for sure.


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## BBCWatcher

The treaty says residents of Canada who are self-employed contribute to CPP not U.S. Social Security. If those CPP contributions are required to be paid annually along with income taxes, so be it, but the U.S. and the treaty don't care whether CPP is weekly, monthly, quarterly, or annual as long as it's CPP.


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## Nononymous

Aha. Thank you.


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## jockburke

The IRS would not have any way to track internet revenues. There are so many individuals selling on various E-commerce web sites , just too much data to keep track of.


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## quincy

BBCWatcher said:


> The treaty says residents of Canada who are self-employed contribute to CPP not U.S. Social Security. If those CPP contributions are required to be paid annually along with income taxes, so be it, but the U.S. and the treaty don't care whether CPP is weekly, monthly, quarterly, or annual as long as it's CPP.


I said "maximally contributing to CPP" not quarterly.


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## BBCWatcher

You did. I was expanding on your point, not refuting it.

The issue is not whether CPP is withheld from your paycheck or not, as you correctly point out. The issue is whether CPP is paid on that income (or paid to the maximum if applicable). If that's an annual payment, so be it. If that's fortnightly, so be it. If it's bimonthly, so be it. Whatever the payment period is -- even if Canada changes it in the future -- the U.S. and the treaty don't care.


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