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American in Canada overlooks reporting requirements

Dear Tax Talk,

I am an American citizen married to a Canadian. I have lived and worked in Canada for the last 20 years as a permanent resident. I have been filing my 1040 with the foreign income tax exclusion attached for the last 14 years, but after having talked to an IRS rep at the U.S. Consulate this year, I found out that I have to fill out a special form for my RRSP, or Registed Retirement Savings Plan, savings as well as reporting dividends on my bank accounts in Canada. I decided to find someone professional to figure all this out. While researching info on the Web, I just came across information about FBAR reporting.

I know this is a separate thing from tax-filing obligations, but I am worried since I have been living here for so long and only now realize that I need to report this. Am I in for any real problems ahead? -- Kathy

Dear Kathy,
FBAR is an annual foreign bank account report required by the U.S. Treasury for all citizens with financial interest or signature authority over foreign bank account(s) that exceed $10,000 during the year. Since, as you observe, Canada is a foreign country, this requirement would apply to your bank accounts, including any joint accounts with your husband. You would use Form TD 90-22.1 to report the ownership of these accounts and file the form by June 30 of the following year. You should also attach Schedule B to your annual Form 1040 and check box 7a as "yes."

Since I had a meeting with an IRS agent today on a similar topic, I asked him what his advice would be. He said that there is a six-year statute of limitations on filing the form so that the Treasury Department could have you go back and file for six years. This would mean that to get everything correct, you would need to go back and file from 1998 by June 30, 2005.

Although there are steep nonfiling penalties, the Treasury Department does not automatically generate penalties when you file late forms. Penalties would only be assessed if you were contacted to file the forms when, in fact, you had not filed previously. I was also told that the IRS recently became aware of U.S. citizens with brokerage accounts in foreign countries including Canada. Under voluntary disclosure rules, these affected taxpayers have a chance to come forward prior to being contacted by IRS and risking greater penalties in addition to income tax and interest and possible criminal prosecution.

As far as your earnings on these foreign accounts, they should have been reported on your Schedule B. Since you are claiming the foreign-earned income exclusion, you have your personal exemption and standard deduction available to offset the income on these accounts. You may want to consider filing amended returns to include these amounts and pay any additional tax you may owe. I recommend you continue working with your tax professional to determine the proper course of action.

Bankrate.com's corrections policy
-- Posted: June 3, 2005
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