Palm Springs Tax and Trust Lawyers

Palm Springs Attorney for Canadians Michael W. Brooks Editorializes that Canadians Should Be Permitted to Stay in the US More Than 6 Months a Year (Part 2)

Tue, 21 May 2013 10:48:07 -0800

...so, let's first show you the rest of the editorial that ran in the Desert Sun on April 21, 2013, and then we will discuss the latest events concerning the possibility for Canadians to stay in the US more than 6 months a year.

we continue...

Any U.S. immigration reform must include a provision for Canadians

Of note recently, Congress has had the opportunity to review the Jobs Originated Through Launching Travel Act ("JOLT Act"),which would allow certain Canadians to stay in the U.S. up to eight months a year. Why not simply incorporate the JOLT Act as part of our impending macro immigration reform? The continued recovery of many states, and of course our beloved Coachella Valley, relies on the continued uninhibited and encouraged contribution of our Canadian cousins. We all know immigration reform is tricky, and does not happen often. We must not make the mistake of letting this rare immigration overhaul occur without remaining ever mindful of the importance of the eager and vital immigrants in waiting from Canada.

Feedback to my Editorial

The feedback on my editorial was very positive. Most Desert Sun readers who commented to the article, or emailed me directly, completely agreed with my stance. There was a small bit of confusion by a very few who thought Canadians could generally stay in the US past six month if they paid US taxes (this is not true..under current immigration law, a Canadian who stays in the US past 180 days in any 365 day period violates the terms of the general visa...the punishment for this is the next time the Canadian tries to enter the US, he or she could be denied entry to the US (maybe for a long time). There is no legal option for Canadians to simply overstay the 180 day and pay US taxes...at least not as of today.)

Gang of 8 Makes its Recommendation

Right about the time my editorial came out, the Senate Gang of 8 came out with its overall immigration proposal. Although clearly not the focus of their proposal, there is nonetheless a section which would permit Canadians to stay in the US up to 240 days in a 365 day period. In a section entitled "Encouraging Canadian Tourism to the United States," the bill allows certain Canadians to be admitted as Visitors for a period of up to 240 days in a calendar year. This is different from the current Visitor option that allows Canadians to visit the US for a rolling 180 day period. To qualify, Canadians must meet the following criteria:
· Citizen of Canada,
· At least 55 years of age,
· Continues to maintain a home in Canada, AND
· Owns a US home (or has rented a US home for the duration of the period of stay being requested).

Will the Gang of 8's recommendation become law? Who knows. A lot of the answer probably has much to do with whether any immigration law passes in the first place. If there is one, there's probably a decent chance that the Canadian portion will stay in it (but no guarantee). We will all have to watch carefully this Summer (and probably into the Fall) to see if the US Congress votes to allow Canadians to stay in the US up to 8 months a year, and if so, under what conditions.

Palm Springs Attorney for Canadians Michael W. Brooks Editorializes that Canadians Should Be Permitted to Stay in the US More Than 6 Months a Year (Part 1)

Sun, 05 May 2013 13:15:08 -0800

This appeared in the Desert Sun (the local Palm Springs newspaper) on April 21, 2013.

Canadians Should Be Welcomed More Than 180 Days A Year
(By Attorney Michael W. Brooks)

As a Palm Springs, California attorney focusing on Canadian (and international) tax, estate and business issues, my Canadian clients often repeat to me a similar theme: we would love to stay in the US longer. Under current US immigration law, Canadians can generally stay in the United States up to 180 days out of any 365 day period. As part of any new sweeping immigration legislation, Congress must permit Canadians to stay longer in the United States.

Here's why:

Canadians Saved, and Continue to Save, the Real Estate Market and Economies of Certain US States and Regions

For the last five years, the real estate markets and economies of several warm weather states and regions, including our Coachella Valley, have been critically stabilized by an influx of Canadian home buyers. Some surveys suggest Canadians purchased over 70% of homes in the Palm Springs area in previous years. Further estimates have the average home sale purchase price increasing by approximately 20% in the Coachella Valley since the beginning of 2012. Thank you Canadians. And of course, the Canadians' contribution to a community frequently only begins with the purchase of a house. Restaurants, golf courses, professional services, local retail, you name it- all bolstered by the Canadians living significant months in their preferred United States community. Somebody please explain to me the benefit derived by the United States in forcing its Canadian home owners to go home after 180 days.

Canadians Are Starting Some Businesses in the US, But Would Start Many More With More Favorable Immigration Regulations

In our law office, I am now regularly contacted by Canadians interested in starting businesses in California and other states. The proposed businesses will almost always eventually lead to job opportunities for Americans. And while the Canadians have the capital and the interest to start a US business, one impediment frequently exists: how can the Canadian run a business in which he or she can only personally be present for a maximum of six months a year? And while there are certain visas which could overcome this problem, they typically require a significant financial commitment (and the requirement of hiring several Americans quickly). Maybe the proposed business would eventually grow to the point to satisfy these requirements, but how many Canadians are looking to make a far less substantial commitment at the inception of the business? How many prospective Canadian-owned US businesses never get formed because of the 180 day rule?

Even After Immigration Reform, Hurdles Would Still Exist

Is the Canadian government just going to let some of their most affluent citizens stay in the US most of the year? Maybe not. Canadian provinces might have to agree to extend their province-run medical coverage for their residents who leave the province up to, for example, nine months a year (as opposed to the current rule of most provinces which discontinues the medical coverage of residents who leave more than six or seven months a year). Would they be so gracious? Would Canadians move to the United States if it meant forfeiting their Canadian governmental medical coverage? Likewise, the United States might have to make some accommodations for the Canadians as well. Would the US include Canadian seniors moving to the US in Medicare (unlikely)? Also, would the US make an exception to its tax laws (requiring foreign citizens in the US over 6 months a year to file US tax returns)? One would think the US might have to...

We will reprint the rest of the editorial, plus discuss whether the "up to 8 months rule" made it in the first draft of "gang of 8's" immigration proposal, in part 2 of this topic.

Canadians Visiting the Palm Springs Area, Remember, if You're in the United States between 4 to 6 Months Every Year, Fill out the IRS Form 8840 Now! (Part 3)

Mon, 15 Apr 2013 16:48:05 -0800

So let's walk the Form 8840, and discuss some of the more uncertain questions. Again, we're focusing on Canadian snowbirds (and not necessarily people from foreign countries other than Canada).

Part 1

Question 1 asks you the following: "Type of U.S. visa (for example, F, J, M, etc.)". We suggest the Canadian snowbird answer the "B-2 Visa". We say this even though Canada is a visa exempt country (so theoretically answering "no visa" on Question 1, or "Canadian- no visa" should be fine too. This is the typical visa utilized by a tourist to the United States. This question is a little challenging for the Canadian snowbird, because they generally simply present a passport at the border, and not an official visa. The US and Canada really do have a special relationship, and so typical formalities are not always required for Canadians visiting the US (and Americans visiting Canada). While a Canadian snowbird visiting the US may not need a visa. the proper answer on the Form 8840 is probably citing the B-2 Visa (the tourist visa).

Part II
Typically, Canadian snowbirds spending between 4 to 6 months will have an easy answer for the 1st 2 questions (Questions 7 and 8):

"7) Where was your tax home during 2012?"
And
"8) Enter the name of the foreign country to which you had a closer connection than to the United States during 2012"

For most Canadian snowbirds, this should be easily answered (for both) with the same answer: Canada. Canada was your tax home (for the prior year), and Canada was the country to which you had a closer connection to other than the US.

Part III
Typically, Canadian snowbirds will then leave Part III blank, because they probably do not have a closer connection to 2 foreign countries....so for most Canadian snowbirds spending a lot of time in the US, you will leave Part III blank.

Part IV

Part IV asks a series of questions designed for the Canadian snowbird to prove to the IRS that his or her strongest connections really are with Canada (and not the United States). Keep in mind, the reason that you're filling out this form to begin with is that you're in the US a lot (on average between 4 and 6 months, year in and year out). So the IRS does not expect you to never answer: "United States", with respect to the questions in Part IV. Of course you have some connections to the US. It's just that you have more, and more substantial, connections to Canada.

"Where is your permanent home?" "Where is your family located?" "Where was your driver's license issues?" "Where were you registered to vote?" All easily answered (presumably): Canada. And while some questions aren't necessarily this easily answered (for example, you may have bank accounts in both the US and Canada), it should be quite easy for the Canadian snowbird visiting the US for the winter months to a answer a distinct majority of the questions with: "Canada".

And that's all you need to be deemed a resident of Canada, even if you are in the US between 4 and 6 months every year.

Don't Forget the Treaty Protection
Final note- even if the Canadian is in the US more than 6 months in a given year, or is in the US between 4 to 6 months a year, year in year out, and fails to fill out the Form 8840 (and is therefore properly deemed a US tax resident for that year), the Canadian can still avoid that designation by simply citing the tie-braker provisions of the US-Canada Tax Treaty. Call me, if you are a Canadian who is deemed by the IRS to be a US resident for a given year (or if you believe you were indavertently a US tax resident for a given year). I can help you overturn that determination.

Canadians Visiting the Palm Springs Area, Remember, if You're in the United States between 4 to 6 Months Every Year, Fill out the IRS Form 8840 Now! (Part 2)

Wed, 27 Mar 2013 14:48:02 -0800

So, like so many Canadians in the Palm Springs/ Palm Desert area, you've determined you probably should fill out the Form 8840. Why? Because you're in the United States year in, year out, over 4 months but less than 6 months in a calendar year (and if you're in the Coachella Valley right now, let's face it, who wouldn't want to be here as much as possible...save July and August that is). And if you are in the US more than 4 months every (calendar) year, and you don't fill out the Form 8840, the risk you take is that the IRS will deem you a US tax resident for the taxable year (as they are permitted to do if you are here, year in, year out, over 4 months a calendar year). While that may not be the end of the world (you can always hire a guy like me to get you out of that situation, and it will not lead to a double tax (once in Canada and once in the US)), it will lead to a logistical headache, which you will have to straighten out. So, be safe, complete the Form 8840 if you're in the US every year between 4 to 6 months, like so many Canadian snowbirds are in this area of California.

When is the Form 8840 Due?

You must complete the Form 8840 by June 15 (the due date of the IRS Form 1040NR) of the year after the year for which you are reporting (so for the 2012 Form 8840, you should send it in by June 15, 2013). You actually have until the due date (June 15) plus extensions, which would be months later (so, yes, you could send in your 2012 Form 8840 in July 2013). But let's not do that. You want to get the Form 8840 in by June 15 of the year after the year to which the form relates (so for 2012, let's send them in by June 15, 2013).

Where do you send in the IRS Form 8840?
You mail it to the following address:
Department of the Treasury, Internal Revenue Service Center, Austin, TX 73301-0215

Do a husband and wife fill out 1 Form 8840 or 2?
Each person fills out their own Form 8840, so a husband and wife will out a total of two forms 8840.

What Questions Does the Form 8840 Ask?

On the First Page of the 8840
On the first page of the form they ask about the amount days you've been in the US for the last 3 years (i.e., the form you're filling out in 2013 asks you how many days you spend in the US in 2012, 2011, 2010). DO NOT GO CRAZY TRYING TO FIGURE OUT HOW MANY DAYS YOU SPENT IN THE US THE LAST 3 YEARS. ESTITMATE AS BEST YOU CAN. PROVIDED YOU HAVE NOT BEEN IN THE US IN ANY CALENDAR YEAR OVER 182 DAYS, THEN THE EXACT AMOUNT OF DAYS REALLY DOESN'T MATTER. ALL THE CALCULATION OF DAYS TEST IS TRYING TO FIGURE OUT IS WHETHER YOU SHOULD FILL OUT THE FORM 8840 TO BEGIN WITH...AND YOU'RE OBVIOUSLY FILLING IT OUT, SO THAT'S A REDUNDANT QUESTION...OVER 4 MONTHS IN THE US, LESS THAN 6, YEAR IN YEAR OUT, FILL OUT THE FORM 8840. DONE.

We'll walk through the questions asked on the critical second page of the Form 8840, and we'll get into how the US-Canada Tax Treaty impacts the Form 8840 (and the determination of US versus Canada residency period), in the 3rd and final part of our series on completing the Form 8840.

Canadians Visiting the Palm Springs Area, Remember, if You're in the United States between 4 to 6 Months Every Year, Fill out the IRS Form 8840 Now! (Part 1)

Mon, 11 Mar 2013 14:36:23 -0800

We've talked about the need for Canadians (or any non-US citizen who regularly spends between 4 to 6 months in the US) to fill out the Closer Connection Form (the IRS Form 8840) before. Well, it's a good time of year (Spring) to review this rule again.

Who Needs to Fill Out the Closer Connection Form?

Any non US citizen individual who has a "substantial presence" in the US must fill out the Form 8840 (every year they have a substantial presence). Is there a mathematical formula designed to determine whether you have substantial presence" in the US (and then need to fill out the Form 8840)? Yes. And I'm going to spell out the formula in a moment. BUT IF YOU ARE IN THE UNITED STATES EVERY YEAR BETWEEN 4 AND 6 MONTHS, FORGET THE FORMULA AND JUST FILL OUT THE 8840...THE FORMULA IS JUST DESIGNED TO DETERMINE WHETHER YOU SHOULD HAVE A SUBSTANTIAL US PRESENCE AND NEED TO FILL OUT THE 8840 TO BEGIN WITH. IF YOU ARE IN THE US EVERY YEAR, YEAR IN YEAR OUT,BETWEEN 4 AND 6 MONTHS, DON'T WORRY ABOUT THE FORMULA AND JUST FILL IT OUT EVERY YEAR!!!

Here is the Formula Designed to Determine Whether You Have a Substantial Presence in the US and You Then Must Fill out the Form 8840 (but again, if you're in the US between 4 to 6 months every calendar year, just fill out the Form 8840 and do not go crazy about the exact days and the mathematical test).

An individual has a substantial presence in the US if the individual is present in the US at least 31 days during the current year and at least 183 days for the three-year period ending on the last day of the current year using a weighted average approach (the weighted average approach works as follows: the number of days spent in the US in the current year are given full weight; the number of days spent in the US in the last year are multiplied by 1/3; and the number of days spent in the US two years ago are multiplied by 1/6....add up the total for the three years and if it equals or exceeds 183 days, the nonresident alien has a substantial presence in the US. For example, an individual who spent exactly 124 days in the US this year and the previous two years would have a total of 187 days under the substantial presence test:
Last Year (2012): 124 x 1= 124
2 Years Ago (2011): 124 x 1/3= 42
3 Yrs Ago (2013): 124 x 1/6= 21
Total= 187 days. Substantial presence test of 183 days exceeded...

What does this mean?

The non-US citizen (probably Canadian) needs to fill out the IRS Form 8840, that's all!

We'll walk through the IRS Form 8840 in our next post.

One final note before we close this post-

We count days for this purpose in the calendar year: January 1 to December 31 of each year is the period when we determine how many days the Canadian (or any non-US citizen) was in the US. And, keep in mind, it should never be more than 182 days in any calendar year (for the purposes of being deemed a US tax resident). We are assuming even those Canadians in the US a lot ever year are not here more than 182 days in any calendar year (for tax reasons...remember the immigration rule is no more than 180 days in any 365 day period, which is not necessarily the calendar year).

I'm a Canadian Visiting the Palm Springs Palm Desert Area for the Winter, What Should I do About My Health Insurance (Part 2)?

Thu, 14 Feb 2013 15:15:52 -0800

let's pick up where we left off at the end of part 1....

Filing a Claim with an Insurance Provider

If filing a claim, the insurance provider will want evidence to support the claim. This may include in addition to medical bills, a copy of the electronic travel ticket, a copy of the passport, health-card numbers, family doctor information, and travel insurance details including contract or certificate numbers.

Snowbird Trip Health Insurance

Many companies offer trip health insurance and each has its own inclusions, exclusions and limitations. Included in the list of companies are HSBC Bank Canada, Blue Cross, RBC Insurance, CAA, and Medipac Travel Insurance, which is endorsed by the Canadian Snowbird Association. Companies generally offer two basic plans: single trip and annual multiple trip. Annual multiple trip insurance covers an unlimited number of trips in a 12 month period. However, the total number of days the insured may stay away without returning home vary for each company. The time away be limited to a maximum of 10 days for each trip, although for an additional fee the insured can "top up" the number of days and stay longer, while other plans allow the insured to be away on any single trip from 23, to 31, to 60, to 90, and up to 120 days. Individual and family plans are available. The cost of an annual premium for a 60 year old man in good health starts at about $175, depending upon what coverage is included.

Policies of Eisenhower Medical Center in Rancho Mirage

For Canadians who do not have travel health insurance, and who are visiting the Palm Springs, California area, the Eisenhower Medical Center generally offers a self paid discount of 33% off of standard medical care charges. Palm Springs has become a favorite of Canadians looking to escape the harsh winters (although always check with Eisenhower Medical Center for certainty and updated information on costs and discounts). It is located approximately 100 miles east of Los Angeles in the Coachella Valley (in Rancho Mirage, CA) , and there are frequent daily flights from locations in Canada to Palm Springs (many on West Jet). Located in the Palm Springs area is the Eisenhower Medical Center is, in our opinion, one of the finest community hospitals in the U.S. But even after discounts, hospital bills can be many thousands of dollars, and it is better to obtain travel health insurance prior to leaving Canada.

I'm a Canadian Visiting the Palm Springs Palm Desert Area for the Winter, What Should I do About My Health Insurance (Part 1)?

Mon, 28 Jan 2013 10:07:47 -0800

We will finish our entry on Canadians doing business in the United States shortly, but let's focus on health care for the moment.

Will Canadian Health Care Coverage Pay for Costs Incurred Outside the US?
Canadian provincial health care coverage may not pay for all the health care costs incurred outside the province or country, and the difference can be substantial. For example, B.C. pays $75 (Cdn) a day for emergency in-patient hospital care, while the average cost in the U.S. often exceeds $1,000 (US) a day, and can be as high as $10,000 (US) a day in intensive care. Reimbursement is made in Canadian funds and does not exceed the amount payable had the same services been performed in the province. Any excess cost is the responsibility of the beneficiary. For complete travel protection for emergency care resulting from an accident or sudden illness, additional medical insurance should be purchased from a private insurance company. This applies whether one is going to another part of Canada or outside the country, even for only a day

But There is Supplemental Insurance

In general, Canadian residents who have coverage with their government health plan and who apply for coverage prior to departing, are eligible for supplemental health insurance. Persons over age 60 may require a complete Health Declaration as part of their application. Check the inclusions, exclusions and limitations of the private insurance policy carefully. The policy should include emergency medical and dental coverage, including physician, dental and professional fees, hospital fees, nursing fees, drug costs, diagnostic services such as laboratory and X-rays, and incidental hospital expenses such as television. Ambulance service to the nearest hospital should also be included. If ambulance service is required while in another province or outside Canada, fees charged are established by the provider. Fees may range from several hundred to several thousand dollars.

Additional Provisions

Additional provisions to look for include repatriation costs to pay to return the insured to his home province for immediate medical attention, cost of returning the insured's vehicle and pet, and should an insured person pass away, the cost of repatriating the deceased. Some policies cover the cost of transportation for a family member or friend to visit a sick or injured person in the hospital. Also, check to see if the insurance provider will cover expenses up front, which is preferable, or whether the policy holder has to pay for hospital bills and then be reimbursed by the insurance provider.
Be aware, the insurance company is not your friend. Every claim is meticulously examined to find a reason to reject it. When applying for insurance, answer every question as accurately and honestly as possible. Any mistake on the initial application, no matter how innocent, can be a reason for the claim to be rejected. Disclose all medical conditions and medications. If there is confusion regarding a question, seek guidance from a health-care professional. A dangerous practice is to not disclose a doctor's recommended treatment or medication change as this could invalidate the policy. If a doctor recommends a treatment, and you do not comply, or recommends a change in medication, and you do not comply, the insurance provider will treat this as an unstable pre-existing condition and the claim will be rejected. Also, if there is a new medical condition or medication while an annual policy is in effect, it is best to inform the insurance provider to avoid a pre-existing condition label. As long as a reported pre-existing condition meets a minimum stability period, insurance will be issued.

We will discuss more, in Part 2....

I'm Selling Real Estate in 2013 (Let's Say in the Palm Springs Area), Help Me Understand the New 3.8% Surtax on the Sale (Part 2)...

Mon, 14 Jan 2013 10:24:50 -0800

Nothing brings a new law home like some examples, let's take a look:

1.) A single individual with a salary of $210,000, which exceeds the $200,000 threshold, could be subject to the 3.8% tax IF he also has "net investment income."

2.) A married couple with a combined income of $275,000, which exceeds the $250,000 threshold, could be subject to the 3.8% tax IF they also have "net investment income."

3.) A married couple have an Adjusted Gross Income (AGI) of $175,000, less than the $250,000 threshold, but have a "net investment income" of $100,000. Their Modified Adjusted Gross Income (MAGI) (MAGI = Adjusted Gross Income + "net investment income") is $275,000 ($175,000 + $100,000), exceeding the $250,000 threshold, making them subject to the tax.

4.) A married couple have an AGI of $240,000. Their total "net investment income" is $6,000, $2,000 of interest and $4,000 of dividends. The 3.8% tax would not apply even though they have "net investment income" as their MAGI 0f $246,000 ($240,000 + $6,000) is below the $250,000 threshold. But if they have the same interest and dividends plus a $10,000 capital gain, their MAGI would be $256,000. The excess of MAGI over the applicable threshold amount of $250,000 would be $6,000 ($256,000 - $250,000) and their "net investment income" is now $16,000 ($2,000 of interest, $4,000 of dividends and $10,000 of capital gains). Since $6,000 is less than $16,000, and the tax is calculated on the lesser, the 3.8% tax would be applied to the $6,000 and the tax would be $228 ((3.8% x $6,000).

5.) A married couple, purchased their primary residence 20 years ago for $100,000 and have lived in it since that time. Today, it is worth $700,000. If they sold it their profit would be $600,000. The first $500,000 of profit for a married couple selling their primary residence and meeting the ownership and occupancy tests would be tax-free, because of the couples federal home sales profit tax exemption of $500,000. The remaining $100,000 profit ($600,000-$500,000 exemption) would be "net investment income." The question would then be are they subject to the new 3.8% tax? That depends.
If their AGI was $175,000, the $100,000 "net investment income" capital gain profit would then be added to their AGI for a MAGI of $275,000 ($175,000 + $100,000). If the MAGI totaled less than $250,000, the new tax would not apply although they would still have to pay the capital gains tax on $100,000 profit. In this example, as the MAGI is $25,000 greater than the $250,000 threshold ($275,000 - $250,000), the new tax would apply. The new 3.8% tax applies to the lesser of the "net investment income," in this case $100,000, or the $25,000 that their MAGI exceeds $250,000 for a couple filing a joint return. As $25,000 is less than $100,000, the additional tax would be $950 (3.8% of $25,000).

6.) A married couple sold their principal residence for $525,000. They originally purchased it for $325,000. Their gain is $200,000, but they satisfy the ownership and occupancy requirements for the $500,000 couples federal home sales profit tax exemption of $500,000) and after applying the exclusion they have no capital gain and there "net investment income" is zero. Even though they have $300,000 of AGI, they are not subject to the new 3.8% tax as they have no "net investment income."

7.) A married couple inherited stocks and bonds that they liquidated. The sale
of these assets generated a capital gain of $120,000. Their AGI is $140,000 and their MAGI is $260,000 ($120,000 + $140,000). The excess of MAGI of $260,000 over threshold $250,000 is $10,000 ($260,000 - $250,000). The new 3.8% tax applies to the lesser of the "net investment income," in this case $120,000, or the $10,000 that their MAGI exceeds $250,000 for a couple filing a joint return. As $10,000 is less than $120,000, the additional tax would be $380 ($10,000 x 0.038).

8.) A married couple have total investment income from bonds, CD's, dividends, and capital gains of $145,000. Their AGI is $190,000 and their MAGI is $335,000 ($145,000 + $190,000). Their excess MAGI over the threshold of $250,000 is $85,000 ($335,000 - $250,000). The new 3.8% tax applies to the lesser of the "net investment income," in this case $145,000, or the $85,000 that their MAGI exceeds $250,000 for a couple filing a joint return. As $85,000 is less than $145,000, the additional tax would be $3,230 ($85,000 x 0.038).

9.) A married couple own a vacation home they purchased for $275,000. They have never rented it to others. They sell it for $335,000 and their second home sale capital gain is $60,000 ($335,000 - $275,000). The home sale profit exemption does not apply to second homes. In the year of the sale their AGI is $225,000 and their MAGI is $285,000 ($225,000 + $60,000). Their excess MAGI over the threshold of $250,000 is $35,000 ($285,000 - $250,000). The new 3.8% tax applies to the lesser of the "net investment income," in this case $60,000, or the $35,000 that their MAGI exceeds $250,000 for a couple filing a joint return. As $35,000 is less than $60,000, the additional tax would be $1,330 ($35,000 x 0.038).

I'm Selling Real Estate in 2013 (Let's Say in the Palm Springs Area), Help Me Understand the New 3.8% Surtax on the Sale (Part 1)...

Tue, 08 Jan 2013 11:07:04 -0800

Beginning January 1, 2013, a new 3.8% unearned Medicare income tax will be levied under IRS Section 1411(a)(1) on some "net investment income." This tax is designed to raise an estimated $210 billion to help fund Medicare and health care reform. The tax will apply to the lesser of "net investment income" or the dollar excess of "Modified Adjusted Gross Income over the applicable threshold amount". The 3.8% tax applies in addition to any other taxes that otherwise would apply to the associated income.

It is not true, as some frightening emails have suggested, that the new tax is a sales tax on the total sale price, nor is it true that it will affect all home sales or even most home sales. It is not true, as the emails have reported, that it would cost an additional $3,800 (3.8% x $100,000) in taxes to sell a $100,000 home.

What is Net Investment Income?

The first test for determining the amount of income subject to the 3.8% tax is determining the "net investment income," which includes income from capital gains (less capital losses), rentals (less expenses), dividends, annuities, and royalties. It also includes income derived from a passive activity such as real estate investing and from income derived from a net gain attributable to the sale of property including a home. Income associated with a normal business in which the individual materially participates is not subject to the tax. Also, distributions from a retirement plan are not subject to the tax.

What is the Modified Adjusted Gross Income over the applicable threshold amount?

The second test for determining the amount of income subject to the 3.8% tax is the dollar amount of Modified Adjusted Gross Income (MAGI) greater than the applicable threshold amount. For an individual filer the applicable threshold amount is $200,000 and for a married couple filing jointly the threshold is $250,000. Modified Adjusted Gross Income (MAGI) = Adjusted Gross Income + "net investment income." Home sale profits are capital gains and are considered to be investment income.

What About Code Section 121, Which Permits an Individual to Exempt $250,000 in Capital Gains from the Sale of a Primary Residence?

If certain ownership and occupancy requirements are met, capital gains from the sale of a primary residence less than $250,000 for an individual and less than $500,000 for a couple filing a joint return are currently exempt and will continue to be exempt from taxation. The vast majority of home sellers will not be subject to the new 3.8% tax. In July 2012, the median sales price for existing homes was $181,500. Homes that sold for more than $500,000 accounted for only 11% of home sales. To qualify for the home sale profit exemption, the sale home must be a primary residence which the seller owns and has lived in for two-of-the-last-five years prior to the sale. Husbands and wives can each claim a $250,000 exemption on a joint tax return if both spouses meet the two-of-the-last-five year occupancy test, although only one spouse need meet the ownership test. Two co-owners not married to each other who meet the ownership and occupancy tests can each claim up to $250,000 tax-free home sale profits. Those homeowners who cannot meet the full ownership and occupancy requirements for capital gain exclusion may qualify for a partial exclusion equal to the fraction of the time that the ownership and occupancy requirement are met.

Note, the home sale profit exemption does not apply to second homes or to property owned solely for investment purposes. In those cases, the usual ordinary income or capital gains rules apply.

Are Canadians or Other Non-US CItizens Subject to the New 3.8% Tax?
Canadians, or other foreign nationals owning a second home in the U.S. would not qualify for the exemption, but nor are they subject to the new 3.8% tax.

What About Estates and Trusts?

The new 3.8% tax will also apply to estates and trusts. For estates and trusts, the tax is equal to the lesser of the estate's or trust's undistributed net investment income, or the excess of the estate's or trust's Adjusted Gross Income (AGI) over the dollar amount at which the highest tax bracket begins for such taxable year.

We'll run through some examples, in Part 2....

A Canadian Who Lives Part-Time in California (Maybe Palm Springs, Maybe Los Angeles) Would Like to Start Doing Some "Side Business" or "Side Work" in California, Will the Canadian Owe US and California Tax? Part One....

Wed, 02 Jan 2013 10:28:44 -0800

Frequently at gatherings I'm asked tax questions related to Canadians and their tax issues in the US. At a recent holiday gathering, a nice gentleman, who is a terrific interior designer in Calgary I believe, asked about the possibility of doing some interior design work for Canadians who also had a second home in California (most likely in the Palm Springs area). So he asked me, if he did some interior design work for Canadian customers in their California homes, would he be subject to US (and California for that matter) tax?

A terrific question, so let's review....

First, Is it a Big Deal if the Canadian has to Pay US Tax to Do Business in the US? I Don't Think So...

Personally, I don't think it is a big deal if a Canadian, who wants to conduct business in the US, has to pay tax in the US. The US and Canada have a very progressive tax treaty with each other, and there is a tax credit system honored by both countries. So let's start with this premise: just because the Canadian may pay tax in the US on the business income does not mean he or she will have to pay a double tax (once in the US and once in Canada) on the same income. Most likely, because of the treaty and credit system, the Canadian doing business in the US will pay no more federal tax than if he or she were doing business in Canada, they just might now pay some of that tax to the US government instead of the Canadian government. So the Canadian should not let fear of additional taxes stop he or she from doing business in the US, because there probably won't be much (if any) extra federal taxes for doing business in the US. There maybe an additional state tax to the state of California, however, because there is no Canadian tax credit available for state taxes.

Second, the Canadian doing Business in the US May Need to Enter the US on a Different Visa.

Most Canadian snowbirds are in the US as tourists - for fun and recreation. They can stay up to 6 months a visit, just by showing their passports at the border. But this is for tourism, not for business. If you're going to be doing work in the US, you don't want to lie to the border guards. And so, the Canadian snowbird who wishes to do steady work in the US may wish to apply for the E-2 Visa, so as to be able to work regularly in the US without problems. A project or two in the US, maybe don't worry about a new visa (although you may be a little nervous at the border). Consistent and regular work in the US, the Canadian should consider applying for the E-2 Visa.

What are the General Rules on When Any Non-US Resident is Subject to Tax in the US?

Under UStax law, a Canadian (or any non-US resident) is subject to US federal tax if they have income that is "effectively connected with the conduct of a trade or business within the United States". This is an ongoing test, which means that if you carry on a trade or business in the US at any time in the year, you will be subject to US tax for that particular year. If you are engaged in a US trade or business, you will be taxed in the US at graduated rates on a net basis on income that is effectively connected with the conduct of that US trade or business. The good news is, the non-US resident will be allowed to claim deductions to reduce the effectively connected income, but only to the extent that the deductions are connected with that income. The ability to claim the appropriate US deductions can keep the US tax element quite reasonable.

How Can We Tell if We Have Income Which is Effectively Connected with the Conduct of a Trade or Business within the United States?

There is no clear answer to this question, it comes down to facts and circumstances test. The level of activity required for effectively connected to a "trade or business" status in the US is relatively low. The following situations could mean that you are subject to US tax (again, these examples are for any non(US) resident alien, we will consider how the US-Canada Treaty loosens these rules for Canadians in the next post) :

A) If the nonresident alien makes sales into the US market, he or she may have a U.S. trade or business. If, however, he or she is merely accepting unsolicited purchase orders from US customers, will probably will not be considered to be carrying on business in the US.

B) The nonresident alien may be considered as having a US trade or business if he or she has employees or agents travel regularly to the US to make sales calls or if your employees or agents are doing marketing, demonstrating goods, or soliciting orders in the U.S.

C) If the nonresident alien (or his or her employees and/or independent contractors) performs employment or self-employment services in the US, they are likely considered to be carrying on a US trade or business. For example, if the non US resident alien goes to the US on consulting contracts and work at customer sites, he or she will likely be considered to have a U.S. trade or business.

Note, this last example (Example C) seems to clearly indicate our Canadian interior designer will be subject to some US taxes for doing interior design work for houses located in the US. And once again, except for the fact that the Canadian interior designer may wish to obtain a different Visa (probably the E-2), this should not be a big deal (at least for total federal taxes owed, whether to Canada alone or to Canada and the US). But does our Canadian interior designer really have to declare income in the US, or does the US-Canada Treaty offer relief from the general rules? We will look more closely at this in Part 2 of this series....

I'm a Canadian Snowbird in Palm Springs (or anywhere in the United States), How Long can I Stay in the United States Each Year? Finally, a Clear Answer...Sort of....

Thu, 13 Dec 2012 10:53:13 -0800

On December 8th and 9th, Sanger and Manes and yours truly (Attorney Michael Brooks) spent a terrific weekend as sponsors at the CanadaFest at the Palm Springs Convention Center. I was amazed at how many Canadians came up and kept asking me the same question: "how many days a year can I stay in the US?" And frequently they would follow up with this supplement:"I heard if I leave the US and then return to the US in less than 30 days (like so many Canadians are doing right now as they go back to Canada for Christmas, but will soon come right back to the US in early January), then the days that I'm out of the US count in my six month computation, is that true?" Boy oh boy I thought, what is the Canadian rumor mill up to now? This is complete nonsense.

But was I right?

I Assumed They Were Asking About How Many Days a Canadian Could Stay in the US Under the US the Tax Law

Everyone (I hope) knows that a Canadian can stay in the US up to 182 days in a calendar year without being deemed a US resident for tax purposes. And if they're here in the US between 4 to 6 months on average in a calendar year over 3 or more years, they should fill out an IRS Form 8840 (a Closer Connection Form) annually. The Form 8840 states, although you spend a lot of time in the US (but not exceeding 182 days in a calendar year), your real tax home remains Canada. Your primary residence is there, your drivers' license was issued up there, most of your significant contacts are up there,etc. So please, United States, do not consider me a US resident for tax purposes, don't tax me in the US on my worldwide income, and don't subject me to the multiple US tax filings I don't want to complete. And, if filed properly, the US will not consider you a US tax resident. It's that simple. Finally, when you are counting days spent in the US for the purposes of determining whether you are US tax resident (and whether you have exceeded the magic threshold of 182 days in a calendar year), you only count days actually spent on US soil (even if it's only an hour for a particular day). If you leave for a three week trip to Mexico, or back to Canada, those days do not count as days spent on US soil for the purposes of determining whether you are a US tax resident.

But Upon Reflection, What They Were Really Asking About Was The Immigration Law

In retrospect, I'm pretty sure most CanadaFest visitors were asking me about the six month stay rules under the US immigration law. Under US immigration law, Canadian visitors can stay in the US for up to six months. Now, officially, they could actually stay in the US for a six month period, say from Jan 1 to June 30, go back to Canada for a little while, and then perhaps in October (or earlier) come back and start a new six month period. As far as I know, there is no actual law which prohibits Canadians from "stacking" six month stay after six month stay (provided there is a little respite in between). Of course, that would mean you're in the US around 9 months that year so you'd be a US tax resident (taxed in the US on your worldwide income), but "stacking six month stays" doesn't appear to be strictly against the immigration laws. However, in practicality, it will not work.

Three Important Rules to Remember on the Immigration Issue:

1) The US Border Agents are given a lot of discretion to enforce US law. They can deny you entry because they don't like your hat. For better or (more likely) for worse, we must follow their instructions, even when they don't appear to have a clear legal foundation.

2) As we understand it, and although it's not clear under the US immigration law at all, US Border Agents are basically counting six periods starting with the time your first enter (e.g., you come in October when the weather turns cold up north, the clock starts. You may now spend up to six months in US between the time you come in, and next October when you start again. If your six month period ends the following April, apparently the US border agents are unlikely to allow you re-entry until the next October...although again, every Border Agent may differ on this point in how they enforce it.).

3) Finally, the leaving the US for under 30 days rumor. Apparently, it is true!!!. The origin of the 30 day rule comes from the Instructions to the US Immigration Form I-94:

"In general, if you have been admitted to the United States under most visa classifications if you take a short trip (30 days or less) to Canada or Mexico, you may retain your I-94/I-94W, so that when you resume your visit to the United States you are readmitted for the balance of the time remaining on your I-94/I-94W."

So the rumor, at least as its being enforced currently by (many) US Border Agents, appears to be true. If you're here for a six month stay (as you're allowed), and you go back to Canada for the holidays (for less than 30 days), or down to Mexico for a couple weeks, that brief visit out of the country after you've started your 6 month period will count in your 6 month US allowable period. So again, apparently as its being enforced currently, you enter Oct 1 of this year, you're going to have to probably leave the US by March 30th of next year, even though you spent 3 weeks back in Canada over Christmas (i.e., you cannot add those 3 weeks back in Canada for Christmans and stay in the US until say April 21 of next year...no, you still should leave my March 30).

Call me in my office if you have questions: (760) 320-7421

So Canadian Snowbirds in California need A Taxpayer ID Number to Avoid Mandatory Withholding When Renting Or Selling US Property; But Now It's Harder to Get Taxpayer ID Numbers (hint- Get Read to Send in Your Passport to the US Government...)

Fri, 30 Nov 2012 09:44:47 -0800

If you read my most recent post on the importance and (I think really) necessity that Canadian snowbirds obtain US individual taxpayer ID numbers an "ITINs". Remember, Canadian snowbirds must complete an IRS Form W-7 to get a taxpayer ID number, but there's only certain occasions when the IRS will actually comply and issue you one (such as when you fill out a US tax return or when you want to be relieved of the awful mandatory US tax withholding obligation on renting or selling US real estate). It's now a good time to review the process for how the Canadian actually gets an ITIN.

What Documents Must the Canadian Snowbird Submit to Get an ITIN?

An original valid passport is the best document you can give. If you submit that, that's all you need to give. If you don't submit a passport, you'll need multiple documents to prove both your foreign status and identity. The documents must be current, verify your identity (that is, contain your name), and support your claim of foreign status (that you're from Canada). Among the group of documents which you may use are national I.D. cards, visas issued by U.S. Department of State, U.S. or foreign military identification card, civil birth certificates, medical and school records, U.S. state or foreign driver's licenses, U.S. state identification card, foreign voter's registration card and U.S. Citizenship and Immigration Services photo identification. Again, you'll need multiple documents if you're not using the passport.

On June 22, 2012, IRS announced interim change to its ITIN application requirements.
What are the biggest changes to the process of getting a taxpayer ID number?:

1) Notarized copies of key documents are no longer acceptable.

The IRS will continue to require original documentation or copies certified by the issuing agency with the Form W-7 and federal return attached. It will no longer accept notarized copies of documents for ITINs (although, an important note, notarized copies remain acceptable when the Canadian is just getting the withholding back from selling a home via the Form 8288...a full tax return is not necessarily required for that). Documents subject to this requirement include passports. Canadians may be able to request a certified copy of their passport or similar international identification at their local consulate's office.

2) Taxpayer ID Numbers are Now Only Good for 5 Years- They Are No Longer Indefinite:

Newly issues ITINs will expire after five years, rather than be issued for an indefinite period. This will provide additional safeguards to the ITIN program. Taxpayers who still need an ITIN will be able to reapply at the end of the expiration period.

How Long Will the IRS Have My Passport Or Other Documents?

The documents will be returned to applicants using the mailing address on the application via postage paid standard U.S. mail within 60 days of receipt and processing of the Form W-7.

The IRS Knows Its A Hardship For Canadians to Be Without Their Passport For an Extended Period, And Has Steps To Help With That (supposedly)

The IRS has provided alternatives to mailing in passports and other original documents. Trusted outlets other than its centralized ITIN processing site need to be available to review original documentation (although they don't appear to be available yet, so we'll have to wait for that information). While original documents or copies certified by the issuing agency are still required for most applicants, more options and flexibility are provided for people applying for an ITIN.

Certifying Acceptance Agents ("CAAs") and Taxpayer Assistance Centers ("TACs") May Provide an Nice Alternative to Sending in Critical Documents to the IRS

CAAs and TACs will be able to engage in the ITIN process by reviewing original documents or copies certified by the issuing agency, but will be subject to new safeguards. But where these locations are locally that do this, I have no idea.

My Recent Trip to the Local IRS Office in Palm Springs

In the Palm Springs area, we have a local office/TAC at the following location: 556 S. Paseo Dorotea Palm Springs, CA 92264 ((760) 866-6125)). I personally visited there just last week (and waited one hour and half just to ask a question about the new procedures for obtaining taxpayer ID numbers!!!). But they don't review documents at that office, and they don't issue ITINs, as these TACs and CAAs supposedly do (all they do is forward them to the Austin Texas office, so it's hard to see what is gained by going to the Palm Springs office for this purpose...you may as well just mail them in) .

Palm Springs, Indian Wells, La Quinta Attorney For Canadians Discusses Why Canadians Must Get US Taxpayer ID Numbers

Mon, 26 Nov 2012 14:52:29 -0800

We are asked constantly by Canadians why they have to go through the pure drudgery of getting a US taxpayer ID number. And apparently, drudgery is absolutely the correct word as now the IRS wants to review either your actual passport, which is the best stand alone document you can provide (which means it may be out of your possession in the hands of the IRS for a few weeks), or a combination of a series of additional documents. We'll talk in our next blog post about how you actually get the taxpayer ID number (via the Form W-7). But why does the Canadian snowbird need to get it? The answer is simple- it will cost you money if you don't.

You will Need A Taxpayer ID Number to Avoid Mandatory 30% Withholding When You Rent Your US Property.

Without a taxpayer ID number, the Canadian Snowbird who rents US real estate must have the tenant or property manager withhold 30% of gross rent payments (and forward these amounts to the IRS). If the tenant or prop manager fails to withhold, the IRS will look to the Canadian for the withholding tax. However, if the Canadian snowbird completes a Form W-8ECI withholding certificate (which requires a US taxpayer ID number to get) and gives it to the tenant or property manger instructing them not to withhold, and then files the Form 1040NR tax return by June 15 of the next year, no withholding is required. This is a great option for the Canadian snowbird because it: (A) Allows the taking of deductions (e.g., property taxes, mortgage interest and depreciation) and (B) the tax rate is likely lower, much lower, than 30%.

Example. Snowbirds Suzy & Jeff purchase a house in Rancho Mirage. They personally use the house 2 months a year, and they rent it for $3,000 a month for the other 10 months. Before US taxes, Suzy & Jeff will receive $30,000 in rental income per year. What about after US taxes?

Option 1: They don't go get a US taxpayer ID number. Tenant or property manager must withhold $900 a month from rent payments ($9,000 total for the year). Suzy & Jeff receive $21,000 per year after US taxes paid.

Option 2: First, Suzy & Jeff get a US taxpayer ID number and then complete a Form W-8ECI and then give it to the tenant or property manager and file a Form 1040NR tax return the next year. The tenant or property manager now knows he shouldn't withhold. Suzy & Jeff deduct $400 of monthly interest from their mortgage and $200 of monthly property taxes. Their taxable US rental income for the year is $24,000. On $24,000, the US income tax rate is approximately 15% and the tax is approximately $3,600 (leaving Suzy & Jeff $26,400 for the year after US taxes paid).

You will Need A Taxpayer ID Number to Avoid Mandatory 10% Withholding on Your Gross Sales Price When You Sell Your US Property.

A similar rule exists in the sale of a house area, where, if the Canadian snowbird does not get a taxpayer ID number, the purchaser must withhold 10% and forward it directly to the IRS.

Example. Suzy & Jeff purchase a La Quinta house in 2009 for $800,000. In 2012, they sell the house to buyer for $1,000,000.

Option 1: No action taken. Buyer must withhold $100,000 for IRS (10% of the $1,000,000 sales price). Suzy & Jeff receive $900,000 after federal taxes withheld.

Option 2: Prior to the sale, Suzy & Jeff get a taxpayer ID number and then file an IRS Form 8288-B. Buyer must now only withhold $30,000 for IRS ($200,000 appreciation x 15% capital gains rate in 2012). Suzy & Jeff receive $970,000 after U.S. taxes paid.

So, unfortunately Canadians in the US, you really do have to face the drudgery of getting a taxpayer ID number.

Palm Springs, Palm Desert, Attorney for Canadian Snowbirds, Discusses More About The Amnesty Program Allowing Dual US/Canadian Citizens Residing in Canada to File Old US Tax Returns Without Penalty, Part 2.

Mon, 12 Nov 2012 12:29:49 -0800

We continue our discussion on Canadians who had the legal requirement to annually file US tax returns and FBARs (reports of foreign bank accounts...ie, your bank accounts in Canada which had more than $10,000 (US) in them at any point in the year), but who haven't filed a US tax return or a FBAR in many years (if ever). Again, this amnesty program offers really is peace of mind. If you haven't been filing your US tax returns (or FBAR's) for years, maybe you know (now) you have that obligation, but you don't know how to "come clean". This new amnesty program is your chance. Under the new amnesty program, for those who qualify, the IRS will not impose penalties nor conduct an audit. In order to "come clean" you must: (1) File all tax returns with appropriate related information returns required for the past three years (i.e., 2009, 2010, and 2011); (2) File Foreign Bank Account Reports (FBARs) for the past six years (i.e., 2006- 2011); (3) Pay any tax and interest if applicable on the unfiled returns (there probably won't be any US tax or interest); and (4) Complete and sign under penalties of perjury a 20-question questionnaire. In Part 1 of this series, we discussed how only Canadians who "reside in Canada" could take advantage of this new amnesty. In Part 2, let's review some more of the unusual conditions of the new amnesty program.

The Taxpayer Cannot Owe More Than $1,499 in US tax in any of the tax years beginning in 2009 and ending on 2011.

We suspect this requirement generally won't be problematic. Although the US does impose tax on income earned by its citizens and residents no matter where they earn it anywhere in the world (e.g., Canada), due to the tax credit system and the relief offered by the US-Canada Tax Treaty, as long as the taxpayer has been paying the appropriate tax in Canada he or she probably (although not certainly) won't owe any US tax. So owing not more than $1,499 in US tax in any of the tax years beginning in 2009 and ending on 2011 is probably not a difficult hurdle to overcome.

The taxpayer has filed a US tax return for any tax year subsequent to 2008.

Sort of an unusual requirement (not having filed the taxes), but one can suppose the rationale behind it is the IRS wanting to help only those people who more or less have been unaware of their obligation to file their US taxes (not the ones who knew of their obligation but simply tried to pay less than they should have in prior years).

The taxpayer presents a "low compliance risk"

Ah, this is where it gets really interesting. I want to apply for the new amnesty so as to clear up my unfiled US back taxes, but I must be considered by the IRS as a low compliance risk. How do I know if I'm a low compliance risk?

Based on the questionnaire the taxpayer is required to complete, the IRS will determine whether the taxpayer is considered "low compliance risk". According to the IRS, the taxpayer's risk level may rise above "low" if he or she has any of the following:

-Any of the returns submitted through this program claim a refund;
-There is material economic activity in the US;
-The taxpayer has not declared all of his/her income in his/her country of residence;
-The taxpayer is under audit or investigation by the IRS;
-FBAR penalties have been previously assessed against the taxpayer or if the taxpayer
has previously received an FBAR warning letter;
-The taxpayer has a financial interest or authority over a financial account(s) located outside his/her country of residence;
-The taxpayer has a financial interest in an entity or entities located outside his/her country of residence;
-There is US source income; or
-There are indications of sophisticated tax planning or avoidance.

So what do we learn here? If you have US source income (like from the sale of a US house), and you did not at least file a nonresident tax return, you may not be an ideal candidate for the new amnesty program (although at least with real estate you as a Canadian should have had an excess tax amount automatically withheld at the time of sale due the FIRPTA rules). It is of course entirely possible the taxpayer has bank accounts in other countries, it's hard to see what is so damaging about that. Based on this list, the factors which give me pause in going forward with the program are owing back US taxes (above $1,500 per year), or being at all involved in any FBAR hot water. If you have any of the remaining factors, you should at least explore the possibility to joining the new IRS amnesty program for dual citizens who haven't filed US tax returns recently.

Palm Springs, Palm Desert, Attorney for Canadian Snowbirds, Discusses More About The Amnesty Program Allowing Dual US/Canadian Citizens Residing in Canada to File Old US Tax Returns Without Penalty, Part 1.

Mon, 29 Oct 2012 10:02:20 -0800

What we're talking about here are Canadians who had the legal requirement to annually file US tax returns and FBARs (reports of foreign bank accounts...ie, your bank accounts in Canada which had more than $10,000 (US) in them at any point in the year), but who haven't filed a US tax return or a FBAR in years (if ever). Which Canadians have the obligation to complete US tax returns? Those Canadians who are also US citizens primarily, or maybe a Canadian who obtained a US green card but did not relinquish the green card upon moving back to Canada.

What Does the Amnesty Provide?
Really, it provides peace of mind. You haven't been filing your US tax returns (or FBAR's) for years, you know you have that obligation, and you don't know how to "come clean". Under the amnesty program, for those who qualify, the IRS will not impose penalties nor conduct an audit.

What Must You Do To Comply With the Amnesty?

1) File all tax returns with appropriate related information returns required for the past three years (i.,e, 2009, 2010, and 2011);

2) File Foreign Bank Account Reports (FBARs) for the past six years (i.,e, 2006- 2011);

3) Pay any tax and interest if applicable on the unfiled returns (but odds are there probably won't be any US tax or interest, I will explain...);

4) Complete and sign under penalties of perjury a 20-question questionnaire (we will discuss some of the more interesting questions).

And that's it. All your worries about years of unfiled tax returns can be over. Go back and forth between the US and Canada free of concern that your unfiled taxes are going to be a problem, and maybe prevent you from visiting the US for a long time.

Let's Start Looking at Some Specifics in the Amnesty.

The taxpayer is "eligible" for the streamlined procedure if he or she meets certain factors, including the following factors:
1. The taxpayer has not resided in the US since December 31, 2008;
2. The taxpayer has not filed a US tax return since 2008;and
3. The taxpayer does not owe more than $1,499 in any of the tax years beginning in 2009 and ending on 2011.

Only Canadians Who "Reside in Canada" Can Take Advantage of this New Amnesty, What Does that Mean?

To be permitted to use the amnesty, the applicant must permanently reside in Canada, and must not have "resided" in the US prior from 2009 to present. But so many Canadian snowbirds live part-time (for several months a year) in Palm Springs, or La Quinta, or San Diego or Phoenix. So does living in the US just shy of 6 months a year qualify you to take advantage of the new amnesty? My guess is yes, that as long as you're not a US resident, you do qualify for the new amnesty (basically, if you're not in the US more than 6 months a year, and for the Canadian in the US between 4 to 6 months each year, that person must be careful to complete the Form 8840 (the closer connection form...closer connection to Canada) each year). So my guess is as long as you're not a US resident, you do qualify for the new amnesty. That's just a guess though, as there is no clear guidance on this point yet.

Note the Canadian who has been dutifully completing Canadian tax returns each year is unlikely to owe any (much less $1,500) US taxes for the past few years, due to the credit system between the two countries. We'll pick up this concept, and look at other factors of the new amnesty program, in Part 2 of this series.