Here are seven vital forms to know about that are often missed by U.S. tax filers residing in Canada:
Form 5471: Information return of U.S. individuals with respect to certain foreign corporations
This form is submitted by any U.S. person who is more than a 10% direct or indirect investor in a foreign company or any U.S. stockholder in a controlled foreign company (CFC), which generally is a foreign corporation, more than 50% of which is possessed by U.S. men. A U.S. citizen or resident who's an officer or manager of a foreign corporation might also have a filing requirement if a U.S. individual got stock in a foreign company. So, for instance, in the event your business or you possesses a company in Canada, then you will wish to file this form otherwise the fee for not filing could be as great as $50, 000.
Form 926: Filing requirement for U.S. transferors of property to a foreign corporation
Any U.S. individual who transfers property to a foreign corporation and owns more than 10% of the stock, or any quantity of stock if money transferred is more than $100,000, must file this form with his or her U.S. tax return. This form would use, for instance, if a U.S. person simply was to give cash in exchange for inventory to form a fully owned foreign company.
Form 8858: Information return of U.S. persons with respect to foreign disregarded entities
A U.S. person that directly, indirectly or constructively owns a foreign disregarded entity (FDE) should file this form. A FDE is an entity which is not created or organized in the United States and that is disregarded as an entity separate from its owner for U.S. tax purposes. As an example, an individual member Unlimited Liability Business in Canada owned by a U.S. man would activate filing this type.
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Form 8865: Return of U.S. persons with respect to certain foreign partnerships
This type should be filed by a U.S. individual who possessed more than a 50% interest in a foreign venture during the year or owned at least a-10% interest if the venture was controlled by U.S. men owning a 10% or greater interest. A U.S. individual also has a filing requirement if if they contributed property in exchange for a partnership interest if that individual directly, indirectly or constructively owns at least a 10% interest, or the value of the property given exceeds $100,000.
Form 3520-A/3520: Annual information return of foreign trust with a U.S. owner
Any interest in an foreign "passive" inc (50% or more of its assets produce passive income or 75% of its income is inactive) must be reported with this form. Such a investment comes with other problems such as whether to produce a mark to market or qualified electing fund election, and afterwards how gains and income are taxed. As we mentioned in an earlier post, even owning shares in a Canadian mutual fund or Exchange-Traded Fund (ETF) could trip filing this type.
A foreign trust with a U.S. owner, which can occasionally contain foreign pension plans, Registered Education Savings Plans (RESPs) and depending on how you may interpret the IRS Laws, Tax Free Savings Accounts (TFSAs), should file this type independently with the IRS by March 15 following the year to which it relates. Additionally, if your supply or alternative payment is received in the trust, Type 3520 may be required (and needs to be submitted with all the taxpayer's tax-return). Failure to file these forms subjects the U.S. owner to an initial fee equivalent to the greater of $10,000 or 5% of the gross value of the trust assets considered possessed by the U.S. person at the close of the tax year.
Form 8621: Information return by a shareholder of a passive foreign investment company or qualified electing fund.
Form 8938: Statement of foreign financial assets
As a U.S. tax filer, it is quite important that you fully reveal all of your worldwide fiscal interests to your U.S. tax preparer, so that they have a complete understanding of your financial affairs and can properly address all of your U.S. tax filing obligations. Failure to file the above mentioned U.S. tax forms can lead to large non-compliance penalties. Additionally, ensure you consistently work with a qualified preparer such as a U.S. Certified Public Accountant (CPA) or an Enrolled Agent with the IRS who has a complete understanding of Canadian and U.S. tax laws and has expertise servicing U.S. citizens residing in Canada. At Cardinal Point, we focus on assisting U.S. citizens living in Canada with their complicated cross-border tax filings and fiscal planning challenges.
A U.S. man must file Kind 8938 if they're a specified individual who has an interest in given foreign monetary assets and the value of those assets is more than the applicable reporting threshold. Some assets are not required to be individually listed if they have already been reported on among the forms recorded previously, such as 5471, 3520 or the 8891. Starting with 2013, U.S. things will be required to file this form as well as people.
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