Here are seven key forms to be conscious of that tend to be missed by U.S. tax filers residing in Canada:
Form 8865: Return of U.S. persons with respect to certain foreign ventures
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This type should be filed by a U.S. individual who owned more than a-50% interest in a foreign partnership during the year or owned at least a 10% interest if the partnership was controlled by U.S. persons possessing a 10% or higher curiosity. A U.S. man also has a filing requirement if he or she contributed property in trade for a partnership interest if that person directly, indirectly or constructively possesses at least a 10% curiosity, or the worth of the property given exceeds $100,000.
Form 5471: Information return of U.S. men with respect to certain foreign corporations
This form is filed by any U.S. individual who is more than a 10% direct or indirect shareholder in a foreign company or any U.S. shareholder in a controlled foreign company (CFC), which generally is an international corporation, more than 50% that is owned by U.S. men. A U.S. citizen or resident who is an officer or director of a foreign company may also have a filing requirement if a U.S. person got stock in a foreign company. So, as an example, in case you or your company possesses a business organization in Canada, then you will wish to file this form otherwise the penalty for not filing may be as high as $50, 000
Form 926: Filing requirement for U.S. transferors of property to a foreign corporation
Any U.S. man who transfers property to a foreign corporation and owns more than 10% of the inventory, or any amount of stock if funds transferred is more than $100,000, should file this form with his or her U.S. tax-return. This form would apply, for instance, if a U.S. individual only was to contribute cash in exchange for stock to to make a wholly owned international company.
Form 8858: Information return of U.S. individuals with respect to foreign disregarded things
A U.S. person that directly, indirectly or constructively possesses a foreign disregarded entity (FDE) must file this form. A FDE is an entity which is not created or organized in the USA and that's disregarded as an entity separate from its owner for U.S. tax functions. By way of example, a single member Unlimited Liability Company in Canada owned by a U.S. person would trip filing this type.
Form 3520-A/3520: Annual information return of foreign trust with a U.S. owner
Form 8621: Information return by a stockholder of qualified electing fund or a passive foreign investment company.
Any interest in an foreign "passive" business organization (50% or more of its assets produce passive income or 75% of its income is inactive) should be reported with this form. This kind of investment includes other problems such as whether to produce a mark-to-marketplace or qualified electing fund election, and subsequently how revenue and gains are taxed. As we discussed in a previous post, even owning shares in a Canadian mutual fund or Exchange Traded Fund (ETF) could activate filing this form.
A foreign trust with a U.S. owner, which can occasionally include foreign pension plans, Registered Education Savings Plans (RESPs) and depending on how you may interpret the IRS Regulations, Tax-Free Savings Accounts (TFSAs), should file this form alone with the Internal Revenue Service by March 15 following the year to which it connects. Also, in case a distribution or other payment is received in the trust, Type 3520 might be required (and must be submitted with the citizen's tax return). Failure to file these forms subjects the U.S. operator to an initial fee equal to the greater of $10,000 or 5% of the gross value of the trust assets considered owned by the U.S. man at the close of the tax year.
Form 8938: Declaration of foreign financial assets
As a U.S. tax filer, it's very important that you fully disclose all of your global monetary interests to your U.S. tax preparer, therefore that they've 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 types can lead to substantial noncompliance penalties. Further, be sure you always work with a professional preparer for example a U.S. Certified Public Accountant (CPA) or an Enrolled Agent with the IRS who has a complete comprehension of Canadian and U.S. tax laws and has experience servicing U.S. citizens residing in Canada. At Cardinal Point, we specialize in assisting U.S. citizens living in Canada with their complicated cross-border tax filings and financial planning challenges.
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A U.S. person must file Kind 8938 if he or she is a specified individual who has an interest in specified foreign financial assets and the value of these assets is more than the applicable reporting threshold. Some assets aren't needed to be individually recorded if they've already been reported on one of the forms recorded previously, including the 8891, 3520 or 5471. Beginning with 2013, U.S. entities will be required to file this form as well as individuals.
