Here are seven crucial forms to be conscious of that are often missed by U.S. tax filers residing in Canada:
Form 8858: Information return of U.S. persons with respect to foreign disregarded entities
A U.S. person that directly, indirectly or constructively possesses 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's disregarded as an entity separate from its owner for U.S. tax functions. For example, a single member Unlimited Liability Company in Canada possessed by a U.S. individual would activate filing this form.
Form 8865: Return of U.S. persons with respect to certain foreign partnerships
This type should be submitted with a U.S. man who owned more than a-50% interest in a foreign venture during the year or owned at least a-10% interest if the venture was commanded by U.S. persons possessing a 10% or greater curiosity. A U.S. man also has a filing requirement if he or she given property in exchange for a partnership interest if that person directly, indirectly or constructively possesses at least a-10% interest, or the value of the property contributed exceeds $100,000.
Form 5471: Information return of U.S. men with respect to certain foreign corporations
This form is submitted by any U.S. man who is more than a-10% direct or indirect shareholder in a foreign company or any U.S. stockholder in a controlled foreign company (CFC), which broadly is an international company, more than 50% that is possessed by U.S. individuals. A U.S. citizen or resident who's an officer or manager of a foreign company might also have a filing requirement if a U.S. individual got stock in a foreign corporation. So, for example, in the event you or your company owns a business organization in Canada, then you'll wish to file this form otherwise the penalty for not filing can be as great as $50, 000.
Form 926: Filing requirement for U.S. transferors of property to a foreign corporation
Any U.S. person who transfers property to a foreign corporation and possesses 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 implement, for instance, if a U.S. individual only was to contribute cash in exchange for inventory to to make a fully owned foreign corporation.
Form 3520-A/3520: Annual information return of foreign trust with a U.S. owner
Form 8621: Information return by a shareholder of a passive foreign investment company or qualified electing fund.
Any interest in an foreign "passive" company (50% or more of its assets produce passive income or 75% of its income is inactive) should be reported on this particular form. This kind of investment includes other problems such as whether to produce a mark-to-industry or qualified electing fund election, and afterwards how income and gains are taxed. As we discussed in an earlier post, even owning shares in a Canadian mutual fund or Exchange-Traded Fund (ETF) could trip filing this form.
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 might interpret the IRS Regulations, Tax-Free Savings Accounts (TFSAs), should file this form alone with the IRS by March 15 following the year to which it links. Also, if a distribution or other payment is received from the trust, Type 3520 may be required (and ought to be filed with the taxpayer's tax return). Failure to file these types subjects the U.S. operator to an initial fee equal to the higher of $10,000 or 5% of the gross value of the trust assets considered possessed by the U.S. man at the close of the tax year.
Form 8938: Declaration of foreign financial assets
A U.S. man must file Type 8938 if they're a given individual who has an interest in given foreign financial assets and the value of those assets is more than the applicable reporting threshold. Some assets usually are not required to be individually listed if they've been reported on one of the forms recorded previously, such as 5471, 3520 or the 8891. Starting with 2013, U.S. things will be required to file this type as well as individuals.
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As a U.S. tax filer, it is quite important that you completely disclose all of your worldwide monetary interests to your U.S. tax preparer, so that they have a complete understanding of your financial affairs and can correctly address all of your U.S. tax filing duties. Failure to file the above mentioned U.S. tax types can lead to large noncompliance penalties. Additionally, make sure you constantly work using an experienced preparer including 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 regulations and has experience servicing U.S. citizens residing in Canada. At Cardinal Level, we concentrate on assisting U.S. citizens residing in Canada with their complicated cross-border tax filings and fiscal planning challenges.
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