Freaking out - born in USA and income tax returns?!

[EllasMum]

Title doesn't really describe the situation. Here goes: I was born in St. Paul, MN, and moved to Canada when I was 3 weeks old (my father was taking his MBA there). I have lived in Canada ever since. I have never worked in the USA. I haven't even been across the border in over a decade. I do have dual citizenship.

Yesterday, on TV and the Globe and Mail, there was a story about the US gov't cracking down on Americans living abroad who have not filed income tax returns. This is me, exactly. I have filed Canadian ones, but it never occurred to me to file American ones. My sister is in the same boat - she was also born there and was 3 when we moved to Canada. Her DH was born in Canada, to an American father, so he has an American passport and dual citizenship. Neither my sister or her DH have filed American returns. Anyway, the story said that there is an amnesty, if you file your returns before Aug. 31, there is a reduced penalty (5 to 25% of your assets :47:), and if you wait until after the deadline, the penalty is higher. I do not have a Social Security Number, heck, I don't even have an American passport. I am so beyond freaking out right now that I can't even put it into words. What am I going to do?! My sister is looking into all of this (she has an accountant) and is going to let me know what steps we need to take.

I feel sick about this. There is absolutely no way in the world I can come up with even 5% of my assets if I had to fork it over.

Ugh. Maybe this is just a b*tch, but if anyone has any info on this, I would be eternally grateful.

Freaking out. :eek:

[KrisM]

Since you don't come here, can you give up your US citizenship? That might not solve the problem of not filing taxes in the past, but would get you out of filing in the future. I'm sure there must be a way to do that without putting up red flags that you're doing it to get out of taxes.

I hope you figure it out.

[EllasMum]

Since you don't come here, can you give up your US citizenship? That might not solve the problem of not filing taxes in the past, but would get you out of filing in the future. I'm sure there must be a way to do that without putting up red flags that you're doing it to get out of taxes.

I hope you figure it out.

:bag I already considered that. If you choose to relinquish your US citizenship, you have to pay $450US as a fee. I don't think it would do anything about the tax situation, anyway. My sister and her DH have found an American tax accountant who is going to assist us with all of this... Hope it gets resolved quickly as I think I am getting an ulcer from all of this. :(

Thanks for your reply!

[AnnieW625]

WOW! That's crazy! I would send Bubbaray a message, she is an attorney, and I believe she was also born in the US, but now lives in Canada. Maybe she can help you.

[mom2binsd]

I thought that the US doesn't recognize dual citizenship...do you have proof of Canadian citizenship (like a Passport), then you should be fine I would think. I would think the law is more for folks who are currently working but recently moved from the US????

[MontrealMum]

The quick answer is yes, if you are a US citizen who lives abroad, whether you are dual or not, and are earning income you are legally required to file taxes in the US....IF you make above a certain amount. (that is, your earnings, not yours + your partner if SO is Canadian for example) However, that minumum threshold amount is fairly low.

A few years back before I became a Canadian citizen I looked into the whole US tax thing and there seemed to be some sort of exemption that US citizens living abroad could file that declared them permanently, or at least for the long-term, absent from the country which would allow them to get out of paying taxes to two countries. This was not for people who spend months abroad, or who relocate for a few years, but for those that permanently reside abroad and do not really avail themselves of services, such as you and your sister. If you ever returned to the US you could then apply to have that status reversed. I searched again just this past year as I am no longer a student and could not find a darned thing referring to that. I really do not think that I dreamed it up! I've asked around and noone really knows what I'm referring to, and many don't even know that they're required to pay US taxes although it's stated quite clearly on quite a few gov't sites. It is very stressful trying to find a clear answer.

[EllasMum]

Yes, the threshold is $85 800. I work part-time, so make nowhere near that. From what we have found, even if you make under this amount, you still have to file a tax return, however you won't end up paying any taxes. While they *can* still impose a penalty for failing to file the returns, it is not common for the IRS to do this unless you OWE tax. As I will not owe anything, I think I am ok from that standpoint. It will, however, cost me $500 per return, to file my returns, via the accountant my sister was able to retain. The advice is to file 3 years' worth of returns. I do not know where/how I will scrape together $1500. As a single parent, even scraping together $500 is going to be a challenge. :( I guess I'll cross that bridge when I come to it.

[KrisM]

Do you have to use the accountant? If not, I'd try them myself first. Or pay the accountant to do the first years forms and use that as a guide for the other 2.

[KrisM]

I thought that the US doesn't recognize dual citizenship...do you have proof of Canadian citizenship (like a Passport), then you should be fine I would think. I would think the law is more for folks who are currently working but recently moved from the US????

You can give up your US citizenship in certain circumatances. But, just because she is also a Canadian citizen does not mean she is no longer a US citizen. Here is the Dept. of State page on it: http://travel.state.gov/travel/cis_pa_tw/cis/cis_1753.html

If you're a citizen of both you have to obey laws of both, and I am sure the easiest one to make people do it taxes.

[egoldber]

If your taxes are simple and you will not owe taxes, I would not use an accountant.

Have you called the IRS help line? I have had to call them before for a relative who had not filed tax returns (who did not owe any taxes) and they were incredibly nice and helpful. Odd I know, since the IRS has a terrible rep. ;) Definitely call before the spring when they are not as busy.

[EllasMum]

I thought that the US doesn't recognize dual citizenship...do you have proof of Canadian citizenship (like a Passport), then you should be fine I would think. I would think the law is more for folks who are currently working but recently moved from the US????

Yep, the US does recognize dual citizenship. My sister and I had to specify, at some point (age? specific year? I forget!), whether we wanted to maintain dual citizenship, relinquish our US citizenship, or relinquish our Canadian citizenship. I'm not sure why - I think if you were born before a certain year (I want to say 1979...) you were allowed to keep dual citizenship. We both opted to keep the dual citizenship, and never gave it much thought after that. I do recognize that having citizenship (in ANY country) does come with obligations and responsibilities, but I guess at the time, I was too young to understand that, and my parents never thought to look into it any further. Hooray for the media, or I would likely never have known about the taxes. ;)

The law is pretty clear - if you are an American citizen, living abroad, you are required to file an American income tax return. It doesn't make any difference how long you lived in the USA - if you hold American citizenship, you have to file the return. There is an agreement in place, with Canada, anyway, to protect folks from having to pay double the taxes, but over a certain amount, that is exactly what ends up happening. For once, making less money is a good thing. :p

[EllasMum]

If your taxes are simple and you will not owe taxes, I would not use an accountant.

Have you called the IRS help line? I have had to call them before for a relative who had not filed tax returns (who did not owe any taxes) and they were incredibly nice and helpful. Odd I know, since the IRS has a terrible rep. ;) Definitely call before the spring when they are not as busy.

My taxes should be pretty straightforward - they are when I file them in Canada, anyway. I should not have to pay anything as my income is well below the allowable. I have not got to the point of filing, yet... but thanks for the suggestion - I will keep the IRS help line close at hand, for sure! I do have an accountant friend who has no specific experience with the American tax system, but I may take her out to Starbucks and ask (beg!) her for assistance anyway. ;)

[lowrioh]

I also had a very good experience with the IRS help line. We had an issue where the automated system goofed up and claimed we owed $10K in back taxes 15 min on the phone with the help line and it was completely cleared up and they sent us a letter affirming that we didn't owe the back taxes.
They were very, very helpful. I think that after all the bad press in the past that they have been very focused on increasing the quality of their customer service.