U.S. Citizenship and Tax Implications

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U.S. Citizenship and Tax Implications

January 7, 2020

Tax Question:

Who is a U.S. citizen and what are the tax filing implications for a non-resident?

Facts:

If you don’t reside in the U.S., you may still be a U.S. citizen even if you have never claimed citizenship status and never registered as one. As a non-resident U.S. citizen, you have tax filing requirements each year.

Discussion:

Under U.S. immigration rules, you are a U.S. citizen if any of these conditions apply:

You were born in the U.S.
You were born outside the U.S. but both of your parents are U.S. citizens.
You were born outside the U.S. after November 14, 1986, and one of your parents is a U.S. citizen who resided in the U.S. for five years (two of which were after that parent’s 14th birthday).
You were born outside the U.S. before November 14, 1986, and one of your parents is a U.S. citizen who resided in the U.S. for ten years (five of which were after that parent’s 14th birthday).

As a non-resident U.S. citizen, you have tax filing requirements to report your non-U.S. investments and holdings. These tax filing requirements include:

Form 114 Report of Foreign Bank and Financial Accounts (FBAR) – to report combined non-U.S. bank account balances in excess of $10,000.
Form 3520 Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts – required to report your interest in a non-U.S. Trust.
Form 5471 Information Return of U.S. Persons With Respect to Certain Foreign Corporations – required to report your ownership of a non-U.S. private corporation.
Form 8865 Information Return of U.S. Persons With Respect to Certain Foreign Partnerships – required to report ownership of a non-U.S. partnership.
Form 8621 Information Return by a Shareholder of a Passive Foreign Investment – required to report ownership of non-U.S. mutual funds.

Failure to comply with these tax filings may result in penalties of $10,000 per year. per form. There are delinquent filing submission procedures available to become compliant with late filings.

If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.

Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.