We understand the specialized markets in which you operate and provide tailored solutions to meet your unique business needs.
Our comprehensive suite of business services combines industry expertise, market knowledge and professional insights.
MNP is a leading national accounting, tax and business consulting firm in Canada.
Suite 2000, 330 5th Ave. S.W.
MNP careers are Different by Design. As an entrepreneurial firm, we truly believe there are no limits to where your career can go.
In previous posts, I have discussed the ongoing saga of Americans in Canada who haven’t filed US returns, but want to come clean. The IRS keeps coming up with new “incentives” for these people to file. David Jacobson, the US Ambassador to Canada said more relief would be on its way, and the IRS followed through promptly.
The IRS issued a news release on December 8, 2011 here and I'm quoted in a related Globe & Mail article on December 9 here.
I have to tell you I’m not impressed. The release raises more questions than it answers. It gives us an indication of what the IRS is thinking, but provides no meaningful comfort for individuals wanting to come forward. It almost boils down to “Pay your money, and take your chances".
The release provides one important piece of information to non-compliant individuals:
Generally, the IRS will request only six years returns (unless there are major red flags raised on their end).
Since the end of the 2011 OVDI in September, there has been no guidance in this area. Since unfiled tax returns never become statute-barred, the only legal answer for me to give was “file every year you have missed”. This could have been 20, 30, or in one case of mine, 50 years – clearly unreasonable, not to mention impossible. So this information, while only a return to pre-2011 status, is welcome.
The IRS says it will abate penalties where there is “reasonable cause”. There are two avenues to establish reasonable cause:
If you want to establish that you exercised ordinary business care and prudence, the IRS will consider factors such as:
It is interesting that the IRS will (sometimes) consider a lack of awareness to be reasonable cause. Most times they would say ignorance is no excuse. The IRS now says: “You may have reasonable cause for noncompliance due to ignorance of the law if a reasonable and good faith effort was made to comply with the law or you were unaware of the requirement and could not reasonably be expected to know of the requirement".1
Perhaps this is the piece directed to Americans living in Canada (and other countries), but it’s not made very clear. In determining whether it was reasonable for you to not have known about your obligation to file, the IRS will look at:
The notice says there will be no late-filing or late-payment penalties where there is no tax due. But so what? Those penalties are (with a minor exception) calculated as percentages of the tax owing. Zero tax, zero penalty. There’s nothing new here.
It does not mention:
What I think the IRS needs is a permanent voluntary disclosure program similar to Canada’s. Canada’s objective is to get people into the system on their own initiative.
In Canada, an individual who comes forward before CRA reaches her can file all missing returns and forms, or amend previous incorrect ones. There are no significant bars to participation. The individual has to pay the tax, but she will not be prosecuted, and all penalties will be waived. Interest is often abated as well – generally for tax years more than four years old.2 Since long-running interest can easily run to figures as large as the tax liability (or bigger), this is a major plus. It is an incentive to come clean before CRA comes calling. The IRS would do well in adopting this approach.
For more information in this regard, please contact me, Kevyn Nightingale, CA, CPA (IL), TEP, at 416.596.1711
Subscribe to email updates of MNP Tax blog posts here >>
Suite 2000, 330 5th Ave. S.W.
Find an office near me