Many taxpayers in the United States are never amused by the Internal Revenue Service (IRS) insistence on foreign income filing and FBARs, which refer to a report of foreign bank and financial accounts Surprisingly, citizens of both the US and neighboring Canada, seem positively outraged . Canadians enjoy a good relationship with Americans, and can travel freely with either a US or Canadian passport. However, most of these dual citizens file their tax returns in Canada, and fail to do the same in the US
For a longtime, many of these citizens claimed that with the high rates of taxes in Canada, there was no need to file returns in the US, as they claimed foreign tax credits, or treaty benefits with- no- tax owed in the US As a result, most of them had no idea what FBARs were, and were caught unawares when they learned that they had to file their taxes in the US as well.
However, things have changed and many holders of dual- citizenship are terrified as they have not been complying with tax requirements. Fortunately for them, their large numbers of non-compliance has forced the IRS to take it easy on them. The IRS is expected to issue guidelines on how to minimize fines imposed on dual- citizens in the neighboring countries (US- Canada), and who were unaware of the FBARs, and requirements to file taxes on foreign income in the US
The IRS is expected to issue guidelines related to the following:
· Lack of penalties on dual-citizens who reside in Canada, and file their US tax returns late, as long as they do not owe any taxes.
· Lack of penalies on dual-citizens in Canada who offer good explanations for failure of filing FBARs on time.
· Refund of penalties on those dual citizens who had taken part in the voluntary disclosure programs of the IRS in 2009 and 2011.
Although it is unclear about how many years of back taxes will be affected, and the fate of dual citizens who owe small taxes amounts, many people who hold dual -citizenship in Canada have welcomed the move, including Canada's Minister of Finance Jim Flaherty who expressed his approval stating that most of the dual citizens to be affected were honest, law abiding and hardworking individuals. He hailed the move as a victory for Canadians and proof of the good relationship that exists between the two neighboring countries.