# IRS and American spouse



## financialnoob (Feb 26, 2011)

Just wondering if anyone has experience with filing a return with the IRS. My wife is American but a permanent resident of Canada. She has a SIN and filed a return with Revenue Canada, but it seems she also has to file a return with the IRS stating her foreign income (Form 2555).

The good news is it appears she can exclude up to $91,500 of her income from taxation so she doesn't get double taxed, and she didn't make that much so that won't be an issue. I'm more concerned about the implications of her marital filing status. 

If she files as married joint, the IRS website then needs to know my world income and could potentially include that in their numbers. Our household income is below the $183K anyways, but just the thought of the IRS looking at my income gives me the creeps.

It looks like if she files married, separate for return purposes, she doesn't have to include my income in her return.

Also, the IRS site doesn't say she has to provide a copy of her Canadian return, as there's a tax treaty provision so they can look at if they want to. However I read on another site they recommend including a copy for their convenience. Anyone have experience with this?


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## kcowan (Jul 1, 2010)

My wife has a US SSN and was in the US for 4 years, working and filing. After she and her first husband returned to Canada, she no longer filed but continued to work and file in Canada. This was 14 years ago. 

When we bought our Mexican condo in 2007, I gave American Title her SSN in addition to getting an ITIN for me so they could grant us interest on our escrow account in Florida. I claimed half the interest in Canada (and she claimed the other half in Canada).

Now this was a small amount but it did not trigger any action by the IRS. I think because of the tax treaty, it is not worth it for the IRS to pursue such cases.


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## financialnoob (Feb 26, 2011)

Out of curiosity, is your wife an American or a Canadian who was working there legally? 

I think you're right on the mark about the IRS not pursuing these small cases, but they still request that we file. I've always thought of Revenue Canada as incompetent, dangerously incompetent but incompetent nonetheless. But the IRS, from what I've heard, can be quite vicious and malicious. I don't want to piss them off.


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## kcowan (Jul 1, 2010)

financialnoob said:


> Out of curiosity, is your wife an American or a Canadian who was working there legally?


She is Canadian and was working with a green card. But, as you know, filing with the IRS is considered mandatory.


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## Karen (Jul 24, 2010)

financialnoob said:


> Just wondering if anyone has experience with filing a return with the IRS. My wife is American but a permanent resident of Canada. She has a SIN and filed a return with Revenue Canada, but it seems she also has to file a return with the IRS stating her foreign income (Form 2555).
> 
> The good news is it appears she can exclude up to $91,500 of her income from taxation so she doesn't get double taxed, and she didn't make that much so that won't be an issue. I'm more concerned about the implications of her marital filing status.
> 
> ...


My late husband was an American citizen who had permanent resident status in Canada. He filed as single because the tax consultant we used (David Ingram, who unfortunately died earlier this year) recommended doing it that way - he said there would no advantage to us filing jointly. I'm sorry but I don't remember his reasoning, so I can't say whether that would apply in your case as well.

Bill's income was all pension and annuity income, which is not eligible for the exemption you refer to, so he had to file with both CRA and the IRS, but he was able to claim a foreign tax credit on his Canadian tax return for the amount he paid to the US, so he was not subject to double taxation.

My reason for replying to your post is mainly to make sure you and your wife are aware of the requirement to file an annual Form T D F 90-22.1 (Report of Foreign Bank Accounts) with the US Treasury. We would not have known of it without David Ingram telling us, and the penalties are extremely severe for not filing - minimum fine of $10,000, maximum penalty of $10,000 per account plus up to ten years in prison. The requirement to file the TDF 90 applies if an American citizen or green-card holder has signing authority on foreign bank accounts (or similar) totalling $10,000.

In case you are not aware of this requirement, thie following is an excerpt from one of Davids newsletters about it. If you already know about it, I apologize for taking up so much space in your thread!

_Reporting of Foreign (Canadian) Accounts.

U.S. citizens with signing authority on foreign financial accounts which total more than $10,000 U.S. at any one time in a year must report the details of ALL the accounts to the U.S. Treasury in Detroit on a form TDF-90 as on page 124. Failure to file this "simple little form" carries a penalty of up to $500,000 PLUS 5 years in jail. Note that this form is filed with TREASURY in Detroit, NOT WITH the IRS. And I was informed by an IRS Agent duriong a June 20, 2007 Conference Call that the new mimimum penalty for failure to file will be $10,000 . I have had a 105 year old client who received a $10,000 fine and an associate had a 68 year old woman client with a $60,000 fine. Over 1,000 clients of Jerome Schneider, a Vancouver consultant are also being fined as part of his plea bargain wherein he agreed to turn his clients in. see more info at 
http://www.centa.com/CEN-TAPEDE/archive/Week-of-Mon-20051010/002095.html.

Notice that this TDF-90 form requires details of accounts on which you have a signing authority. It does not need to be your account, or contain your money or securities. If you are a nurse and sign on the nurse's union account, you must report the details asked for on the form TDF-90 enclosed with this newsletter. If you are a cub leader, or a signing officer for your Kinsmen account, or a deacon at your church and sign the church's account, you must give the details to the Department of the Treasury in Detroit. This also applies to RRSP accounts which are even more serious because they are also classified as "FOREIGN TRUSTS". You must also report an account owned by an organization that you could be a signing officer for if 'you' chose to be. i.e. you are the president or some other officer who can walk into the bank, state you are the president of such and such, and automatically be added to the list. Find a fillable Form T D F 90-22.1 at http://www.irs.gov/pub/irs-pdf/f90221.pdf_


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## financialnoob (Feb 26, 2011)

kcowan said:


> She is Canadian and was working with a green card. But, as you know, filing with the IRS is considered mandatory.


Thanks a lot for the info. The IRS is kind of terrifying. 



Karen said:


> My late husband was an American citizen who had permanent resident status in Canada. He filed as single because the tax consultant we used (David Ingram, who unfortunately died earlier this year) recommended doing it that way - he said there would no advantage to us filing jointly. I'm sorry but I don't remember his reasoning, so I can't say whether that would apply in your case as well.
> 
> Bill's income was all pension and annuity income, which is not eligible for the exemption you refer to, so he had to file with both CRA and the IRS, but he was able to claim a foreign tax credit on his Canadian tax return for the amount he paid to the US, so he was not subject to double taxation.
> 
> ...


I almost fell out of my chair when I read your post. Thanks for taking the time to point this out and go into great detail. You probably just saved my life with that.

I always knew getting mixed up with an American would cause me issues  j/k


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## Karen (Jul 24, 2010)

I'm glad I thought to mention it, financialnoob. Bill and I were shocked when we learned about it and very grateful to David Ingram for the information. David said he's never known of anyone being charged if they backfile voluntarily before the US Treasury comes after them, but they are quite ruthless if they are the ones who initiate the action.

I used to tease Bill (my late American husband) that at least he knew he was truly loved when I put up with all the nonsense required to bring an American spouse to Canada, and still thought he was worth it!

Quite seriously, though, it's true, as you say, that the IRS is quite terrifying. And the worst of it is that, unlike Canadians who move to another country and break all ties to Canada, American citizens can't ever be free of these requirements, even if they become citizens of another country. The only way Americans can rid themselves of a lifetime obligation to file tax returns with the IRS on their worldwide income (and to file TD F 90s) is to formally give up their American citizenship. Even then, they are still required to file tax returns, etc., for a further ten years AND they will never again be permitted to enter the USA, so it's a very serious and difficult decision for an American to make!


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## financialnoob (Feb 26, 2011)

LOL I was just saying the same thing to my wife. I'm glad to hear he was worth it, though sorry to hear he's passed on.

We actually did consider the citizenship aspect but figured it was worth it, especially if we have children.


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## kcowan (Jul 1, 2010)

Karen you were indeed lucky to have David Ingram. Did you get caught in the estate tax web?


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## Karen (Jul 24, 2010)

kcowan said:


> Karen you were indeed lucky to have David Ingram. Did you get caught in the estate tax web?


No, the US estate tax didn't apply because Bill's assets were nowhere near the exempt amount ($3.5 million for 2009, when he died). Thank goodness I didn't have to deal with that.

There were really no complications caused by Bill's being American. About the only way it affected me is that I had to obtain a US Social Security No. in order to apply for a survivor's benefit under his SS pension and to transfer his 403B plan to my name.


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