IRS cracking down on Canadians spending time in US

[Kathryn41 3,205]

Something those who are spending time in the US prior to immigration might want to keep in mind

http://www.winnipegfreepress.com/business/...m-45835532.html

Snowbirds -- time to fess up to Uncle Sam

David Christianson

22/05/2009 1:00 AM

Mary and Joseph had been making a winter pilgrimage to the United States for many years, in search of warmer weather. Each year they would spend about five months in a cosy park model trailer in Mesa, Ariz., soaking up the sun and engaging in some full contact mah-jong.

They loved it so much they might have stayed longer, but they knew that as Canadian citizens they were travelling to the U.S. on a visitor's visa, and they could only be present up to 182 days a year in the U.S.

Last fall, as they were chatting pleasantly with the representative of the U.S. Customs and Border Protection, he surprised them by asking why they had not filed their IRS Form 8840 for the last two years.

The surprise turned to shock when the border guard told them that, as a result, they are now subject to U.S. tax on their worldwide income. The 8840 is a tax exemption form, which allows Canadians to have a "substantial presence" in the U.S. but still pay their taxes in Canada. The full name of the form is Closer Connection Exception Statement for Aliens.

In this context, "aliens" is us. The form asks you a series of lifestyle and personal questions to determine if you have a "closer connection" to Canada or the United States. Whichever country wins the closer connection duel gets your taxes.

For most Canadians who have a permanent home in Canada, who have most of their banking, investments, health care, driver's licence, car and voter registration, cultural and religious affiliations in Canada, there is usually no problem in establishing a closer connection to Canada.

In that case, there is no requirement to file a U.S. tax return, but there may continue to be an annual requirement to file the 8840 by June 15 each year.

If you spent more than 30 days in the U.S. in 2008, then this applies to you. The first step is to determine if you have a "substantial presence" in the U.S. Here's how you make the calculation for this year. Add together:

• Total number of days spent in the U.S. in 2008;
• One-third of the days spent in 2007; and,
• One-sixth of the days spent in 2006.

If the total is greater than 182, then the filing of the form 8840 is mandatory, separately for each spouse. If the total is 182 or less, then submitting the form is optional.

Don't count any days you regularly commuted to work in the U.S., partial days passing through on your way to another country, days you were unable to leave the U.S. due to medical reasons, or days spent as a teacher, trainee, student or as a professional athlete engaged in a charitable sports event.

OK, let's address the usual objection that people have to filing anything with the IRS -- they don't want the IRS to know about them. I understand that, and I hear all sorts of arguments against making your presence known.

Some people think this is just the first step in developing a database of future taxpayers, and the IRS will change the rules as soon as they get enough names.

Other people seem to have skeletons in their closets that they want to stay hidden.

My personal feeling is that anyone who continues to cross the border each year is going to eventually be asked about form 8840. The IRS and the U.S. Department of Homeland Security are getting closer to linking their computer systems, if for no other reason than anti-terrorism measures.

Joseph and Mary are not a real couple, but one of these days their story may be true.

To obtain your form, go to: www.irs.gov/pub/irs-pdf/f8840.pdf.

It then gets mailed to:

U.S. Department of the Treasury

Internal Revenue Service Center

Austin, TX

73301-0215

U.S.A.

Make a photocopy of your forms and carry them with you when you head for the border.

If the spring weather carries on the way it has in Western Canada lately, there may be another migration of snowbirds south this month.

David Christianson is a fee-only financial planner and investment counsel with Wellington West Total Wealth Management Inc., advising clients with $2 million to $10 million of investment assets. You can e-mail him at dchristianson@wellwest.ca

Edited May 28, 2009 by Kathryn41

[The_Dude 1,142]

That is scary. They are stretching the breadth and scope of the IRS to where It really shouldn't go. If you don't generate any income in the U.S., then they have no business demanding taxes of you.

[domegirl1978 1]

WHAT THE HELL?? Is this for real? This is so ILLEGAL its not even funny. I will totally be speaking to my fiance's aunt about this as she works for the IRS. There is no way this should be allowed.

We are allowed as Canadians to own homes in the states and to vacation there for 6 months with no worries. Now we may have to pay U.S. taxes? I find this unfair. Especially for people like my grandparents who are in their late 80's and now that I'm moving to Florida will be spending 4 months at least out of the year down there with me.

Oh Mr. Ron Paul sir? Can't you get the IRS abolished like you want to?

[BermyCat 1]

You would think that the US government would want to make things as easy as possible for people to come spend their money here for several months out of the year. It's free money. They don't use social servics here and your average snowbird is hardly a criminal.

~ Catherine

[zyggy 9]

Actually this is allowed under the tax treaty between the US and Canada. THe purpose of the form is to determine how you fall under the provisions of the tax treaty. Pure and simple...

I wouls say for almost all snowbirds.. this is not a problem. It's probably more of a problem for people with substatial passive income. If you are spending a lot of time in the US, then it goes to say that a portion of your passive income should be taxed by the US and vice versa. This form is the same thing as a NR-73 form.

Edited May 28, 2009 by zyggy