A friend recently asked me a pretty sensitive question and thank goodness he did. My buddy, who we will call “John”, is from Canada and is a dual-citizen. He hasn’t lived in the US for 10 years and was about to sell his final piece of real estate somewhere in Ohio.
He reached out because he hasn’t filed a US Tax Return in a decade and he’s been living in Canada with no plans to return to the States. However, he got worried about coming up on the IRS radar with the sale of this property, which should net him a couple hundred thousand bucks.
This is a HUGE problem. If you are a United States Citizen, you must file a tax return on any foreign accounts you have worth $10,000 or more, whether they produce income or not. If you don’t, the penalties are enormous and sometimes fall under criminal consequences. The IRS has the ability to penalize up to 50% of the balance of the account! That’s right, they can penalize you for more than just the income earned. Isn’t that insane? Every bank or investment account John has in Canada is considered a foreign account by the IRS and because John is a citizen of the US, he is required to report every account worth $10,000 or more to the IRS. Since he has not, he now wears a big red target on his back.
Thankfully, because he reached out, we can get ahead of this issue and come forward to the IRS before they sick the dogs on John. That’s the only way to receive any kind of relaxed treatment. Once they decide to come after you, there will be no penalty waivers or forgiveness. The IRS Revenue Agent, who is on commission, will be coming for every penny they possibly can. Thank goodness John called me or his entire life savings would have been in danger.
Of course, I am not an Attorney, so I refer all “IRS help” questions to Jeffrey Kahn. He’s a Board Certified Tax Attorney in California and knows how to make the most of these scenarios. His number is 866.494.6829