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Posted on May 14, 2013

Being proactive could save you thousands in taxes

Written by Avner Polatsek | @AvnerPolatsek

3520 tax form picture

Many of our clients are US citizens living in Canada, looking for help with their taxes and the complications that can come from living internationally. The most common situation that we run into is one where a US citizen living abroad is unaware of the extra forms they need to file to disclose certain information.

A few forgotten forms don’t seem like a big deal, right? Unfortunately, failing to understand your tax obligations and neglecting to file these forms could result in major fines.

We write posts like this because we want to help you avoid these penalties. The way to do that is by being proactive!

Here are a few examples of these extra forms (and the fines you could receive if you don’t file):

Form 5471: You need to file this to report if you’re a 10% or more shareholder in a foreign corporation. (Fine: $10,000 per year you don’t file, per person)

Form 8865: You need to file this to report if you’re a 10% or more partner in a foreign partnership. (Fine: $10,000 per year you don’t file, per person)

Form 926: You need to file this to report any property transfers to a foreign corporation including undistributed earnings. (Fine: 10% of the property transfer, up to $100,000 or without limit if you intentionally withheld the information)

Form 3520: You need to file this if you are a US citizen and have a foreign trust. (Fine: $10,000, a percentage of your property’s gross value, distributions you’ve received, or your trust’s assets). We did a full blog about this form!

Living internationally and filing taxes the same way you did when you were living in the US isn’t enough. There are additional forms that you need to file. We’re happy to sound like a broken record when it comes to saving you from fines and a backlog of paperwork!

Speaking of paperwork, at AP Tax, we will gladly walk you through the process of catching up on your tax forms and putting you in good standing with the IRS. Again, the sooner you correct this neglect, the better.

The IRS started a Streamline Filing Procedure to help those who were simply unaware that they had extra forms to file and there’s a possibility that your fines will be forgiven. Head to our Streamlined Filing Procedure blog post for more information and contact us if you would like to take advantage of this program.