My_question_is: Applicable to both US and Canada
Subject: Penalties
Expert: taxman at centa.com
Date: Monday May 22, 2006
Time: 02:14 PM -0700
QUESTION:
Dear David,
We are still trying to get our heads around the myriad of information and
mis-information that is available.
As I understand it, the penalties for non-filing of US taxes (as an Alien
with H1-B visa), are a percentage of the tax due (if any was due under the
treaty), up to a 25% maximum. If this is the case then there will be no
penalties if there is no tax owing? Also, is there a statute of limitations
for non-filing?
Thanks,
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david ingram replies:
Unless you earned less than $10,000 US, you will owe tax to the US. In any
case, if you are claiming a treaty exemption, the minimum penalty for not
filing the form 8833 with your 1040NR or 1040 US income tax return is $1,000
with a second offence in the $10,000 range. This US penalty is assessed for
"failure to file" and does not matter whether you owe tax or not.
This kind of penalty is NOT limited to the US. One of my Vancouver clients
paid $12,300 for failure to file a Canadian tax return that had a refund
coming.
Do I see them often??? NO! But It is devastating to those caught and the
record I have seen (for silliness) was a US $10,000 fine for a 105 year old
lady.
And why oh why oh why, would you jeopardize your visa and your right to
work in the USA by not filing a US Income tax return wilfully??
One of the parts of Bill Clinton's "Illegal and Legal Alien Responsibility
Act of Sept 30, 1996" was an order to the IRS and INS (now USCIS) to compare
their records.
And remember that "wilful" failure to file if you owe tax is a criminal
offence.
Last, but not least, there is NO statute of Limitations for failure to file
in either country. We are presently doing old returns back to 1996, 1998
and 1999 for clients who have had these old returns demanded.
Historically, Canada rarely goes back more than 8 years but the US can go
back to 1967 if they wish if no returns were filed. LOTS of people are
being caught at the border. Something like 22% of the people you talk to on
the US border are ex IRS and trained to look for non-filers.
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