Uncle Sam came hat in hand to Gordon Pape. Here's how he beat the IRS, and you can, too!
About a year ago, I wrote a column about my problems with the U.S. Internal Revenue Service (the IRS). Since then, some readers have written to me, asking how it all turned out. Well, it's finally resolved—but it cost me about $2,000 to fix it.
It all started in August last year when a letter showed up in my mailbox claiming that I owed the American government $48,730.57 for the 2014 tax year. At first, I thought it was a hoax but, after I studied the letter several times, I came to conclusion it was legitimate. Uncle Sam wanted me to pay him a huge amount of money.
A lot of American expatriates living in Canada have faced similar problems and, lately, the IRS has been getting more aggressive. Americans are expected to file U.S. tax returns no matter where they live in the world, even if they pay tax at a higher rate in that country. Failure to do so can lead to some hefty penalties.
But I'm not an American citizen. Although I was born in the U.S., I renounced my citizenship back in 1967 when I became a Canadian. At the time, the U.S. did not recognize dual citizenship so I had to make a choice. Canada was my home, and I was proud to be accepted as a citizen. The U.S. embassy in Ottawa made me sign a formal renunciation of American citizenship after I took the oath to the Queen. I never dreamed at the time how important that document would become.
After I recovered from the shock of the IRS letter, I sent off a reply explaining why I didn't owe the Americans anything. I included a copy of my Certificate of Loss of Nationality and explained that I owned no property in the States. Then I sat back and waited for a "we're sorry" reply.
Talk about wishful thinking! The next communication I received, dated Dec. 21, said that, with accumulated interest, I now owed $50,530.88. It was obviously a computer-generated letter but it contained a contact name in the IRS office in Philadelphia. I dutifully sent her a copy of my earlier reply with all the details. I eventually received an answer that they were investigating.
That didn't stop the computer. In February, I received a new notice, claiming my bill had ballooned to $51,269.55. Two months later, another notice arrived putting the amount at $52,043.46. But this one went even further, giving notice of an intent to levy. The accompanying document described how the IRS could put a lien on my property, seize my bank account, issue a summons and more scary stuff.
At this point, I decided I needed professional help to get these people off my back so I enlisted the services of an accountant in Boca Raton, Fla. He had lived many years in Toronto so was very familiar with the intricacies of cross-border taxation. As I explained my problem to him, he just shook his head. He'd heard it all before many times.
In the end, his office had to prepare an amended Non-Resident Tax Return for 2014 (form 1040X) along with a Treaty-Based Return Position Disclosure (form 8833) and a Closer Connection Exception Statement for Aliens (form 8840).
The expense was worth it. On June 6, the IRS sent me a new statement showing a balance owing of zero! It took almost 10 months and a couple of thousand U.S. dollars, but they were finally off my case.
Clearly, you don't want anything like this to happen to you. Click through for what you need to know if you spend part or all of your winters in the U.S.
Copyright 2017 ZoomerMedia Limited