Cambridge LLP has built a strong relationship with Andreozzi Bluestein, LLP, a U.S. law firm in Buffalo, NY with extensive experience in U.S. Federal and state tax matters, including cross-border issues faced by Canadian businesses and U.S. citizens living and working in Canada. The firm’s attorneys and forensic accountants have many years’ experience as counsel and agents with the U.S. Treasury, IRS, and Department of Justice. They have identified a number of areas where Canadians with US interests may be impacted by new IRS initiatives. A brief summary is included. If you have a U.S. tax concern related to these items, or any other US Tax concern, contact us anytime for a no obligation introduction.
U.S. citizens who are shareholders of certain specified Canadian corporations must, beginning in 2017 and continuing thereafter, pay a “transition tax” (IRC Section 965) on any untaxed earnings of those entities as if those earnings had been repatriated to the United States. This has created significant tax burdens and uncertainties on affected individuals, but there are many different ways to resolve or alleviate those issues.
Foreign Bank Account Reporting
The IRS has again revamped its programs for U.S. citizens holding interests in foreign bank accounts, foreign trusts, foreign corporations, or other foreign assets. In addition, IRS has become more aggressive
in acting upon information procured from foreign financial institutions and in scrutinizing submissions made in prior years under the Streamlined Programs. If you are a U.S. citizen holding an interest in a Canadian account or other asset, it is not too late to address and correct the issue so as to avoid the continued risk that the IRS will contact you. Updated legislation on these reporting requirements has eliminated statutes of limitations on taxes and penalties associated with such assets, so inaction does not eliminate the problem but in fact exacerbates it.
Interests in Canadian Estates or Trusts
Reporting the interests of U.S. citizens with interests in Canadian estates or trusts has become increasingly difficult in light of the rules imposed, the information sharing between the United States and Canada, and the increased scrutiny and skepticism of the IRS. If you have received notices from the IRS, or believe that you have not complied with one or more reporting requirements associated with a trust or estate, you have options on how address the issue.
Canadian Entities Doing Business in the United States
The IRS has initiated an examination campaign targeting Canadian (and other foreign) businesses doing business in the United States to determine whether they have a so-called “permanent establishment” in the U. S. Permanent establishment of a business in the U.S. requires that the foreign entity file a Form 1120F tax return and pay taxes with respect to the presence and the income generated from the presence. Failure to file such a return can lead to substantial tax and penalties. Moreover, if the entity fails to file a return, the IRS has authority to make a determination, calculate a tax, and allow no deductions for otherwise valid business expenses offsetting such tax. To make matters worse, the failure to file a Form 1120F means there is no statute of limitations under which the IRS must assess a tax liability, and the IRS may go back as many years as it deems appropriate with respect to the liability. IRS’ enhanced access to electronic data and web-based marketing, and its increasing aptitude in data analytics has strengthened its resolve to investigate and find permanent establishments in the U.S. beyond brick-and-mortar and agent presence. This is a significant matter that requires attention, sooner rather than later.
Sales Tax Nexus
A recent US. Supreme Court opinion, South Dakota v. Wayfair, has changed the landscape on State sales tax across the United States. No longer is brick-and- mortar presence the determining factor in a vendor’s nexus for sales and use tax collection. Now, the proliferation of web-based sales, web presence, online marketing, and click-presence in the various states may well cause a Canadian vendor to become responsible and liable for State collections of sales tax. Any business that may be at risk of having a sales tax nexus in the U.S. should take steps to mitigate their exposure immediately.
This information has been provided by Andreozzi Bluestein LLP, Tax Litigation Attorneys, Buffalo, NY. If you have a U.S. tax concern we would be pleased to connect you with them.
Adam Cappelli is a founding partner of Cambridge LLP, with offices in Toronto, Burlington, Ottawa, and Elliot Lake. Prior to co-establishing his own practice in 2010, Adam was a partner for nine years at the largest full-service law firm in Southwestern Ontario (“Golden Horseshoe”) area. Each year since 2006, Adam has been voted by his peers as one of "The Best Lawyers in Canada" in the area of Estates and Trusts Law.