For many dual US-Canadian citizens and former US residents now living in Canada, the assumption is simple: “I live in Canada and pay taxes here, so I’m done.” Unfortunately, that assumption can lead to serious consequences.

If you’re a US citizen or green card holder residing in Canada, you still have tax and reporting obligations to the United States. At Tax Relief Counsel, a Maryland-based tax law firm serving clients nationwide and internationally, we regularly assist clients across Canada in resolving complex US tax issues, including failure to file FBARs, Form 8938, and other international information returns.

In this blog, we explain what dual citizens and US persons living in Canada need to know about their obligations, and how they can avoid or minimize costly IRS penalties.

Who Must File US Tax Returns While Living in Canada?

The United States is one of the few countries that taxes its citizens and residents on worldwide income, no matter where they live. That means:

US citizens, even if living abroad full-time
Green card holders, even if they reside in Canada or another country

must still file a US tax return (Form 1040) every year if their income exceeds the standard filing thresholds.

This applies even if you:

Also file a Canadian tax return
Earn all your income in Canada
Have no assets in the United States

You May Not Owe US Tax, But You Still Must File

Living and working in Canada doesn’t necessarily mean you’ll owe tax to the IRS. There are provisions to prevent double taxation, including:

Foreign Earned Income Exclusion (FEIE) – Exclude up to $120,000+ of earned income (amount adjusted annually)
Foreign Tax Credit (FTC) – Offset your US tax liability with taxes paid to Canada
Tax treaties between the US and Canada that allocate taxing rights

Still, these benefits only apply if you file the proper forms. Not filing simply because you think you owe nothing can result in steep penalties.

Foreign Account Reporting Obligations

Aside from income tax filings, many Americans in Canada also have to report their foreign financial accounts and foreign assets using special IRS forms. These include:

FBAR (FinCEN Form 114) – Required if you have foreign accounts exceeding $10,000 total at any point in the year. This includes:
- Canadian bank accounts
- Investment accounts
- RRSPs, TFSAs, RESPs (in some cases)
Form 8938 (FATCA) – Similar to FBAR, but has different thresholds and applies to more asset types
Form 8621 – Required if you own Canadian mutual funds (treated as PFICs in the US)
Form 3520 and 3520-A – For certain trusts and foreign gifts
Form 5471 – If you own shares in a Canadian corporation

Failing to file these forms can result in hefty penalties, even if no US tax is due.

Penalties for Not Filing

The IRS has separate penalty regimes for each type of international reporting failure. Examples include:

FBAR penalties:
- Up to $10,000 per non-willful violation
- Up to $100,000+ or 50% of the account balance for willful violations
Form 8938 penalties: $10,000 minimum per form
Form 8621: Triggers extended statutes of limitations and punitive PFIC tax rules
Form 3520/5471: $10,000+ per failure and potential loss of foreign tax credits

Many of these penalties apply per year, per form, making noncompliance incredibly costly.

Options to Get Back Into Compliance

The IRS offers programs for taxpayers who unknowingly failed to comply with these rules. Two of the most commonly used for Canadians are:

1. Streamlined Foreign Offshore Procedures (SFOP)

This is for US persons living outside the US who:

Failed to file tax returns and/or FBARs
Were non-willful in their noncompliance

Benefits of SFOP:

File 3 years of tax returns and 6 years of FBARs
No penalties assessed if eligible

Learn more about Streamlined Foreign Offshore Procedures (SFOP).

2. Streamlined Domestic Offshore Procedures (SDOP)

This is for US persons who live in the US but failed to report foreign assets. Some dual citizens with US homes or ties may qualify.

Key features:

File 3 years of returns and 6 years of FBARs
Pay a 5% penalty on the highest foreign asset balance

Learn more about Streamlined Domestic Offshore Procedures (SDOP).

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Why Canadian Accountants Can’t Help

Many Canadian tax preparers don’t understand the nuances of US tax law. While they may help you file Canadian returns, they usually:

Don’t file IRS forms like FBARs or 8621
Don’t understand US-Canada tax treaty interaction
Can’t represent you before the IRS if there’s an audit or penalty

That’s why it’s critical to work with a US tax attorney who specializes in international compliance.

At Tax Relief Counsel, we help clients across Canada understand their obligations, prepare delinquent forms, and avoid or minimize penalties through proper IRS disclosure programs.

Who We Help

We frequently assist:

Dual US-Canadian citizens born in the US or with US passports
Former US residents who moved to Canada and never renounced
Accidental Americans who didn’t know they were US citizens
Canadians married to US persons who may file jointly or hold joint accounts

What to Do if You’re Behind on Filings

If you haven’t filed US tax returns or foreign account forms:

Do not file retroactively without legal advice – You may lose the chance to enter SFOP or SDOP.
Do not contact the IRS directly – This could trigger penalties before you qualify for amnesty.
Speak with a US tax attorney who can evaluate your eligibility and protect your interests.

Why Choose Tax Relief Counsel

At Tax Relief Counsel, we:

Represent clients nationwide and internationally
Have extensive experience with expat tax compliance and IRS disclosure programs
Offer confidential legal advice, protected by attorney-client privilege
Assist with every step of the SFOP or SDOP process, from strategy to filing

Get Help from a US Tax Attorney Today

If you’re living in Canada and unsure about your US tax obligations, don’t wait for the IRS to catch up. Filing late or incorrectly can lead to irreversible penalties. Let our legal team help you regain compliance while protecting your financial future.

Call Tax Relief Counsel today at (202) 630-4095 or contact us online to schedule a confidential consultation.