Update, April 13: On Thurs., April 9, the U.S. Internal Revenue Service (IRS) extended the filing deadline for Form 4868 Application for Automatic Extension of Time To File U.S. Individual Income Tax Return to July 15, from April 15. Filing Form 4868 on time allows an individual to defer filing a U.S. tax return until Oct. 15.
In addition, the due date for filing all forms that are sent as attachments to a personal tax return, as well as estate and trust income, gift and other returns, have been automatically extended to July 15. This includes Form 3520, Form 5471, and Form 8938. “Affected taxpayers do not have to call the IRS or file any extension forms, or send letters or other documents to receive this relief,” the IRS indicated in the notice.
The deadline for paying U.S. federal income tax was not extended beyond July 15.
The story that follows was current as of April 6, 2020.
Cross-border tax practitioners are recommending that Americans in Canada consider filing for an extension of their U.S. tax filing deadline, despite the fact that the U.S. government has already extended the filing deadline of the U.S. return to July 15.
Doing so would provide these taxpayers with more flexibility when it comes to filing certain U.S. tax information returns, which have received no official extension to their deadlines.
U.S. taxpayers in Canada must file U.S. Internal Revenue Service (IRS) Form 4868 by April 15 if they wish to request an extension to the filing of the U.S. return to Oct. 15.
“Many practitioners are filing extensions by April 15 that will automatically extend the due date of many of the information returns,” says Christine Perry, partner with Gowling WLG International Ltd. in Toronto.
The U.S. tax system is based on citizenship, not residency, meaning that U.S. citizens and Canadian holders of U.S. green cards must file a U.S. income tax return and make all other required tax filings annually on their worldwide income — regardless of where they live.
In late March, the IRS extended the April 15 deadline for filing income tax returns and gift tax returns, as well as paying taxes due, to July 15. The IRS also extended the due date for making first-quarter 2020 estimated income tax payments until July 15.
The IRS did not expressly extend the deadlines for filing annual informational returns, such as the forms required for U.S. citizens in Canada who own Canadian mutual funds or ETFs, or those who own a significant interest in a non-U.S. corporation.
However, the IRS requires many of these informational returns to be filed with the U.S. income tax return. Thus, the filing deadlines of these informational returns are effectively extended to match the July 15 deadline for filing of the U.S. income tax return.
Some cross-border tax practitioners are taking the extra step of filing Form 4868 on behalf of their U.S. clients in Canada.
“The penalties for late-filing of [informational] forms are large — typically $10,000 or more each,” says Kevyn Nightingale, international tax partner, tax services group, and business advisor with MNP LLP in Toronto. “If the IRS asserts a penalty, arguing requires material expenditures of time, money, aggravation and stress. Consequently, just to be safe, we recommend filing an extension for any individual with a normal April 15 due date who may need to file supplementary forms.”
Key informational returns that are filed with and form part of the tax return include:
- Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund
- Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations
- Form 8938, Statement of Specified Foreign Financial Assets
These forms would effectively have a July 15 filing deadline. “I struggle to see how a late-filing penalty could be applied to forms in this category, provided they are filed with the return by the July 15 due date,” Nightingale says.
The filing deadlines of certain other informational forms are automatically extended when there is an extension provided for the filing of the individual tax return to Oct. 15. These include:
- Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts
- Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return
Finally, there continues to be an April 15 deadline to file the Report of Foreign Bank and Financial Accounts (FBAR) on FinCEN Form 114 for U.S. persons in Canada with a Canadian bank account with an aggregate value that exceeded US$10,000 at any time during the calendar year. However, the IRS also continues to allow an automatic extension of the FBAR filing deadline, without needing to file a form, to Oct. 15.
Cross-border tax practitioners note that while the filing deadline for the income tax return and certain informational returns can be extended to Oct. 15, the payment deadline has been extended only to July 15.
“You cannot extend the payment date beyond this date,” says Dean Smith, partner with Cadesky Tax in Toronto. “If any taxes are owing and are not paid by July 15, the IRS will impose interest and, perhaps, a late payment penalty.”
Regardless of the filing extensions, Smith is recommending that U.S. taxpayers in Canada file their returns and other required information returns soon if they expect a refund: “The majority of taxpayers should already have their [tax] information in. We are encouraging them to send in their [return] as soon as possible.”