Can past tax filing mistakes while on TN be fixed?

[underground canuck]

I work for a CDN corp that has clients in the US. I've had no problems apply for TNs and getting them. Unlike many, I have no intent to move permanently to the US; I just want to work here for a few years. Now, a few years later, I think I have made some mistakes in my past tax filings and I would like to sort it out because I would like to work directly for a US employer without the CDN employer.

I started off doing short trips providing professional services for my CDN employer on behalf of my TN US employers. I spent half the year in Canada and half in the US. I was told at the time that I did not have to file US taxes because I was considered a Canadian resident temporarily assigned abroad.

Fast forward a few years and I start a 6 mo contract for a new US employer. This is still considered temporary assignment abroad. So, I filed my CDN taxes the same way I had in the past. Because my salary was in CDN and the per diem was not given to me as taxable income by my CDN employer, I didn't see how I could file anything in the US. As far as I was concerned, I was still still on a temporary assignment. I filed in Canada only. When the contract was renewed for 6 mos, and then again later for 1 yr. I stayed the course.

I thought I was doing this all correctly, but my recent research is telling me I have this all wrong. The work was performed in the US. I spent most of the year in the US. I did not get an SSN. No withholding was performed by the US employer since they had a corp to corp relationship with the CDN employer. I was paid a non-taxed per diem for my expenses because each stint was less than a year. It's been 4 years now.

Looking back now, I think I was supposed to file 1040NR in the US and use foreign tax credits on my CDN tax filing. Catching up on the US taxes might be prohibitively expensive now and I am not sure I can do anything to amend the CDN taxes to redistribute the taxes I paid to Canada to the US where it should have gone originally.

Can I apply for a SSN, file my back US taxes, refile my CDN taxes with foreign tax credits and get the money I paid Canada to the US? Am I totally SOL with this? If I get an SSN, can I start doing the right thing going forward without having this huge mess catch up with me? Like I said earlier, after years with a CDN employer, I am thinking of working for the US employer directly for a while before going back to Canada. Can I make a fresh start?

I still have property, bank accounts, RRSPs, and other assets in Canada to return to one day. And just to make it more complicated, I have a US citizen spouse, who I married 2 years ago, and who I plan to sponsor for PR to Canada while we are in the US.

[Steven]

I started off doing short trips providing professional services for my CDN employer on behalf of my TN US employers. I spent half the year in Canada and half in the US. I was told at the time that I did not have to file US taxes because I was considered a Canadian resident temporarily assigned abroad.

Wrong, if the work is performed in the US you generally have to pay taxes in the US if your income there is over $10,000.

Fast forward a few years and I start a 6 mo contract for a new US employer. This is still considered temporary assignment abroad. So, I filed my CDN taxes the same way I had in the past. Because my salary was in CDN and the per diem was not given to me as taxable income by my CDN employer, I didn't see how I could file anything in the US. As far as I was concerned, I was still still on a temporary assignment. I filed in Canada only. When the contract was renewed for 6 mos, and then again later for 1 yr. I stayed the course.

Not clear what your relationship with the US employer is from this statement, if you were employed by them you should have given them a completed W-4 and they issue you a W-2, you report that income on your T1 and on 1040NR and claim a foreign tax credit in Canada.

Can I apply for a SSN, file my back US taxes, refile my CDN taxes with foreign tax credits and get the money I paid Canada to the US? Am I totally SOL with this? If I get an SSN, can I start doing the right thing going forward without having this huge mess catch up with me? Like I said earlier, after years with a CDN employer, I am thinking of working for the US employer directly for a while before going back to Canada. Can I make a fresh start?

It's hard to go back because the US hates late filing of 1040NRs, the instructions specifically state that tax treaty status cannot be retroactively claimed. If you've got no SSN the IRS don't know you exist, so to start with, get an SSN and start doing everything properly now!

I still have property, bank accounts, RRSPs, and other assets in Canada to return to one day. And just to make it more complicated, I have a US citizen spouse, who I married 2 years ago, and who I plan to sponsor for PR to Canada while we are in the US.

Well the one thing that is saving your ass here is that you are still resident in Canada for tax purposes, so the CRA couldn't care less because they have their money, plus you plan on moving back too so the IRS has little ability to go after you. Plus you clearly have non-immigrant intent as well.

So like I said, get the SSN, give your employer a W-4 (put "non-resident alien" down to the answer for question 6) get on their payroll and get them to start doing withholding now.

[underground canuck]

I realize now that there are a few things wrong with my past working arrangement. At the time, it was just a little unclear if each country was getting their appropriate cut of taxes. I kinda figured that the CDN employer paying US taxes covered the US source income, but I guess that was wrong.

Not clear what your relationship with the US employer is from this statement, if you were employed by them you should have given them a completed W-4 and they issue you a W-2, you report that income on your T1 and on 1040NR and claim a foreign tax credit in Canada.

I was effectively employed by them. I worked almost all my hours in the US. They sponsored my TN. They had a corp to corp relationship with the CDN employer. US employer pays CDN employer, who pays me. No US withholding that I am aware of by either employer. The CDN employer filed corporate returns in the US. The CDN employer issues me a T4. As far as I can tell, the only documentation of US source income I have is my T4 and bank records of my per diem deposits.

I think that once I was in the US long enough and earned enough US source income, my CDN employer was supposed to notify the CRA that they were going to reduce/stop my CDN withholding and start US withholding. I am also worried now that I was not eligible for per diem and that would double my income for those years if they come after me.

Well the one thing that is saving your ass here is that you are still resident in Canada for tax purposes, so the CRA couldn't care less because they have their money, plus you plan on moving back too so the IRS has little ability to go after you.

Am I still resident in Canada for tax purposes? Do I still classify as a NRA in the US under article iv? I own a home in Canada, but I started renting it out earlier in 2009.

We do plan on moving back, but we might consider another TN term. In that case, they could come after me while we are still here, right?

So like I said, get the SSN, give your employer a W-4 (put "non-resident alien" down to the answer for question 6) get on their payroll and get them to start doing withholding now.

Well then, the most important question is: Will getting the SSN bring all the past irregularities to the IRS attention? Am I safer getting a new TN and starting fresh there too?

Thanks a lot for the info and advice. I hope this might help someone else out there too who might be in a similar situation (yeah right).

[Steven]

Am I still resident in Canada for tax purposes?

Well you've been filing in Canada and you clearly have non-immigrant intent in the US, so if you want to be a resident of Canada for tax purposes then you are, as far as Article IV goes. That doesn't mean you don't owe the IRS taxes though, but that is not the same as being resident for tax purposes.

We do plan on moving back, but we might consider another TN term. In that case, they could come after me while we are still here, right?

They can come after you anywhere, as my uncle who moved to the UK and got audited by the IRS while he was living there reminds me at every opportunity.

Well then, the most important question is: Will getting the SSN bring all the past irregularities to the IRS attention? Am I safer getting a new TN and starting fresh there too?

The IRS has no access to your immigration records, nor do they care about your immigration status. Whether you come to the attention of the IRS or not I think is largely up to your employer and whether the IRS ever audits them. From the sounds of it they're not too clued up.