Mitigated tax exposure strategy ensures savings and compliance for a US client

A group of US citizens, and Canadian citizens with resident/citizen beneficiaries, run a Canadian real estate operation owned by a group of Canadian family trusts. When the media began reporting on the IRS obtaining information from Canadian banks and brokerages, the family became concerned that they may have been noncompliant or have filed incomplete US tax returns, which could result in significant penalties.

We worked with the group to ensure compliance, while advising on the best methods to avoid capital dividends and penalties for Canadian residents.

Review. We conducted an in-depth review of the corporate structure to unearth exposure to any potential issues such as grantor trust, foreign nongrantor trusts, Controlled Foreign Corporations (“CFCs”), and passive foreign investment companies.

Investigate. Zeifmans investigated whether all US family members were compliant. In cases where noncompliance arose, we corrected any inadvertent errors that could lead to penalties. This included accessing the IRS “streamlined” compliance system to avoid penalties for Canadian residents.

Confirm. In almost all cases, no tax was due. Any exposure was found to have been related to delinquent information filings regarding the interest in the trusts and corporation.

The corporation’s indirect US owners and beneficiaries were able to avoid millions of dollars of US tax exposures without paying much tax, or any penalties. We provided our clients with a tax road map for the future, assisting them in identifying US tax traps and advising on correct compliance protocol for the coming years.