Abatement - late filed - interest and penalties
I have a client; fellow in his late 50’s, sells real estate, fairly high income earner, Canadian, lived in Canada until 2001 then in March 2001 moved to Las Vegas to work for a real estate developer. Has subsequently bounced back & forth between the US and Canada and is currently working in Hawaii.
Based on days, would have passed “substantial presence” in the US in 2001.
We’ve reported income on “world wide” income in the US; however, filed 2003and 2004 late – principally due to uncertainty with respect to his status. Canada has been treating him as a Canadian for tax purposes, however, I think I can now get him treated as a non-resident & recover some of his Canadian taxes. 2001 and 2002 were filed in the US on time & were not a problem.
The US wacked him with interest and late filing penalties – (about $50k). He’s paid all of the actual tax he needs to – at least ½ of the taxes paid in the US have to do with Canadian source income (self-employment /commissions & investment).
I’m trying to get the US tax & penalty amounts abated.
Following is my intended submission which I would like to send to the IRS in Philadelphia.
I would appreciate any improvements or advice anyone might have.
Thanks.
Following intended to go on the form “843”
"Please consider this request for an abatement of interest and penalties with respect to the 2003 and 2004 Assessment periods for the following reasons:
- Taxpayer was a resident of Canada until 2001. The actual date of transition to US residency has ultimately been determined to be March 6th 2001. Although we had requested clarification from the Canada Revenue Agency (”CRA”) with respect to residency determination, the actual date of determination was not received until November 21, 2005. (Copy attached)
- Based on US source income net of expenses alone, there would have been an IRS refund and no amount of taxes owing. That is, had not the Canadian source income been considered, more than a sufficient amount of tax had been withheld at source and submitted to the US Treasury/IRS as it related to US source income.
- Without clarification with respect to the Canadian source income, the Canadian taxation authorities required withholding taxes at source and payment. Canada has assessed the taxpayer has paid Canada as if he was still a Canadian resident for income tax purposes.
- The returns were filed late due to the advice from the Canada Revenue Agency and the uncertainty created therefrom.
- All actual tax amounts have now been paid to the IRS which amounts are calculated on the combined United States and Canadian source income. The additional amounts of interest and penalties assessed by the IRS to this point are solely the result of Canadian source income, the residency status for which had not been completed by the Canadian authorities until December of 2005. We could not accurately complete the Foreign Tax Credit amounts until the Canadian determination had been received.
- We therefore request your consideration and calculation allowing an abatement with respect to interest and penalty amounts as currently calculated for year 2003.
- (I intend to complete a separate submission for 2004)
