Let me give you another example and this comes in the Voluntary Disclosure context. This time the client was a Canadian Citizen and a Permanent Resident of the United States. He received a Foreign Inheritance; and when I say a Foreign Inheritance, I mean non-Canadian and non-US.
The question really was: Where should he declare himself a Tax Resident? In the United States or …. and I apologize the year in which the inheritance occurred, he was not yet a Permanent Resident; he was just here in the United States. He satisfied the Substantial Presence Test but he was not a US Permanent Resident at that point. So the question was: Where should he be a Tax Resident, in Canada or should he be a Tax Resident in the United States?
He came to a Business Lawyer in New York. The Business Lawyer actually brought in an Accountant from a very large firm. And what they did is they said, ‘Okay’. It’s very interesting because it shows you to some degree the way that a lot of Accountants are thinking. Their primary goal was to avoid US Tax Liability so they declared my client as a Non-Resident of the United States and as a Canadian Resident avoiding all of the taxes which were associated with the income from that Foreign Inheritance.
The problem was that there were sufficient Foreign Tax Credits first of all to offset most of that tax liability; there was some but not much. But in Canada, Foreign Inheritance is actually taxed unlike in the United States where it would have to be only declared, in Canada it would have to be taxed.
Because they were late, they were facing penalties. So they had a Canadian Attorney negotiating some sort of a settlement with Canadian Authorities for (anonymously) five or six years. (My client was only part of that larger family that received that Inheritance).
By thinking very narrowly about only US Tax Liabilities, they exposed the client to a much larger Foreign Tax Liability. In the end, he declared himself a US Tax Resident; we did a Voluntary Disclosure on the Income. He paid some taxes but he paid a set of penalties in Canada and didn’t pay a set of taxes on his Foreign Inheritance in the United States because there is no Foreign Inheritance tax in the United States.
That shows you that you really need, when it comes to International Tax issues, you really need an International Tax Attorney if you want to approach that problem correctly and properly.