What counts as reasonable cause for a late US filing?
The test is not how late the return was or how much tax was owed. It asks what an ordinarily prudent person in the same circumstances could have been expected to do, and whether the thing that went wrong was avoidable by that person. That makes it a question of evidence rather than of apology. A statement saying the filer was busy, confused or badly advised carries almost nothing. A statement setting out what happened, on which dates, with the documents that show it, is the same story told in a form that can be assessed. Write the chronology first and see what it supports. The argument is whatever survives that.
Is not knowing about the filing requirement reasonable cause?
On its own, no. Ignorance of an obligation is the most common thing people offer and the least persuasive, because it describes a state of mind rather than a circumstance. What sometimes does carry weight is the reason the obligation was invisible. A filer told in writing by an employer or a foreign institution that nothing further was required, who then acted on that, is describing something with a date and a document attached. So the question to work on is not whether you knew, but what you were relying on when you did not, and whether that reliance can be evidenced. Where it cannot, say so and look at the other routes rather than padding the statement.
Does reasonable cause reduce the tax as well as the penalty?
No. A reasonable-cause request is directed at the penalty. The tax is computed the same way whether the request succeeds or fails, and the return has to be right either way. This matters for the order of work. There is no point writing a careful statement about a year whose figures are still moving, because the penalty follows the assessed amount and the statement will have to be rewritten. Get the return to a position you are prepared to defend, then argue the penalty on the facts of the delay. Treating the two as one exercise is how a good set of facts ends up attached to the wrong numbers.
How do I prove reasonable cause if records are abroad?
By documenting the attempt rather than the absence. A missing record proves nothing. A dated request to a foreign payroll provider, the reply, the follow-up and the eventual arrival of the statement together describe a filer who could not act sooner and can show why. Keep the correspondence as it happens, in the order it happens, because reconstructing it afterwards produces a chronology with no evidence under it. Where a document will never arrive, say what was requested, from whom and when, and what was used instead. An honest gap with dates around it reads better than a confident sentence with nothing behind it.
Do I need a separate reasonable cause statement for each year?
Usually the facts are one story and the years are several, so the chronology is written once and then the part of it applying to each year is identified year by year. That sounds like a formality and it is not. A cause explaining the first two years often does not explain the fourth, and a statement that quietly asks for the same treatment across a long run of years invites the obvious question about the later ones. Where the reason ran out partway through, say when it ran out. Conceding the years the facts do not cover is what makes the years they do cover credible.
Should I file the late returns before asking for penalty relief?
Almost always the filing comes first, because the penalty is assessed against a return and a request made before there is anything to assess has nothing to attach to. The part needing thought is the order in which the filings themselves go in, and whether any route still open depends on the correction being made in a particular way. That is worth checking before the first envelope rather than afterwards, because an ordinary late filing can close a route that was available the day before. Our fee for this work is agreed in writing before it starts. If you want the sequence looked at, the number is +1 (416) 619-0068.
I have not filed for several years while living abroad — what are my options?
Both countries have routes back, and using one before they contact you is what preserves the relief. On the US side there are procedures aimed at taxpayers whose failure was not wilful, including one designed for people living outside the country, and separate procedures for late account reports and information returns alone. Canada has its voluntary disclosures programme and taxpayer relief for penalties and interest. Filing quietly and hoping is the one approach with no protection attached to it. See catch-up filing.
Do I get credit for all of the foreign tax I paid?
Only up to your own country's tax on that same income, and only for tax you were legally obliged to pay. Two consequences follow. Living somewhere that taxes you more heavily than your residence country does leaves an excess that becomes a carryover rather than a refund. And withholding suffered above the treaty rate is not creditable — the route back to that money is a refund claim in the country that took it. See claiming the credit.
