Prologue
This is the first of two blog posts (Part 1 and Part 2) that discuss the University of Washington Low Income Tax Clinic report referencing a dual Canada/U.S. citizen student living and working in Canada.
Part 1 (this) will discuss the report generally and how the circumstances actually trigger the Canada/U.S. tax treaty. Think of it! A few thousand dollars of summer income received by a Canadian student implicates an international tax treaty. Only in America!
Interestingly, the specific factual circumstances include an example of what happens when a U.S. citizen living outside the United States receives a U.S. inheritance that generates U.S. source income. This is a concern for many Americans abroad. It is a complicated area.
Mostly Part 1 will discuss the “LITC” Report. Specifically how the “LITC” viewed the issue. How they incorrectly tried to apply the U.S. Canada tax treaty (apparently) without regard to the “saving clause” which is included in all U.S. tax treaties.
The report seems to say that the taxpayer filed a U.S. tax return for the 2021 tax year and filed to include income which (because of information reporting) the IRS was aware of. This should be of concern to Americans abroad generally. I will discuss this aspect more fully in Part 2.
Part 2 will discuss the specific problem of a U.S. citizen abroad inheriting (or anticipating inheriting) U.S. assets (whether income producing or not). I am making this a separate post because it is a complicated topic. The most rational response to this situation is highly dependent on your factual situation.
In any case, we begin with Part 1 …
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