Dual Citizens and U.S. Filing Obligations

Understanding dual citizens and U.S. filing obligations is essential for Canadians who also hold U.S. citizenship through birth, parentage, or naturalization. The United States is one of the only countries in the world that taxes its citizens on worldwide income regardless of where they live. This means that a dual U.S.–Canadian citizen living in Montreal, Toronto, Vancouver, or anywhere in Canada must still file U.S. tax returns every year, even if they have not lived in the United States for decades. The IRS also requires foreign asset reporting such as FBAR, FATCA forms, foreign corporation disclosures, and special trust reporting. Failure to comply exposes dual citizens to penalties, interest, and passport complications. This guide explains everything you need to know about dual citizens and U.S. filing obligations.

Legal and Regulatory Framework
Dual citizens and U.S. filing obligations are governed by the U.S. Internal Revenue Code, Form 1040 U.S. tax return rules, FBAR reporting under FINCEN Form 114, FATCA reporting under Form 8938, Form 5471 foreign corporation reporting, Form 3520 and 3520-A trust reporting rules, the Foreign Earned Income Exclusion (FEIE), the foreign tax credit system, Canada–U.S. Tax Treaty provisions, and CRA worldwide income rules. Québec’s Taxation Act also applies to dual citizens who are residents of Québec. Because dual citizens must file in both countries, proper coordination is essential.

U.S. Worldwide Income Reporting
Dual citizens must report worldwide income on IRS Form 1040 every year. This includes:
employment income
business income
interest
dividends
rental income
capital gains
RRSP/RRIF withdrawals
pension income
Canadian corporate dividends
Canadian investment portfolio income
Even if all income is earned in Canada and taxed in Canada, it must still be reported to the IRS.

Foreign Tax Credits Prevent Double Taxation
To avoid paying tax twice, most dual citizens use the U.S. foreign tax credit (Form 1116). Canadian taxes paid on income can offset U.S. tax on that same income. In most cases, proper use of credits results in little or no additional U.S. tax. However, improperly filed credits can result in double taxation or future IRS audits.

FBAR Filing Requirements (FINCEN Form 114)
Dual citizens must file an FBAR if the total value of their foreign financial accounts exceeds USD $10,000 at any time during the year. This includes:
Canadian bank accounts
RRSPs and RRIFs
TFSAs
RESPs
Canadian investment accounts
joint accounts
corporate bank accounts in Canada
FBAR is one of the most heavily enforced U.S. reporting requirements, and penalties can reach USD $10,000 per violation.

FATCA Reporting (Form 8938)
Under FATCA, dual citizens with foreign assets above certain thresholds must file Form 8938. Thresholds vary, but many Canadian dual citizens must report:
investment portfolios
shares in private corporations
rental property interests
trust and partnership holdings
RRSPs and RRIFs
TFSAs and RESPs
Even though Canadian institutions report accounts directly to the IRS under FATCA, dual citizens must still file their own forms.

RRSPs, RRIFs, and U.S. Reporting
RRSPs and RRIFs are tax-deferred in the U.S. under the Canada–U.S. Treaty, but only if reported properly. Failure to file Form 8891 historically caused RRSP income to become fully taxable in the U.S. Today, the treaty allows automatic deferral, but taxpayers must still disclose accounts on FATCA and FBAR. Executing this properly is essential for dual citizens and U.S. filing obligations.

TFSAs and RESPs Are Not Recognized by the IRS
The IRS does not recognize TFSAs and RESPs as tax-sheltered accounts. Earnings inside these accounts are taxable to the U.S. beneficiary or owner. Dual citizens must report TFSA and RESP income annually to the IRS. These accounts are often subject to trust reporting on Forms 3520 and 3520-A. This is one of the most confusing areas for dual citizens.

Owning a Canadian Corporation (Form 5471)
Dual citizens who own shares of a Canadian corporation (even a small one-person corporation) may need to file Form 5471 — one of the most complicated U.S. tax forms. Failure to file Form 5471 carries penalties starting at USD $10,000. CRA does not assist with this form; it must be filed with the IRS.

Owning Canadian Rental Property
Rental properties in Canada must be reported on both CRA and IRS filings. Depreciation rules are different in the U.S. Dual citizens must file:
CRA T776 rental schedule
IRS Schedule E
foreign tax credits for Canadian tax paid
capital gains reporting upon sale
Lack of proper tracking can lead to mismatched ACB and double taxation.

Canada–U.S. Treaty Tie-Breaker Rules
Dual citizens who physically live in Canada are considered Canadian residents for tax purposes under treaty tie-breaker rules. But this does not exempt them from filing U.S. tax returns. Only permanent departure from U.S. citizenship eliminates U.S. filing obligations.

U.S. Exit Tax on Renouncing Citizenship
Dual citizens who renounce U.S. citizenship may face the U.S. expatriation tax (exit tax) if they meet:
net worth over USD $2 million
high average tax liability
non-compliance for the previous five years
Renouncing citizenship requires careful planning and full compliance with past U.S. filings.

Québec-Specific Issues
Québec residents must file TP-1 and Québec foreign tax credit claims. Québec does not follow IRS rules for TFSAs, RESPs, or RRSPs. Québec may also audit trust reporting separately. Dual citizens must coordinate federal, Québec, and U.S. filings consistently.

Common Mistakes of Dual Citizens
Common errors include failing to file U.S. tax returns for years, ignoring FBAR or FATCA reporting, misunderstanding TFSA taxability, forgetting to report Canadian corporations, omitting Canadian real estate, incorrectly claiming foreign tax credits, and assuming “I live in Canada so the U.S. can’t tax me.” These errors lead to severe penalties and IRS enforcement.

Key Court Decisions
U.S. courts consistently uphold worldwide taxation for all U.S. citizens. Courts also support automatic penalties for missing FBAR and 5471 filings. Canadian courts confirm that dual citizens remain Canadian tax residents if they maintain residential ties.

Why CRA and IRS Audit Dual Citizens
Dual citizens are high audit targets due to:
foreign accounts
cross-border income
corporate ownership
unfiled U.S. returns
misreported rental income
complex treaty interactions
FBAR mismatches with bank-reported FATCA data
IRS and CRA exchange information electronically, increasing audit risk.

Mackisen Strategy
Mackisen CPA provides full cross-border tax support for dual citizens. We prepare U.S. and Canadian returns, file FBAR and FATCA reports, manage Form 5471 for Canadian corporations, report RRSP/RRIF/TFSAs correctly, calculate foreign tax credits, manage GST/HST and Québec tax issues, resolve IRS notices, negotiate penalty relief, and handle renunciation exit tax planning if required. Our team ensures dual citizens and U.S. filing obligations are fully compliant and tax-efficient.

Real Client Experience
A Montréal professional discovered 10 years of unfiled U.S. returns. Mackisen filed streamlined offshore filings and eliminated penalties. A Canadian business owner with a corporation needed Form 5471 filings; we prepared all forms and avoided IRS penalties. A client with multiple TFSAs and RESPs faced IRS trust penalties; Mackisen corrected filings and minimized exposure. A Québec family with dual citizenship had mismatched FBAR/FATCA reporting; we corrected all forms and closed the case.

Common Questions
Do dual citizens have to file U.S. taxes every year? Yes.
Are RRSPs taxable in the U.S.? Deferred if reported correctly.
Are TFSAs taxable in the U.S.? Yes.
Do I need FBAR? Yes if accounts exceed USD $10,000 total.
Can a dual citizen avoid double taxation? Yes with foreign tax credits.
Is renouncing U.S. citizenship taxable? Possibly — exit tax may apply.

Why Mackisen
With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps dual citizens manage U.S. filing obligations with full compliance, audit protection, and tax efficiency. Whether filing U.S. and Canadian returns, correcting past non-compliance, or planning corporate and trust structures, our expert team ensures clarity, protection, and peace of mind.