Marketwatch’s Bill Mann gets it wrong: Americans in Canada are required to file a U.S. tax return. IRS is right!

A few exceptions apply, but none that seem to fit the Mann story. (For example, if you earn wages under some low figure, like $6,000.)

Bill Mann has been reporting this story for some time, that the American tax collection agency, the Internal Revenue Service, has been asking American citizens in Canada if they have $10,000 (US) outside of the country. If they do, they are supposed to report this to the U.S. Department of the Treasury on an “F-BAR” form. I used to fill one of these out in Japan, when I had money there.

The problem is that Canada has retirement savings programs like our IRA or 401(k), and technically these count for the FBAR. So American citizens in Canada, and dual nationals (which is perfectly legal to be), are angry about this paperwork, and, particularly, the criminal penalties involved if you don’t file FBAR.

Where Bill Mann is screwing up, though, is that FBAR is different than the requirement to file federal taxes! That is, the regular 1040 that all stateside Americans know they have to file! He claims that this is some “little known” requirement. But it’s not! Look, it’s right on the last page of the new design passport (circled in red):

There is an exclusion, which will be about $95,000 in 2012–a bit less for this year–BUT YOU HAVE TO FILE TO BENEFIT FROM THE EXCLUSION! If you are making $60,000 in Canada, you probably don’t owe any U.S. taxes, but you have to file to claim the exclusion. You have to file. That’s the rule. File.

I know the IRS screws up here and there. I am confident that they did with the Making Work Pay Credit and people who work overseas. But in this instance, Bill Mann just sounds like a tax protester. He doesn’t think you should have to file if you work outside of America, and uses the Canadian situation to pump that little piece of Tea Party-style politics.

I used to tell friends in Japan: file. Mostly, they acted like I was talking out of my ass. But someday, the IRS will be focusing on Japan. If they are focusing on Canadian-resident U.S. citizens, they will obviously, someday, focus on Japan. And if you do not file, it is like the old Denny’s Restaurant sign. The tax year is “always open”—meaning, they can come at you 10 or 20 years later. (Otherwise, usually just three years.)

Where the IRS is right, why can’t we all just follow the rule without the bitching?

[Update 9/21/11: How ironic! Canada does not require its citizens to make an annual filing, BUT you do have to file a form to tell the Canadian tax revenue agency that you are out of Canada!]

[Update 9/21/11 #2: Oh, here’s a laugh! Canada taxes its residents on worldwide income! So the only real difference between Canada and America, is that if you are not resident in Canada, you don’t have to file an annual tax return unless you have Canada-source income.]