Illustrative example based on the kinds of matters we handle — not a specific client engagement; outcomes depend on the facts.
The situation
In this representative matter, a person born in the United States had lived in Canada for most of their adult life — long enough to feel entirely Canadian. They worked here, paid Canadian tax, and held an RRSP, a TFSA, and a chequing account on this side of the border. What they did not realize is that the United States taxes its citizens on worldwide income no matter where they live, so U.S. citizenship carried U.S. filing obligations the whole time — even with no U.S. income and nothing owing after foreign tax credits.
The wake-up call was ordinary: their Canadian bank asked them to confirm a U.S. connection for reporting. The picture that emerged was unsettling — years of unfiled U.S. Form 1040 returns and years of unfiled FBARs (the Report of Foreign Bank and Financial Accounts, FinCEN Form 114) covering the Canadian accounts that, to the IRS, are 'foreign.' They came to us frightened by penalty figures seen online.
The challenge
The fear was understandable: the headline numbers attached to unfiled foreign-account reporting are genuinely large. But those figures target very different conduct than an ordinary person who did not know the rules applied to them.
- The accounts were not hidden — they were everyday Canadian accounts held openly where the person lived. The problem was only that, to the IRS, they were unreported foreign accounts.
- FBAR penalties turn on whether a failure to file was 'wilful' or 'non-wilful.' The analysis, and the right path, depend on honestly characterizing why the filings were missed.
- Common Canadian accounts create U.S. wrinkles: a TFSA is tax-free in Canada but is not treated as tax-favoured by the IRS, and some plans trigger extra reporting. The treaty relieves double tax but does not switch off the filing obligations.
- Coming forward had to happen before the IRS made contact, and automatic information sharing between institutions and tax authorities can close that window quietly.
How we approached it
The first conversation was about lowering the temperature: for a genuinely non-wilful filer, there is a defined path back to compliance, far less punishing than the worst-case numbers suggest. We worked eligibility first.
- Assessed eligibility. The Streamlined Filing Compliance Procedures — specifically the Streamlined Foreign Offshore Procedures for people who meet the non-residency test — are designed for taxpayers whose failure to file was non-wilful, which the non-wilful certification at the heart of the submission must support.
- Reconstructed the filing history. We assembled the returns for the required look-back years and the FBARs for the required period, gathering Canadian income and account balances to compute U.S. tax with foreign tax credits applied.
- Addressed the reporting in full. Beyond the FBAR, we identified the related U.S. information returns the Canadian accounts and plans could trigger, so the disclosure was complete rather than partial. Our overview of FATCA and FBAR compliance shows how those pieces fit together.
- Coordinated both sides of the border. Because the person remained a Canadian tax resident, we kept the Canadian filings consistent, the two-country coordination set out on our cross-border tax overview.
For more detail, our guides on the streamlined procedures for Canadian U.S. persons, filing obligations for U.S. citizens in Canada, and why coming forward to the IRS sooner is usually better cover the same ground. Had the same facts been on the Canadian side, the equivalent route would have been the Voluntary Disclosures Program with the CRA.
The outcome
In this illustrative scenario, the streamlined submission was accepted on the basis that the conduct was non-wilful. For a taxpayer who meets the non-residency test, that path is structured so the offshore penalty that would otherwise apply is not assessed and FBAR penalties are not imposed on the delinquent reports — the taxpayer files the back returns and FBARs, pays any U.S. tax actually due (often modest once foreign tax credits apply) plus interest, and returns to compliance. The relief that can follow this route — never assured — is the difference between a frightening worst-case exposure and a defined correction. This outcome is illustrative only and not presented as typical or assured; eligibility depends on the facts, on the conduct genuinely being non-wilful, and on acceptance by the IRS. Had the IRS made contact first, this path may not have been available.
The takeaway
U.S. citizenship comes with U.S. filing obligations that follow a person across the border, regardless of where they live or whether anything is owed. A few points generalize from files like this:
- Being behind because you did not know the rules applied is exactly the situation the streamlined procedures were designed for — non-wilful conduct is treated very differently from concealment.
- The two things that decide the path are characterizing the conduct honestly and coming forward before the IRS does, because automatic information sharing can close that window without warning.
- Ordinary Canadian accounts like TFSAs and RRSPs create U.S. reporting quirks, so a clean-up must be complete across both the returns and the foreign-account forms.
Past results are no assurance of a similar outcome. Each matter turns on its own facts, and results vary. This is an illustrative scenario for general information and is not legal or U.S. tax advice; please consult a qualified advisor about your situation.