• Skip to primary navigation
  • Skip to main content
  • Skip to footer
Homes and Lifestyle Logo Black

Homes and Lifestyle Toronto

Real Estate, Luxury & Style

  • Homes
  • Lifestyle
  • Fashion
  • Food & Drink
  • Travel
  • Wellness
  • Education
  • Advertising Info

Crossborder Marriage and the IRS

by Preferred Publishing

Nuptials May Bring New Tax Obligations 

Elena Hanson, Managing Director & Founder

Planning a wedding can be an exciting and stressful time in a couple’s life. There’s so much to think about – the flowers, the cake, the venue, the fact that you are a U.S. citizen and your spouse-to-be owns a Canadian corporation…

Oh. You hadn’t thought about that yet? 

If you are a U.S. citizen who is about to marry a Canadian, and that Canadian is a shareholder in a Canadian corporation (or any corporation outside of the U.S.), it’s time to get up to speed on your new reporting obligations to the Internal Revenue Service (IRS). 

It’s no secret that the U.S. government likes to keep tabs on the earnings and wealth of its citizens. In fact, the IRS requires that U.S. citizens and green card holders, regardless of residency status, must report on their worldwide income and assets on an annual basis. This is particularly true when it comes to offshore accounts or holdings that could have the appearance of being a means to hide income and assets from the watchful eye of the IRS. 

To the IRS, a foreign corporation is a great mechanism for hiding taxable income. And as far as the IRS is concerned, if you have a close relative who owns at least 10% of the stock in a Canadian or other foreign corporation, you could magically become a U.S. citizen who has acquired or owns at least 10% of the stock in a foreign corporation. Even if you don’t. 

According to Internal Revenue Code section 6046(c), “…stock owned directly or indirectly by a person (including, in the case of an individual, stock owned by members of his family) shall be taken into account. For purposes of the preceding sentence, the family of an individual shall be considered as including only his brothers and sisters (whether by the whole or half blood), spouse, ancestors, and lineal descendants.” 

This is known as “constructive ownership” and it isn’t the most straightforward of tax rules. It means – using the example of a U.S. citizen marrying the owner of a foreign corporation – if you are a U.S. citizen and you marry someone who owns stock in a foreign corporation, you should report this as your own inherited / imaginary foreign ownership interest to the IRS via Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations. 

More specifically, under the constructive ownership rules, if the U.S. person does not directly own or control stock and their spouse-to-be who does own stock is a non-resident alien (i.e. a person who does not have U.S. tax obligations), the U.S. person has only acquired foreign stock and has a one-time filing requirement for Form 5471. This individual is considered a “Category 3” filer. There are five categories of filer that are relevant to Form 5471, but a Category 3 is the most likely scenario in the event of a crossborder marriage. 

This is a very high-level explanation of this filing requirement for U.S. citizens who marry an owner of a foreign corporation. For detailed definitions on the various filing categories, see the instructions to Form 5471. 

If a crossborder marriage is what you are about to embark upon, you may want to set aside the cake tasting and seating arrangements for a moment to consider the constructive ownership rules and any other rules that could come into effect on the day of your nuptials. Overlooking U.S. tax obligations typically comes with punitive action on the part of the IRS. In the case of Form 5471, failing to file could result in up to a $60,000 penalty for the U.S. citizen spouse. 

But there’s no need to get cold feet! While it may sound a bit scary, a reputable advisor who understands taxation of U.S. citizens and the possible complications of crossborder marriage can help ensure your walk down the aisle is worry-free…at least from a tax perspective. 

Hanson Cross Border Tax

Where Complexity Meets Clarity

Share this:

  • Click to share on Facebook (Opens in new window)
  • Click to share on Pinterest (Opens in new window)
  • Click to share on Reddit (Opens in new window)
  • Click to share on LinkedIn (Opens in new window)

Filed Under: Education Tagged With: crossborder marriage, crossborder tax, elena hanson, Hanson Crossborder Tax, Internal Revenue Service, IRS, Marriage, tax obligations

For Advertisers

Connect To Your Ideal Audience With Homes & Lifestyle Magazines.

Have your ad featured in 300,000 printed lifestyle magazines per year, delivered to high-income homes & retail locations throughout Toronto, Muskoka, Mississauga, Oakville & Burlington. To get started, contact us today.

Content & editorials are distributed in print magazines, digital magazines, various blogs, social media channels & proprietary email databases.

Learn More

Footer

Check out our latest issues available now in Toronto, Muskoka & West GTA.

Cayman Marshall West GTA
Grace & Co Homes Toronto
Cayman Marshall Muskoka

Below Footer

If you are interested in receiving printed and/or digital copies of any of our magazines please contact us today.

© 2023 · Luxury Real Estate & Lifestyle Magazine Publishing By Preferred Publishing

  • Homes
  • Lifestyle
  • Fashion
  • Food & Drink
  • Travel
  • Wellness
  • Education
  • Contact Us