What a Cross-Border Tax Accountant Actually Does, and How to Tell a Specialist From a Generalist

A cross-border tax accountant prepares returns in two countries for the same person and, more importantly, makes the two returns agree with each other. Most accountants are competent in one system. The cross-border work is in the interaction: the foreign tax credit that has to be computed after the other country's return is done, the treaty election that has to be made on the first return or lost, the account that is ordinary on one side and a foreign trust on the other. A generalist who has 'done a few of these' produces two returns that each look fine and together cost the client money.

Key takeaways

• A cross-border specialist prepares both countries' returns, or coordinates directly with the preparer on the other side, and sequences them so the credits and elections line up.
• The work covers the departure or arrival year (the most expensive year to get wrong), the ongoing dual filings, and the events in between: a property sale, a corporate wind-up, an inheritance, a pension start.
• Credentials to look for: a CPA in the US (or an enrolled agent) and a CPA in Canada, or a firm with both; experience measured in cross-border files per year, not years in practice.
• Fees are driven by the number of returns, the number of accounts and assets that require separate forms (PFICs, foreign trusts, foreign corporations), and whether the file is current or a catch-up.
• The questions to ask are specific: which treaty elections will you make on my first return, how do you handle my TFSA, what happens to my corporation, and who prepares the other country's return.

What the work is

The move year. Determining the residency dates in both countries and reconciling them; the departure tax (T1243, T1161, T1244) or the arrival step-up; the corporate decision (wind up, keep, or restructure); the RRSP and TFSA decisions before the date; the equity sourcing schedule; the final Canadian return and the dual-status or elected US return; the Article XIII(7) basis election; the FBAR and Form 8938 start; and the destination state's rules.

Every year after. The US return with foreign tax credits by basket; the Canadian filings for Canadian-source income (Section 216 on rental income, NR4 slips on pension and RRSP withdrawals); the FBAR and Form 8938; Form 5471 for a surviving Canadian corporation; Form 8621 for any PFIC; Form 3520 for a TFSA, RESP, or large gift; and the state return.

The events. A property sale (FIRPTA or Section 116, the gain in two currencies, the exclusions); a pension start (NR301, the 15% treaty rate, the state's treatment); an inheritance (Form 3520, the treaty proration, the basis); a return to Canada (the deemed reacquisition, the RRSP and 401(k) decisions); a death (the deemed disposition, the estate tax, the credits).

Specialist or generalist

A specialist can answer, without looking it up, what the treaty does to your RRSP in California, why your TFSA is a problem, whether your Canadian mutual funds are PFICs, and what the Form 3520 threshold is. A generalist will say they will research it. The research is not the problem; the problem is the things a generalist does not know to research: the 905(c) redetermination when the CRA reassesses, the XIII(7) election that has to be made on the first return, the NR6 that has to be filed before the first rent payment, the Form 8840 that has to be filed by June 15.

Ask how many cross-border files the preparer handles a year. Ask whether they prepare both countries' returns or coordinate with someone who does, and how. Ask what software they use for the Canadian return (US-only firms often prepare Canadian returns by hand, which is where errors live). Ask what their process is for the departure year.

What drives the fee

The number of returns (T1, TP-1, 1040, state, Section 216, 1040-NR); the number of forms driven by accounts (each PFIC is a Form 8621, each foreign trust is a Form 3520 and 3520-A, each foreign corporation is a Form 5471 with schedules); the departure-year complexity (valuation, corporate wind-up, equity sourcing); and whether the file is current or a catch-up (streamlined filings are three years of returns and six of FBARs). A straightforward dual filing for a salaried employee with an RRSP and no other accounts costs a fraction of a file with a corporation, three PFICs, a TFSA, and a rental. Fairlight publishes its pricing; the ranges reflect these drivers.

Questions to ask before you hire

1. Do you prepare both the U.S. and Canadian returns, or coordinate with a preparer who does? How?
2. What treaty elections will you make on my first US return, and why?
3. What do you recommend I do with my TFSA, my Canadian mutual funds, and my RESP before I move?
4. What happens to my professional corporation, and when do you need to start on it?
5. How do you handle a CRA reassessment after the US return is filed?
6. How many Canada-US files do you handle a year?
7. What is included in the fee, and what triggers additional charges?

Worked example

A Toronto physician with a professional corporation, a TFSA, Canadian mutual funds, and a house asks two firms about a move to Florida.

• Generalist. Quotes for a T1 and a 1040; says the corporation 'should be fine'; has not heard of Form 3520; suggests keeping the mutual funds because they have done well.
• Specialist. Quotes for the T1 with departure schedules, the corporate wind-up before departure, the 1040 with the XIII(7) election, closing the TFSA before crossing, replacing the mutual funds with US-listed ETFs to avoid PFIC filings, and the NR6 if the house is rented. Higher quote; lower total cost by a wide margin.

Official sources

"Everyone described above must have an IRS issued preparer tax identification number (PTIN) in order to legally prepare your tax return for compensation. [...] Enrolled agents, certified public accountants, and attorneys have unlimited representation rights before the IRS." — Internal Revenue Service, Understanding Tax Return Preparer Credentials and Qualifications, https://www.irs.gov/tax-professionals/understanding-tax-return-preparer-credentials-and-qualifications

Practitioner note

The most expensive cross-border return is the one that looks right on each side and was never reconciled between them. The second most expensive is the departure year prepared after the departure date, when the corporate wind-up, the TFSA, and the loss harvesting are no longer available. Hire before you set the date, and hire someone who asks about the corporation before you mention it.

See also: Planning the move? Start with the Canada-to-US tax checklist and browse every corridor by city, province, and state.

Next step

Fairlight prepares both countries' returns from one office, the departure-year planning before the date is set, and the ongoing cross-border filings. See cross-border pricing or book a call.