US IRS Audits and Florida Tax Disputes

For a Canadian who also files in the United States — a US citizen living in Canada, a snowbird, a Canadian who owns US real estate, or a Canadian company selling into the US market — a tax dispute is rarely a one-country problem. A US Internal Revenue Service (IRS) examination of a US return often touches the same income, the same account, or the same asset that the Canada Revenue Agency (CRA) is also looking at, and the way a position is resolved on one side of the border can change the tax owed on the other. The two systems are connected by the Canada-US tax treaty and the foreign tax credit rules, so a settlement reached in isolation can quietly create double taxation, a missed credit, or a treaty position that no longer lines up.

Barrett Tax Law represents clients in US federal IRS proceedings, US Tax Court matters, IRS offshore-compliance programs, and Florida state tax matters, and coordinates the Canadian side of the same dispute under one engagement. Simone Barrett is admitted in Florida (The Florida Bar) and Ontario (Law Society of Ontario), so she can act in matters of US federal tax law, Florida state tax law, and Canadian tax law. For state tax matters arising under the law of US jurisdictions other than Florida, the firm engages locally-admitted US counsel and provides the Canadian-side support.

What the US side of the practice covers

The US federal side covers examinations of US returns, representation before the IRS Independent Office of Appeals, petitions to the United States Tax Court, and the IRS offshore-compliance programs used to fix past non-filing — the Streamlined Foreign Offshore Procedures for non-willful cases and the IRS Voluntary Disclosure Practice for willful ones. The Florida state side covers Florida Department of Revenue (DOR) matters, which in practice means sales-and-use tax far more often than the rarely-encountered corporate income tax.

Many of these matters begin life as something else — a late or amended US return, an FBAR that was never filed, a US rental property that was sold without the right withholding, or a CRA letter that prompts a look at the US filings. Because the same facts usually drive both countries' returns, the firm's approach is to scope the whole picture before responding to either tax authority, so the Canadian and US positions stay consistent.

IRS examinations: how an audit actually unfolds

IRS examinations come in three forms. Correspondence audits are conducted entirely by mail — the IRS sends a letter asking for documents on a specific item. Office audits ask the taxpayer to bring records to an IRS office. Field audits send an examiner to the taxpayer's home or business and are the most far-reaching. For clients living in Canada, the overwhelming majority of IRS contact is by correspondence; the IRS does not generally dispatch field examiners to non-US addresses, which means the file is won or lost on the quality of the written record and the responses to it.

The mechanics are consistent. The examiner sends an information document request (IDR) listing what is wanted by a date. The work is to reconcile the position taken on the return with the underlying records, produce a clean and complete response, and negotiate where the examiner proposes adjustments. The single most common reason a cross-border audit goes badly is not a weak legal position — it is a disorganized or incomplete document response that hands the examiner a reason to disallow. Keeping the record tight, and keeping treaty and foreign-tax-credit positions documented, is most of the battle.

Most examinations resolve at the examiner level. Where they do not, the IRS issues a 30-day letter setting out the proposed adjustments and the right to take the matter to Appeals. A formal written protest preserves that right; for smaller cases — where the total proposed change is $25,000 or less for any tax year — a short Form 12203 request is enough. The protest is generally due within 30 days of the letter.

The IRS Independent Office of Appeals

Appeals is usually the most cost-effective forum for resolving a US tax dispute. It is a separate, independent unit within the IRS, kept organizationally apart from the examiners who proposed the adjustment. Appeals officers are typically more experienced, and — critically — they are authorized to weigh the hazards of litigation: the realistic chance the IRS would lose, in whole or in part, if the matter went to court. That authority is something the examiner does not have, which is why cases that look stuck at the examiner level routinely settle at Appeals on terms materially better than the proposed adjustment. The conference is informal and, for a client in Canada, is normally conducted by telephone or video, so there is no need to travel.

If Appeals does not resolve it: the 90-day letter and US Tax Court

If Appeals cannot reach a resolution, the IRS issues a statutory notice of deficiency — the "90-day letter." This is the document that gives the taxpayer the right to petition the United States Tax Court. The deadline is strict: 90 days from the date of the notice, extended to 150 days for a taxpayer whose address is outside the United States — a point that matters directly for clients living in Canada, and one that should never be left to chance because a missed deadline forecloses the Tax Court route entirely.

The Tax Court is the only forum where the disputed tax can be challenged without first paying it. The alternatives — a refund suit in a US District Court or the Court of Federal Claims — require the taxpayer to pay the deficiency first and then sue to recover it. For most cross-border clients, that pre-payment requirement makes Tax Court the practical choice. Where the amount in dispute is $50,000 or less for any single year, the taxpayer may elect the small tax case ("S case") procedure, which is simpler and faster, though S-case decisions are final and cannot be appealed. Many petitions are settled with IRS Counsel before trial, so filing the petition is often the step that finally produces a reasonable settlement rather than the start of a contested hearing.

Fixing past non-filing: Streamlined and the Voluntary Disclosure Practice

A large share of cross-border IRS work is not a dispute at all — it is bringing a US person who fell behind back into compliance before the IRS makes contact. US citizens and green-card holders are taxed on worldwide income and must file US returns no matter where they live, and most also have foreign-account reporting to do: an FBAR (FinCEN Form 114) is required when foreign financial accounts together exceed US$10,000 at any point in the year, and Form 8938 (FATCA) is required at higher thresholds that depend on filing status and whether the person lives abroad. For a US citizen in Canada, ordinary Canadian bank, RRSP, TFSA, and investment accounts can cross these lines without the person ever realizing it.

For taxpayers whose failure to file was non-willful — a genuine misunderstanding rather than a deliberate choice — the Streamlined Foreign Offshore Procedures are the usual path. The IRS lists them as an active program. They require filing or amending the most recent three years of returns, filing six years of delinquent FBARs, paying any tax and interest due, and certifying non-willful conduct. For taxpayers who meet the non-residency test (broadly, at least 330 full days outside the United States in one of the relevant years and no US abode), the procedures carry no FBAR penalty, no failure-to-file penalty, and no accuracy-related penalty. The certification of non-willfulness is a sworn narrative, and how it is written matters a great deal — it is the heart of the submission, not a formality.

Where the conduct was willful, the Streamlined route is not available, and forcing a willful case into it can make matters worse. Those cases go through the IRS Voluntary Disclosure Practice (Form 14457), which involves a preclearance step, a detailed narrative, and a structured penalty framework, and which is the route that addresses potential criminal exposure. Deciding honestly between non-willful and willful at the outset — before anything is filed — is one of the most consequential judgments in this area, and it is a legal judgment, not a tax-preparation one.

Florida state tax matters

Florida has no individual income tax, so the Florida questions clients run into are almost always about sales-and-use tax. Florida imposes a 6% state sales tax, and most counties add a discretionary surtax above that rate, so the effective rate varies by location within the state. Canadian businesses meet these rules in several ways: a remote or online seller shipping tangible goods into Florida, a Canadian company opening a Florida office or storing inventory in the state, or a Canadian individual buying tangible personal property in Florida.

Florida applies an economic nexus rule: a remote seller that exceeds $100,000 in taxable remote sales delivered into Florida in the prior calendar year must register with the Florida DOR and collect and remit the tax. The threshold is dollar-volume only — there is no transaction-count trigger — and sales made through a marketplace that already collects on the seller's behalf are generally excluded. A Florida DOR audit follows a rhythm much like an IRS audit — document request, response, proposed assessment, and a state-specific protest and appeal process — and many Florida sales-tax exposures can be cleaned up through the DOR's voluntary-disclosure channel before an audit ever begins.

Where the US dispute meets the Canadian return

The reason these matters belong with cross-border counsel is the interaction. An IRS adjustment that increases US tax on income that was also reported in Canada can change the foreign tax credit on the Canadian return, and a Canadian adjustment can do the reverse. A US estate-tax exposure on US-situated assets held by a Canadian (US shares, US real estate) is governed in part by the Canada-US treaty, which can extend a larger credit to a Canadian estate than US domestic law alone provides. (As of 2026 the US federal estate-and-gift exclusion is US$15 million per person — up from roughly US$13.99 million in 2025 — set at that level by 2025 legislation that made the higher amount permanent rather than letting it revert, with annual inflation indexing thereafter; but the treaty mechanics, not the headline number, usually decide a Canadian's exposure, and US estate-tax law remains subject to change by future legislation.) The point is that a US-only fix and a Canada-only fix, done separately, can each be defensible and still leave the client worse off than a coordinated one.

How Barrett Tax Law approaches IRS and Florida representation

The firm scopes the full cross-border picture before responding to any tax authority, identifies whether the matter is most efficiently resolved at the examiner level, at Appeals, in Tax Court, or through a compliance program, and where the same income or asset is also before the CRA, runs both engagements together so the positions are consistent and no foreign tax credit or treaty position is lost. Most engagements are billed on a fixed-fee or capped-fee basis once the scope is clear, and proceedings are attended by telephone or video for clients who live in Canada, so representation does not require travel. If you have received an IRS or Florida DOR letter, or you know your US filings have fallen behind, you can arrange a free consultation to talk through the options before any deadline runs.

Related reading and services: Canada-US cross-border tax, FATCA and FBAR compliance, FIRPTA for Canadian sellers, US estate tax for Canadians, the Streamlined Filing Procedures for Canadian US persons, and the filing guide for US citizens living in Canada.

This page is general information, not legal advice. Cross-border tax depends on the specific facts and on the rules of both Canada and the United States, and the figures and programs described can change. For advice on your situation, speak with cross-border tax counsel.