The Isaac Brock Society consists of individuals who are concerned about the treatment by the United States government of US persons who live in Canada and abroad.
If clicking on a link brings you to the wrong page in the comment thread, click here to arrive on the current page of the thread: http://isaacbrocksociety.ca/2011/12/14/about-the-isaac-brock-society/
The United States is one of two countries in the world that taxes its people no matter where in the world they may reside. The other is Eritrea, which the USA has condemened for terrorism and for its diaspora tax. The majority of US persons who live abroad are not aware of their filing requirements. But recently, the US government has decided to crack down on those who are not in compliance.
But what is more, the US government has begun, since about 2004, to apply with great pressure a long-neglected requirement of 35-year old law called the Bank Secrecy Act. That requirement is FBAR, the foreign bank account report, which the United States government expects annually from those who have accounts outside of the United States which exceed $10,000 in aggregate. The fines for failure to file this form are extortionate, and virtually no US person who lives abroad even knew about FBAR, while most of them, over a certain age, own bank accounts with retirement savings exceeding that amount. The threats of fines and imprisonment has frightened many people who as a result have consulted expensive accountants and tax lawyers to get this mess sorted out, only to face high accounting or legal fees on top of potential fines and back taxes. In 2009 and 2011, the IRS offered voluntary disclosure programs (OVDI). Some who entered into the 2009 OVDI, because of fear of the penatlies, were shocked when the IRS assessed them fines in the tens of thousands, essentially treating them as tax evaders instead of a law abiding citizens in their countries of residence.
For many US expats, renunciation now seems like a really good idea. Why not? Many haven’t lived in the US for years and now they have few ties there except perhaps some family members. So they want to renounce their citizenship only to find that the laws regarding expatriation are confusing and that the exit tax requirements are at best complicated and invasive, and at worst, extortionate and utterly in violation of their right to expatriate.
The media coverage of this issue has been uneven. There have a been a few balanced stories, but most of the time, the media has merely publicized the purposes of the US government; this is especially true of US media sources. The Canadian media has generally done a much better job of grabbing the attention of the world about the abuses of the US government. That being said, even the Canadian media sometimes falls into the IRS trap of projecting fear in order to force compliance. Overall, we regret when the media offers only condemnation and fear without telling the story from the side of the victims or informing them of their rights and alternatives.
US persons abroad also face US border guards who are starting to put pressure on all those who have a US place of birth to travel only on a US passport, even if the person has not been a US person for decades–an arbitrary change of policy making those who relinquished citizenship into would-be loyal taxpayers to a profligate government that has to borrow 40 cents on every dollar its spends.
The Isaac Brock Society is here to fight. Sir Isaac Brock prepared Canadians for war with the United States and gave his life in repelling a US invasion in 1812. So we also want to fight for US persons who are frightened by the IRS, the border guards, the compliance condors, and the media. We are here to provide one another with resources and strategies, comfort and advice.
But not only so, we are here to warn other Canadians about the illegal incursion of the US federal government into the lives of the US expat community. Pretty soon, with the new FATCA legislation, this arrogant attitude of the United States will affect every man, woman and child on the planet who wants to open or maintain a bank account or to invest in a retirement fund. Now, according to FATCA, you will have to tell the United States whether you are a US person when you open up a bank account in, e.g., Australia or Thailand. This makes every country in the world a protectorate of the United States, for, if they comply with FATCA, they are ceding their very sovereignty to a nation which has not invaded or conquered the rest of the world, but only uses its waning hegemony over the financial sphere to coerce other nations.
So whether you are a US person living in exile, a Canadian or a citizen of any other country, we ask you to join us in this struggle for freedom and justice.
@MrsUKSofA
Below is my standard post when the subject of renouncing without becoming tax compliant pops up. It’s geared to Canadians, so YMMV (FWIW, I *think* the Self-Invested Personal Pension is the UK equivalent of a Canadian RRSP). It will repeat some (much?) of what’s already been said by others. In the end, only you can decide the course of action that lets you sleep soundly at night, so as Medea says, research thoroughly so that you’ll know the ramifications of your decisions.
—
If you renounce without becoming tax compliant, note that there is no statute of limitations on those unfiled returns, because they’re unfiled. So that will hang over your head for the rest of your life.
By not filing returns, you have probably moved into the wilfully non-compliant category. I don’t know what the ramifications of that are, but I don’t see how it could be a good thing. FWIW, if you don’t file 8854, then you’re subject to a $10K penalty, and 8854 specifically asks about those 5 years of returns.
By not filing returns (or not submitting 8854), you have definitely become a covered expat. That means, among other things, that you are subject to the exit tax. You will be taxed on mark to market capital gains subject to a $663K (2013) exclusion. As well, you will be taxed on the total (not gain, total) amounts in any RRSPs and, I believe, pensions that you may have, and there is no exclusion. RRSPs/pensions are, I believe, taxed at the highest marginal rate. The RRSP/pension tax is a major issue for covered expats IMO.
Unless you like to live dangerously, travel to the US is out – that would include plane connections though any of the major hubs. For some people, not a big deal; for others, a very big deal. And, you’d always be concerned when flying over the US to, say, Mexico if you’re a risk averse type of person, due to the (admittedly unlikely) possibility of the plane making an unscheduled landing in the US. Note that increased inter-agency and inter-country data sharing means there’s a reasonable chance that in the future US border people will be aware of all former USCs’ tax status.
The US-Canada tax treaty will protect you (at least in Canada) from the IRS if you were Canadian at the time the liabilities were incurred. I don’t see how there is any guarantee that the treaty could not be changed for the worse in the future. And although it would clearly be unfair if the changes were retroactive, nobody has ever accused the IRS of being overly fair (and the FATCA fiasco has indicated how much we can expect the Canadian government to stand up for fairness).
So, IMO, you would have to have a really, really good reason to not file those returns and 8854. One concern people often have about filing those returns is the cost of getting someone to do it for them. A possible route is to DIY and just do the best you can. I’ll leave it to you to determine what “best you can” involves given that you’re almost certainly not a cross-border tax professional. At any rate, at worst you could be audited later and assessed some $$. If it’s a large amount of $$ that you are unable or unwilling to pay, you could then invoke your treaty right and not pay up; leaving you in more or less the same situation as having not filed. OTOH, at best you did a bang-up job on the returns that can withstand any amount of scrutiny, or, more likely, you can expect the IRS to not have the resources or inclination to worry about your piddly returns, leaving you home free (at least after the SOL runs out).
Good, practical advice, tdott. Every choice has its price.
Thanks, Bubblebustin. I feel like a nag/buzz-kill/downer/etc whenever I post this, so positive feedback is indeed appreciated (as is constructive criticism).
tdott,
What you say is important. We at this site are not advocating any specific approach. It is up to the individual to make his / her own decision based on all you’ve stated and all they can research here and elsewhere. I wouldn’t want to make anyone’s important decision for them. For persons not to have your information included would be negligent. They have to think of as many alternatives / consequences as possible and then take them into account to weigh against their own level of risk.
@tdott what you post is vital info for people making decisions on how they want to tackle this. They need to hear both the pros and the cons about not filing so they can make an informed choice.
I’ll add another too, the banking side. Mrs UKSofA you need to check the UK-US IGA agreement and see what it states about people who wilfully refuse to provide info to their banks on their US status. At the moment the few Swiss banks with American clients are not only asking for copies of CLN’s but proof of either recent US tax filings or that you’ve entered the OVDP or Streamlined program to become tax compliant. Some people have had part or all of their accounts frozen until such proof is provided. This seems to be due to Article 7 of the Swiss IGA:
“Article 7
Suspension of Rules Relating to Non-Consenting U.S. Accounts
1. Subject to paragraph 2 of this Article, the United States shall not require a Reporting Swiss Financial Institution to withhold tax under section 1471 or 1472 of the U.S. Internal Revenue Code with respect to an account held by a recalcitrant account holder (as defined in Section 1471 of the U.S. Internal Revenue Code), or to close such account, if:
a) the Reporting Swiss Financial Institution complies with the directives in Article 3 with respect to the account; and
b) the Swiss Competent Authority exchanges with the IRS the requested information described in paragraph 1 of Article 5 within 8 months from the date of the receipt of such request.
2. If the condition of subparagraph b) of paragraph 1 of this Article is not fulfilled, the Reporting Swiss Financial Institution shall be required to treat the account as held by a recalcitrant account holder as defined in relevant U.S. Treasury Regulations, including by withholding tax where required by those U.S. Treasury Regulations, beginning on the date that is 8 months after the date of the receipt of the request described in paragraph 1 of Article 5 and ending on the date on which the Swiss Competent Authority exchanges the requested information with the IRS. For purposes of Swiss law, the amount of tax withheld on payments to a Financial Account, including a Cash Value Insurance Contract and an Annuity Contract, shall be borne by the Account Holder.”
There may be a similar clause in the IGA that could affect you, so you could possibly find part or all of your accounts frozen should your bank ask for paperwork you can’t provide. Admittedly the Swiss banks are running scared which isn’t necessarily the case in other countries. But it doesn’t mean those other countries’ banks won’t ask for such info further down the line.
So something else to research and add to your calculations on what steps to take are the best ones for you.
@Medea
Can I ask if you were asked by your bank to sign a ‘Release of Bank Client Confidentiality form’ (AFTER you gave up your US citizenship) to cover the past years while you were a citizen?
I have sent them my past Fbars to show that I have been compliant but I thought FATCA gave them the right to send your info anyway without the need to sign anything.
This form seems to go over the top of the agreement…third parties etc!
@Heidi, for UBS, initially they sent me their American questionnaire and a W-9 form to sign a few days after I’d renounced in March last year, asking me to fill it in and return it to them by the end of that month. Explaining that I’d just given up my US citizenship they agreed to give me more time to allow the CLN to arrive. While we waited they asked me to fill in and sign a Declaration of Status of the Account Holder as a non-US or US Person form. A few weeks later I sent them a copy of my CLN and have heard nothing from them since.
PostFinance on the other hand sent me a letter in December 2013 re my citizenship (I hadn’t yet told them I’d given it up – my fault) asking for proof of entering an OVDP. I replied by sending them a copy of the CLN and the Streamlined Questionnaire, stating that I’d also filed FBAR’s and they could have copies of those if they wanted them. They then sent me a W-8EN form to sign, which I did and returned to them. A little later they asked to see my British passport so they could verify my change of nationality; they took a copy for their records. I’ve not heard anything further from them.
@medea
Thanks, this was for an old account with PostFinance that was closed a few years back while we were US persons. I guess they are now clearing up the old accounts. I have sent them everything WBEN, CLN’s Resident permit, Clarification of non US status.etc etc etc…EXCEPT the release of Confidentiality agreement. I have proved I am/was compliant but I certainly do not want to sign away my rights now I am no longer US tainted.
What a bloody witch hunt.
@Heidi, how far back did you close it? The Swiss banks are having to report accounts going back to 2008 iirc.
@Medea.
2011 but they had me registered then as a US person and no recent info on my renunciation, so they sent me the works.
I have replied informing them of my non US status and sent them all the docs to prove that, BUT included in their recent packet to me was this ‘Release of Confidentiality agreement’, and a directive to sign it IF I had been subject to ‘unlimited US taxation’ anytime during the years 2008-2014.
@Heidi, well I can’t add much as I haven’t closed any accounts here. I have no income so only needed to file FBAR’s with my Streamlined Questionnaire which may be why I haven’t seen one.
I think you’re right though; even if you don’t sign the bank can pass your info on. Here’s the IGA.
http://www.swissbanking.org/29633.pdf
They can pass on my info, I have always filed taxes and Fbars, that’s why I was surprised to see the ‘release of confidentiality form’. If they can pass info on, then why the need for the form? Now I am no longer a US person, I have no intention of waiving any ‘extra’ confidentiality.
Our rights are slowly being whittled away everywhere.
Have you heard of anyone else being asked to sign one?
@Heidi, I think it’s mostly to do with the wilful non compliance side, but I’m really not sure. It also exempts the banks of course.
Yes, others have definitely been asked to sign. See this thread at the English Forum website.
http://www.englishforum.ch/finance-banking-taxation/200706-postfinace-demands-past-fbars.html
Texaner posted that he was asked to sign to give PostFinance permission to break Swiss law. Now, whether he’s referring to the W-9 or a Relase of Confidentiality form I don’t know. He moved his account to another bank. Mr Mert has also been having problems, including the confidentiality form.
I guess as they didn’t know what my status was, they threw all the forms at me.
Hopefully now they have info that will be the last I will hear from them……..until the whole world is classified as US property.
I
My Question is: Will the IRS red-flag or Audit me or the FATCA or FBAR investigate me.
My friend Mr.A is a US citizen, originally from Dubai. His rich friend in Dubai Mr.B, is giving him AED1000,000 equal to USD272,000 when Mr.A next visits Dubai in 2015. Mr.B request is Mr.A keeps the givers, Mr.B’s name secret.
Mr.A would initially like to keep this amount in a Dubai Bank, until he figures out what to do with the money. Mr.A will file the interest income in his 1040 IRS Taxes and also report the Bank account in the FBAR filing. His concern is will the IRS, FBAR, FATCA or any other regulatory agency question him as to how he suddenly got this large amount and foreign bank account in 2015. If so, then he is not interested in starting this bank account. And will consider other options. Like buying a small condo in or around Dubai. Or investing in Bitcoins. Or traveling and living a life of luxury till the money runs out etc.
Mr.A is uneducated and files his 1040 every year. His reportable income every year is around USD20,000 only.
Please reply ‘YES’ or ‘NO’ answer to this foreign bank account. Your expert views, reasons leading to your answer will be highly appreciated.
Dipak Kumar
Email: ewd5@india.com
@Dipak
Does Mr. A know about IRS form 3520, “Annual Return To Report … Receipt of Certain Foreign Gifts”? This is how one tells the IRS of a step-change in wealth. It is ‘for information only’, there is no tax to pay as a result of filing it, and it does not require disclosing the identity of Mr. B. If Mr. A is going to file US tax returns anyway, why not include this form and so be free to use the money entirely as desired?
The one thing to watch out for is if Mr. B is himself a US ‘covered expatriate’. In that case the receipt of the gift may be taxable to Mr. A under section 2801 (reported on the non-existent IRS form 708!). If that sounds unfair it’s because it is unfair. (But then, this whole citizenship-based taxation regime is unfair already anyway, so what’s one more added unfairness?)
I really like what you guys are usually up too.
This kind of clever work and exposure! Keep up the excellent works guys I’ve added you guys to our blogroll.
I had been reading several articles on this site and one of them caught my attention.
http://maplesandbox.ca/wp-content/uploads/2014/03/Synopisis-Ricardson-London-Ontario.pdf
It stated the criteria for citizenship as those “born or naturalized in the United States are U.S. citizens”. That likely came from the 14th Amendment, which actually says:
“All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside.”
There are 2 conditions here:
1) “All persons born or naturalized in the United States…”
2) “…AND subject to the jurisdiction thereof……” (Emphasis added)
“…… are citizens of the United States and of the State wherein they reside.”
That ‘and’ is very important. Logically, both conditions must be true in order for the entire statement to be true.
It is not clear whether persons who are simply “born or naturalized in the United States”, but are outside of the jurisdiction of the United States are, also, citizens. This is a point that needs to be clarified. I’m sure the government can easily ignore the second condition. as it seems to arbitrarily ignore anything that is inconvenient to their money grubbing schemes, but it may serve as an argument for dual nationals. These might argue before the courts where they reside that they are citizens of the country in whose jurisdiction they hold both citizenship and reside, and not the citizens of any other nation so long as they are in its jurisdiction. Otherwise, this would lead to the awkward legal and civil situation where their country of residency and citizenship will have to treat them as foreign nationals, which seems to be a complete violation of so many national constitutional principles and international human rights.
Hi,
I’m kinda freaking out here. My birth certificate says “American born abroad”. My father was American and my mother European. I lived one year of my life in the United States when I was a three year old. After my parents divorced my mother moved to Canada when I was 8 years old. I have lived in Canada ever since and as such felt more Canadian than anyone else. I became a Canadian in 2002. My mother (who is not an American) did not know that as an American I had to file income taxes while living in Canada, and I had no idea until a few months ago that it was indeed a requirement. I have never filed income tax for the US. Now I am fearing that with the new laws, the IRS will come after me for not filing my all these years, although I had thought that by becoming a Canadian citizen I relinquished my American status. I am not a rich person, and know I would most likely not owe the American government any money, I just fear that they will come after me for not filing. I can’t afford 10,000 or more for not filing all these years. I live and work in Canada, and do not owe any property in the US. What do I do in this situation? Do I need to contact a tax lawyer? Talk about sleepless nights.
@OMG, welcome to IBS. On the right side bar near the top are links that can help you get information and decide a course of action. Read first and start with the pdf below:
http://maplesandbox.ca/wp-content/uploads/2014/03/Synopisis-Ricardson-London-Ontario.pdf
@OMG! I’m so screwed
Refer to this worksheet kindly provided by the U.S. Citizenship and Immigration Services:
http://www.uscis.gov/us-citizenship/citizenship-through-parents
Whether or not your birthday falls before or after November 14, 1986 seems to make a difference. It also depends whether or not your parents were married at the time of your birth.
If your parents were married and your father satisfies the residency requirements, you are a US Citizen
@OMG! I’m so screwed
If you are an American that was born outside the US, you do have an advantage that many of us do not.
You can obtain a Canadian passport without the USA as your place of birth. That is a very significant thing. As you may have heard, legally you cannot enter the US without a US Passport. However, if your Canadian Passport says you were born elsewhere, how would the Customs and Border Protection know?
@CERIUM
Methinks that would depend on if OMG had an american passport too.
Welcome OMG and read a lot.
@OMG! I’m so screwed
No foreign state can “come after you” to collect its taxes in Canada. Foreign states – including the US – cannot collect taxes in Canada. Only the Government of Canada can collect taxes in Canada.
There are some provisions in the Canada-US tax treaty for assistance in collection. However, the Government of Canada will not collect US tax or penalty from any Canadian citizen, except if the tax debt proceeded the date of their citizenship. This is well publicized.
Canadian courts will not enforce foreign tax claims under the “revenue rule.” It is unlikely that a Canadian court would enforce a US tax claim against a Canadian citizen, because that is prohibited by the Canada-US Tax Treaty.
@ OMG
Continue to read up, but from what I’ve read, it would seem that if you naturalised to Canada prior to 2004 and did not subsequently attempt to claim your US citizenship (such as by applying for a US passport), you are not a US citizen and are not required to file US taxes.