The IRS is using a fraudulent accounting practice, in the spirit of Enron and Bernie Madoff, to expose US persons to increased FBAR fines.
The term “aggregate” in the FBAR rule has been a thorny issue, in which there has been not a little confusion. For example, at the Expat Forum Mach7 related a story of about an accountant he consulted who thought that filers need not include accounts below the $10,000 threshold.
I had a big discussion with an Accountant on this very matter…not my Accountant, but one with a PTIN#. When he finally called me back, he was concerned that he had been doing peoples taxes for 4 years like this, and had never included an account above the 10K value…when in actuality he should have.
A certain Rifleman (British in Malaysia) responded to Mach7, saying that this accountant is an idiot because he doesn’t even understand what the term “aggregate” means. A simple dictionary definition would make the IRS guidance crystal clear.
Well that is uncharitable, to say the least, since the term “aggregate”, in IRS-speak, is total nonsense. Actually, it is worse. It is fraud, for it resembles the type of accounting that goes on at companies like Enron or Bernie Madoff’s hedge fund–but instead of beefing up on paper the financial statements of a company on the edge of bankruptcy, it is an abuse that the IRS perpetrates on the unsuspecting filer who may not always understand standard accounting practices. Let me explain:
The IRS gudiances say the following:
Q. What does “maximum value of account” mean (for Box 15 on the FBAR)?
A. The maximum value of account is the largest amount (not the average amount) of currency and nonmonetary assets that appear on any quarterly or more frequent account statements issued for the applicable year. If periodic account statements are not issued, the maximum account value is the largest amount of currency or nonmonetary assets in the account at any time during the year. Convert foreign currency by using the official exchange rate at the end of the year.
Though the FBAR instructions direct filers to use the official exchange rate, the Internal Revenue Service has no official exchange rate and generally accepts any posted exchange rate that is used consistently. For exchange rates, check the U.S. Treasury Web site or other commercial sites.
Q. A person owns foreign financial accounts X, Y and Z with maximum account balances of $100, $12,000 and $3,000, respectively. Does the person have to file an FBAR and if so, which accounts must be listed on the FBAR?
A. The FBAR instructions require the filing of the FBAR form “ … if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year … ” In this scenario, the person has an FBAR filing obligation because the aggregate value of foreign financial accounts X, Y and Z is $15,100. The person must report foreign financial accounts X, Y and Z on the FBAR even though accounts X and Z have maximum account values below $10,000.
Q. A person owns foreign financial accounts A, B and C with account balances of $3,000, $1,000 and $8,000, respectively. Does the person have to file an FBAR and if so, which accounts must be listed on the FBAR?
A. Even though no single account is over $10,000, because the aggregate value of accounts A, B and C is over $10,000, the person has to file an FBAR and must report foreign financial accounts A, B and C on the FBAR.
This makes the term “aggregate” into a gimmick. Let me offer two scenario as to why it is just simply an accounting lie:
(1) Let’s say you had $9,999. You held it in your chequing account for five days. Then you put it in your savings account for two months. Then you put it in a GIC for two months. Then you opened up an RRSP and put it there. The highest balance in each account $9,999. Now is the aggregate $9,999 or 39,996 (9999*4 accounts)? If the IRS decided to assign a non-wilful fine of $10,000 per account, you will receive a fine of $40,000. But the total amount of money you ever had was $9,999.
(2) Let’s say that you borrow $40,000 from a HELOC (home equity line of credit) and you put the money into five different accounts on five successive days: the aggregate balance is now $200,000–according to the IRS, because nowhere in the guidance does it allow you to subtract your liability from your account balance. Now we are talking about some real money here and so the IRS determines that your non-disclosure was wilful. So they fine you 50% of the total aggregate sum in the account: $100,000.
None of the IRS instructions that I have read offer the ability to count a debt account with a negative balance in the FBAR sum. But in the above scenario the liability in the HELOC offsets 100% of the account balances 100% of the time. The actual net worth of the person is still zero. This makes the term aggregate into meaningless nonsense, not something that a dictionary can clear up (contra Rifleman). So I say the aggregate is zero. The IRS says the aggregate is $200,000. Who is right?
Let’s consider the following table:
The above accounting takes into consideration two things (1) Chronological factors (how much money is where and when it is there). (2) Offsetting debt. So by any reasonable standards of accounting, the total aggregate is zero. When corporations like Enron or the Banks shift assets to make the balance sheet look solid, we call it “fraud”. When the IRS does it is still fraud, but one which the IRS foists upon US persons in order to make their “crime” of unreported FBARs seem like something really bad.
This is a very practical issue: for I would venture to say that many people would benefit from being able to count negative balances from their mortgages, lines of credits, and credit cards. They would have a much lower “aggregate” sum, and would find either that they are far below the reporting threshold or that, at very least, they are subject to a much lower regime of non-wilful or wilful fines.
But can we expect the IRS to do honest accounting when they have no understanding of basic civics, i.e., the US Constitution?
@Kitty, why play along with the IRS fraud? Why not just forget it? Are you so loyal to the United States or are you so worried that their going to find out that you had a false aggregate in your accounts during the year? Who is going to tell them?
I just don’t understand why people are so eager to give the government their personal information. What makes you think that they will use that information for a good purpose?
I’ve never done an FBAR and I never will.
kittyK The best advice I can give you is too just file going forward. They will have millions of these things with NO IDEA what to do with them. Rumour has it that they used to be stored in boxcars in Detroit
The IRS folks are over worked, understaffed, paid part time , laid off because the gov’t shuts down every now and then, and vilified.
They won’t/can’t worry about a baby minnow living offshore
Petros
Do you know if I share Canada is considered a Foreign financial firm? They are also transfer agents for Provincial bonds. I would imagine that them submitting info on Provincial bonds to Canadian would be a problem. I asked I shares Canada if your broker supplies them with SIN they said no. I do not want to use them and then be asked questions about US persons. I be happy send to them SIN and even a registered copy of my Canadian passport. Born in Canada to Canadians.
Petros
Will you feel safe traveling to USA in 5-10 years from now? You can assume ICE and IRS/ treasury information will be more closely monitored.
I made a mistake it should have said computershares Canada.
Petros
Do you know, if computershares Canada is considered a Foreign financial firm? They are also transfer agents for Provincial bonds. I would imagine that them submitting info on Provincial bonds to Canadian would be a problem. I asked computershares Canada if your broker supplies them with SIN they said no. I do not want to use them and then be asked questions about US persons. I be happy send them SIN and even a registered copy of my Canadian passport. Born in Canada to Canadians.
Watch out for confusion re this handy imaginary multiplying accounting concept of the IRS ‘aggregate’ thresholds – including monies transferred (or rolled over or renewing – ex. GICs, etc.) between accounts (and assigned new account numbers) by the IRS – which is not understood by the Canadians I’ve been talking with – one MPs office said that in the context of FATCA and registered accounts like the RDSP, that it was hardly likely that anyone disabled, with those types of disability benefits and assets and income would have 50,000. in savings, and thus would not be affected by FATCA reporting. On what basis could they possibly make that claim? And, does that mean that it is okay with Canadian MPs for the US to extraterritorially snoop on and consider taxable our Canadian disability grants and RDSPs even in theory? They were trying to minimize the issue as not affecting many Canadians.
Seemed to me that the RDSP is an Achilles heel for the IRS and for any Canadian MPs backing a FATCA IGA. Also the RESP. Doesn’t look good to accuse those with disabilities and children seeking education of being moneylaunderingtaxevadingdruglordterrorfunders.
Keep in mind for Toronto signs at the Bankster’s FATCAnatic convention.
And they didn’t get that the reporting threshold is at minimum the 50,000. aggregate, and that the IRS is fine with OVER-reporting, just not fine with UNDER-reporting. I pointed out that it has already been proposed that banks will just report when in doubt, and that the US can change the FATCA reporting threshold any time they feel like it. Plus the FBAR reporting threshold is only a 10,000. aggregate, and includes the RDSP.
I call BS on the MP’s office statement:
I signed up as the Holder of my son’s Registered Disability Savings Plan at the inception of this CANADIAN REGISTERED PLAN and have been making the maximum monthly payments to receive the grant and bond — this is for my son’s benefit should the Alberta Assured Income for Severely Handicapped go belly up for any reason. Actually, making this $125 monthly contribution has precedence before all of my other monthly expenses. That is the value that I put on using the RDSP, a Canadian savings vehicle; it gives me some peace of mind that there will be adequate funds for my son to be looked after — after I am no longer here. I think that is a greatest fear of parents of a child with a disability: that their child will not be looked after OK when they are gone.
I hold the RDSP account for my son and the balance is a hair under $50,000 and growing — he will be the beneficiary at the earliest age 62. When I am gone and the sale of my house, my RRSP is what I will leave my two children, that ‘inheritance’ will deem my son no longer eligible to receive provincial AISH. I believe it is part of the responsibility I have for my son to see that his needs are met when I am gone, and a lot of that need comes under “financial.” He will have greater expenses and less income than will my able daughter.
Does this MP’s office and other MPs maintain, then, that anyone with a disability must live in abject poverty, that their Parent, their Guardian, their Trustee should not responsibly take advantage of this Canadian Registered Disability Savings Plan, especially if a supposed ‘US Person’?
From an earlier comment of mine:
@calgary411, if I can get a source for those figures; “….The first of its kind in the world, this new tax-deferred savings vehicle will assist around 500,000 Canadians in planning for long-term financial security…” – in the words of the Dept of Finance preferably – because of course Flaherty and the Conservatives had to have come up figures as a basis when contemplating, designing and enacting the RDSP, I can confront the MP with that – and refute the claim. Also good for signs.
And any parallel figures for the RESP. I already have some for the TFSA.
If speaking with a Conservative MP particularly, it is useful to point out that the stated intent of the Conservative federal government and the Finance Minister was to empower and support Canadian citizens AND residents with disabilities. And for Canadian children to have access to post-secondary training and education. Not, to provide a Canadian funded source of US extraterritorial taxation of vulnerable dependents and minors.
Or same goes for TFSAs, (and RRSPs and RRIFs- which shouldn’t require an annual treaty election).
http://rdsp.com/tutorial/background-on-the-rdsp/
http://rdspresource.ca/wp-content/uploads/2011/08/RDSP-Children-in-Care-FINAL-26-08-11.pdf
http://www.youtube.com/watch?v=u_oerEIOuNo (YouTube — Finance Minister Flaherty’s announcement — we are leading the world in this initiative. Families have additional financial burdens. This is a way of recognizing that and giving some tools to save for the future; financial security for the future. Talks about provincial resources agreeing not to clawback their benefits for savings in the RDSP… etc.)
http://ca.finance.yahoo.com/news/BMO-Calls-Hike-RDSP-iw-2196415077.html
http://www.fin.gc.ca/n11/11-103-eng.asp
http://www.huffingtonpost.ca/2011/10/21/hard-nosed-flaherty-shows-softer-side-cries-registered-disability-savings-plan_n_1024270.html
The RDSP was modeled after the RESP. The RDSP is, thusfar, under-utilized, but I think more families of children with disabilities are getting information and the accounts have become easier to open on behalf of those who will be the beneficiaries. (i.e., The Royal Bank allowed me to hold the account on behalf of my son as I was his trustee for provincial AISH funds; at the time I opened the account for him, many banks would not allow that and are just coming around. There are continuing improvements which allows for better access for families with a disabled family member that can benefit. As in knowing about all of the US tax law, these families have much more immediate concerns they face each day and the RDSP isn’t yet on their radar.)
@Harry, I don’t know about computer shares anything.
As for being arrested, I did go to the US and did not get arrested, despite my very public anti-FBAR stance on this website and others. Statute of limitations is six years. I have no FBAR requirements as of 2011 (date of relinquishment). So would I want to enter US before 2018 again? That remains to be seen.
Petros
computershares are the transfer agent if you want to hold the registered certificate for Canadian equities or Provincial bond. (i,e not keep them in your brokerage account.)
http://www.computershare.com/ca-en/Pages/default.aspx
You can use them to lower the amount in brokerage account.
Provincial bond can be held to duration. There are some stock that you may never want to sell high unrealized capital gains and market rate dividend (3.5%). Please note I do not say good dividend.
I though on regular taxes there is no statue of limitation for not filling.
Calgary 411 do you have a current US indices and even if you do, the USA can not collect on a Canadian dollar address. I suggest you ask long term Albertan what they think of NEP, PGRT ete etc,
My only US indicia is my son who is “entrapped” into supposed US citizenship. I don’t worry about the US collecting and I have closed any US investments I previously had. I live in Canada. I want the Canadian government to protect my son and those like him. What does the National Energy Program and PGRT have to do with my son?
Unfair taxation was those item which devastated a province. Canada will not collect FBAR. Your son is not making more than $170,000 a year, so he is not subject to USA non residence taxes. What income taxes can they collect from him, if he is not a Canadian citizen. You then are going tell 99.99% of the rest of Canadian, they can not own US equities or have USA accounts. I stay away from these just to be on the safe side. The bully is Obama, Canadian institution do not really want to go along, but it would really be hard to turn down their largest trading partner, especially since the EU agreed to FACTA. Be more concerned that the Liberal leader has not guaranteed he will not collect US taxes from Canadian.
Read the USA- Great Britain Facta agreement and figure a way to be compliant. Open additional disability accounts with a bunch of different banks so you will be under the 50 k limit.
Harry, thank you for trying to help me. I think you read my concerns incorrectly.
I do not want a work-around for this, a way to stay under $50,000 balance — I want the same rights for US Persons in Canada to benefit from the same RDSP rules (and all other rules) as any other Canadians. I want to my son, thus my family (as well as other such individuals and their families) out from under this immoral absurdity. I want USA Residence Based Taxation so all countries have the same type of legislation from which to tax their “people.”
The Canadian Registered Disability Savings Plan, RDSP (as well as the Registered Education Savings Plan, RESP for with which Canadians, including US Person Canadians, are encouraged to save to help pay for the down-the-road high cost of education for their kids), for one thing, is ONE account only with the first requirement a Disability Tax Credit from the CRA. The RDSP CANNOT be broken into several smaller accounts like RRSPs. I am compliant; I have renounced and I am out. My son, born in Canada, raised in Canada, never registered as a US birth abroad, never lived in the US, never had any benefit from the US (has visited the US relatives less than 10 times in his 40 years) is, the US tells me, ENTRAPPED into US citizenship.
Yes, the bully is Obama; the bully is the USA. It is not taxes to be paid that is my particular concern. I just want an ending for my family (and for all of us). I want Canada to abide by Canadian law, not US law.
You’re correct, the Liberal MP (not the leader) has not guaranteed US taxes will not be collected from Canadians. There is a long, long way to get to that step.
…and I just got this:
http://rdsp.com/tutorial/checklist-to-make-sure-you-are-ready-to-open-your-rdsp/
As Blaze says: Oops — no mention (warning sticker) that this is not a good investment for your family member if he/she or the Holder has any ‘US indicia.’
… which prompted yet another email:
@Calgary,
I realize it is a little late, since you sent the email already, but in case you send it to others, I noticed you are missing ‘not’, in: “Can you explain to me why there is a “warning sticker” of some type on these investments for anyone who may have a ‘US indicia’ and, in this case especially, for the RDSP?”
@Calgary411,
I meant to add, I like your email, and many times have been irritated by the fact that we are not told how normal Canadian investments, are toxic for those of us with the ‘US person’ tatoo on our butts. We should have them on our foreheads, so the nice lady at the bank can spot us right away, and tell us to go home as soon as we walk in to do any investing.
Thanks, WhiteKat.
Thanks for that @calgary411. It helps us to explain this and ‘educate’ our MPs when we try to convey the intricacies of the singular punishment that US extraterritorial taxation, reporting and penalty structures are forcibly applied to RDSPs and to those Canadian children and dependents prevented from renouncing/relingquishing US status due to US laws about diminished capacity – and thus face a lifelong burden of injustice at the hands of the US. The Canadian individuals AND their Canadian families.
It is good to have the details you provide, because it helps us to refute any apologists who try to dismiss our legitimate concerns by saying that the impact on Canadian society, RDSPs and those who need them is insignificant.
Any other details you can give us to draw on is very welcome. Even perhaps a specific thread on IBS dedicated to the RDSP. As only those who use and maintain them firsthand understand the nitty gritty details, it gives us better ammunition to use.
It shocked me that any Conservative or other MP could think of diverting a complaint about US extraterritorial taxation, FBARs and FATCA by dismissing the numbers affected as insignificant and unlikely.
Particularly as it was a Conservative initiative:
See video and photos of Minister Flaherty’s emotional announcement here;
http://www.theglobeandmail.com/news/politics/ottawa-notebook/the-finance-minister-the-disability-assistance-plan-and-a-flood-of-tears/article618491/
Maybe a good reminder that for some Canadian children and dependents the US is obdurate in taxing and penalizing their only security and income. FATCA will only make that worse.
And another reason why I so despise the IIAC and CBA behaviour on this. The IIAC gleefully states how much of our Canadian registered savings their members handle, ” Investment dealers help manage $1 trillion for Canadians — an amount that has increased by 20 per cent over the past five years — including:> $280 billion in registered retirement savings plans (RRSPs).> Over $65 billion in registered retirement income funds (RRIFs).> $5 billion in registered education savings plans (RESPs) > $13 billion in Tax Free Savings Accounts (TFSAs):
and then equally gleefully the IIAC declares their ‘mission’ re FATCA a success iiac.ca/wp-content/uploads/1733_IIAC_memberkit.pdf . They greatly profit from handling RDSPs and other registered assets, yet are eager and willing to invite and encourage the imposition of US law in Canada that would decimate those same funds for the dependent RDSP beneficiaries and fellow Canadians. Same goes for RESPs. The IIAC benefit greatly from handling RESPs, knowing that FATCA would eat them up and deprive Canadian CHILDREN!
They are sick. How low can you get?
And they have been lobbying to get PRPPs mandatory, because that is yet another pot of our savings that would be locked in, and generate years of handsome handling and administration fees for them.
They are parasites.
Would a permanent sidebar dedicated to the RDSP, RESP and TFSA debacle work on IBS? I know there were earlier threads but they are hard to find now. If we had dedicated discussions, then perhaps that would draw in those who have RDSPs and the like, but who don’t know that they are being treated punitively and penalized by the US as ‘taxable foreign trusts’. I am more and more convinced that this is an important FATCA stumbling block issue for Canada. When we are stonewalled by Canadians wielding the verbal gauntlet and slapping us in the face – with the statements to the effect that Canada ‘respects’ the ‘sovereign right’ of the US to make and administer its own tax laws, we must fight back and ask whether they ‘respect’ the ‘right’ of the US to tax and penalize Canadian children and those with disabilities via our RESPs and RDSPs – just in case they are moneylaunderingdruglordterrorfundingUStaxevaders. It has really bad optics, and is easy to understand where other FBAR and FATCA details are too hard to explain.
@Calgary411
I wonder if I tape your letter to Flaherty to a poster board and take to the protest would be okay and would the others like that?
It says so much….or perhaps we can print it to hand out.
@ Badger,
That is a good idea — thanks! I put a link in the sidebar under “Ask Your Questions About” that will bring you to a page that links to the posts on RRSP, RDSP, RESP and TFSA.
@ Harry -pls forgive but you are not only missing the point but also giving tax advice which the IRS would read as “wilful” ……………… when you say ” Read the USA- Great Britain Facta agreement and figure a way to be compliant. Open additional disability accounts with a bunch of different banks so you will be under the 50 k limit.” even without Calgary 411 comment about impossibiltity to split the amoutn
the person who did your suggestion would have to keep monitoring each account to make sure it didn’t reach above $50K …. but they would be at the mercy of external exchange rates…..so they’ve have toset the local currency limit low enough . and they’d constantlyhave to be worrying that even if they kept below the official limits would some dweeb bankster employee report them by mistake to the IRS by looking at their US indicia …….. and if reported the IRS gangsta search engines would “connect up” the other “big data ” dots , find the other “less than $50K” accounts and ding an agent with an alert ” hull breach we have a tax avoider”.
furthermore you completely miss the point about CBT versus RBT. usp s abroad are 99.99% law abiding citizens/residents of ex homeland countries who live/work/love/die and pay taxes ex homeland. WHY should they have to worry about the IRS and their potential criminalisation from obscure, stupid, imperioous and irrelevant laws ? they recieve no benefits from USG. OECD civilisation=RBT.
the irony is that brockers posting should have been the proudest US reps that the USG should have embraced, but instead obamanation (aka bush 2 ) has literally “terrorised” USPs abroad into giving up their passports or going underground and living in fear.
@ Harry- strongly recommend you to read other brockers posts and look at the objective evidence. irony upon irony-the London embassy has barred renunciants from bringing their lawyers with them…….. but UK is launching the most “son of FATCA” legislation in the whole world…………….but at least UK operates RBT!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
strength and honour to Brockers!
Thanks Pacifica. I really do think that the registered savings issue is a puppies and kittens equivalent of a PR Achilles heel for a Canadian FATCA IGA. And I am happy to use it to smack the skulking Canadian Collaborator Banksters and smirking Investomonsters with it as well as any MPs who are FATCA and US CBT apologists.