On 18 October 2011, The Globe and Mail reported reassuring words from the Ambassador of the United States to Canada:
“My message on this is to sit tight,” Mr. Jacobson said in a speech to the Canadian Club of Ottawa on Tuesday. “We are not unreasonable. We are not unsympathetic. We are not irresponsible.”
The IRS is exploring ways to accommodate the roughly one million dual Canadian-American citizens living here, Mr. Jacobson said.
Canada’s Finance Minister felt that he should get the credit, since he had fought hard to get relief for Canadians. Jacobson said the United States wasn’t after grandmas (see the full speech here):
Second, the penalties [FBAR] — at least in a theoretical sense — can be quite severe.
So you could have a situation where some 70-year-old grandma:
- was born in the US;
- moved back to Canada as a young child;
- never earned any money in the US;
- has no assets in the US; and
- dutifully paid all of her taxes in Canada.
She didn’t file a US return because she didn’t think she had to. And because she didn’t owe any US taxes. Nonetheless, grandma could be theoretically subject to serious penalties. To my knowledge we have never gone after a grandma in those circumstances.
Later, on Dec. 2, 2011, the Globe’s Barrie McKenna reported that relief was coming (emphasis mine):
The policy shift will come in the form of new guidance from the IRS, expected to be issued before the end of December. U.S. officials said the statement will make it clear that:
– If a U.S. citizen files tax returns late and owes no taxes, there are no penalties for failure to file.
– U.S. citizens who were unaware of the bank account reporting requirement can file previous reports now, along with a statement explaining why they’re late. No penalty will be imposed if the IRS determines that there is reasonable cause.
– Individuals who took part in earlier amnesty programs this year and in 2009 can reapply and get back penalties already paid.
Now either Mr. McKenna got this last point wrong, or the US official lied to him. The IRS guidance came out a couple days later, but so far there is no relief in it for OVDI and so the only way to get relief is to “opt out”, which could expose the person to higher penalties and criminal charges. So to the Expat Forum, I wrote the following complaint:
The IRS says that people who want a refunds*, must opt out of the program. Roy Berg of Moodys LLP Tax Advisors wrote of his meeting with Douglas Shulman, the Commissioner of the IRS:
Both my question and Mr. Shulman’s response were quoted in Tax Notes Today on December 16, 2011, which you can read by clicking here.After he answered my question he introduced me to Rosemary Sereti, who is Director of International Individual Compliance for the IRS. Ms. Sereti is the chief architect and is in charge of the Offshore Voluntary Disclosure Initiative (OVDI). I spoke with Ms. Sereti at length at the conclusion of the lunch. Ms. Sereti was very generous with her time and provided the following insight:
She confirmed Mr. Shulman’s comment that the Fact Sheet was the guidance the Ambassador had alluded to.
- Penalty abatement for Canadian residents participating in the OVDI is available only if the taxpayer “opts out” of the program and successfully argues that he had “reasonable cause” for failing to file the returns.
- The IRS is aware of the problems caused by including registered retirement savings plans (RRSPs) in the OVDI penalty computation.
- The IRS is on the lookout for taxpayers who attempt to bring their unfiled returns current by using “quiet disclosure” and those who attempt to resolve their filing obligations in this way will face harsh penalties.
So if you opt out, you risk a steeper penalties and criminal charges. The IRS is dishonest and not to be trusted. They have proven this. So in order to make good on the word of Jacobson, they’ve done a bit of a bait and switch. Typical. You get your money back but you have to take a extreme risk to do so. A bit like gambling the house to win a $1000 in a poker game. Those in the OVDI are not extreme risk takers, but those who want to play it safe who thought that a 5%, 20% or 25% penalty hurts, but that’s better than risking everything and a prison sentence. So the US Feds are playing a game with Canadian government–oh, we are not out to steal from grandmas, but they are, they are, they are. Why don’t they just exempt registered savings accounts (they can), if they aren’t out to get grandmas? Because they are out to get your retirement, grandma’s RRIF and the disabled’s RDSP and children’s’ future education (RESP)–and your TFSA. There is one word for this: “evil”. The sooner we figure that out, the sooner we can find the right way to cope with it. Since the ambassador lied in a public statement to the Canadian people, the United States is guilty of bad faith negotiations with our government, and we are all the victims.
*Actually, I think now that I’ve not heard of any refunds being offered at all. Has anyone heard something different?
This information is very “hopeful”, but I still wouldn’t trust anything related to the US Government or the IRS. Trying to extort money from people (who owe nothing) may end up going away, but the other provisions of the FATCA will most likely never change. On the *refunds*, that’s a joke. As my mother always told me “Once you give it to the tax man, you will NEVER get it back..” It’s possible, but for me, highly doubtful.
I think for Americans abroad, like me, life will never get better. Just yesterday I saw how HSBC Bermuda closed all the accounts for the dual US/Bahamiam citizens. To me, this is just absurd to no end because people need bank accounts to get credit and debit cards to buy food. In most parts of the world, It’s not safe to walk around with thousands of dollars or the equivalent in your pocket. So if an American can’t open a bank account, this can effectively put their life in danger. This, I’m afraid, is here to stay forever.
In the other story about the senior citizen, he said “You are a citizen until we tell you that you are not.” <- That attitude is why I don't like America. My tax bill is $0 with America; I never owe anything, but I will not live under the control of some far away government trying to dictate my decisions to me, telling me what I can do and cannot do.
I firmly believe people should have options, but frankly, when an American overseas tells me why that they will not renounce/reliquish, I'm amazed, even when they take actions and make decisions due to US law (i.e., switch assets classes to avoid tax). That in itself demonstrates how the far-away government is affecting their life while living overseas.
On the flip side, some people who have nothing in terms of property, money, businesses, or even "earning potential" (like some people I know) have no benefit to renouncing, and this I can understand. But for any American overseas who has more than the threshhold $50,000, renunciation is the safest option. It may be permanent (it can be reinstated), but it's the only guarantee from the US Governement rescinding laws, like has been done in the past.
Here is an interesting blog that I found: http://dominicanrepublicresidencycitizenship.blogspot.com/2011/11/theres-old-playbook-that-politicians.html
The authors — this company – have a service that is more geared towards Americans who want 2nd passports, but the articles and the history are interesting to read.
Thanks for this comment. I have to reiterate that the reason I wrote the blog post was to show how indeed the United States has been negotiating with Canada in bad faith, such that Finance Minister Flaherty could proclaim the victor of his lobbying efforts with US government, only to find that they were still going after grandma’s accounts and they have no intention of refunding any FBAR fines. This is negotiating in bad faith, which is the practice of liars and scoundrels.
I have no doubt that the original makers of the rules for FBAR, FATCA, etc were not out to “get” Canadian Grandma’s, and it is reassuring to have them say so publicly, but as far as I can tell, the rules are still there. And since rules are administered by people working for the IRS, we are left to trust them not to use them against us.
When I started filing my tax and assorted forms 3 years ago, I looked on the IRS website, and tried to figure out what to do. All I found was instruction to contact an address, the name of which escapes me, but the word “criminal” featured prominently in it. I figured that couldn’t possibly apply to me, but I couldn’t find anything else, so I asked my accountant at the time, who thankfully advised me to just file everything for 5 years back to the usual filing address. In other words, I did NOT follow the instructions on the IRS site. The people who did follow the letter of the law, however, seem to have been required to pay penalties.
What i don’t understand is, if they really weren’t out to catch the “good guys” who owed no tax, in the net set for the tax cheats, why didn’t the officials who assessed those OVDI’s, notice that they were not “tax cheats”. Why didn’t somebody working at the IRS say, Hey we’re getting a lot of Canadian Grandma’s who this doesn’t really apply to. It is because they were just “doing their job and following the letter of the law” So guidelines are an improvement, but they still require some judgment on the part of an IRS employee. If there are stories out there about someone who applied to OVDI and was not penalized and told it didn’t apply to them, i would love to hear them. Then maybe i might be willing to start “trusting” the IRS.
As it is, I am doing everything possible to stay off the IRS radar. It just gets difficult to do when following the rules leads to penalties. If you go to the US, it seems every other ad on TV is for a lawyer who will help you out of your entanglement with the IRS. What does that say about the IRS tactics?
Here is an excerpt from a post that I am working on (and will be posted here later when I clean it up a bit):
“Although the IRS has great discretion (probably too much) the reality is that the IRS is the administrative agency charged with administering the law. The IRS can neither make nor change the law. For this reason it is impossible for the IRS to somehow offer a special deal or treat Canadians differently. Ambassador Jacobson’s October and December statements and the IRS FS published on December 7, 2011 need to be understood in this context.
IRS Fact Sheet for U.S. Citizens and Duals Citizens Residing Outside The United States
There was great disappointment with this FS. Where was the relief for those who had entered OVDI? Where was the FBAR amnesty? Hadn’t the IRS simply just restated the law?
Well yes, but … What the FS sheet DID DO was confirm that the IRS recognized that “reasonable cause” existed and invited taxpayers to make arguments based on “reasonable cause”. Most “cross border professionals” are singing to the tune that the “IRS is not offering anything new”. Of course not. Something new has to come from Congress. It is impossible for the IRS to somehow exempt residents of Canada from the law that affects everybody. In that sense the IRS is not offering anything new (because it can’t).
What the IRS is doing is making it clear that “reasonable cause” arguments may be viable. The IRS is offering the only “something new” that it can – namely communication of the recognition that they understand that “reasonable cause” is a defense. Entering OVDI removed any consideration (subject to the “opt out”) of “reasonable cause”. Now, the IRS is signaling that “reasonable cause” will be considered.
If you are a “cross border” professional – don’t worry – there is lots of money to be made in advising on “reasonable cause”.”
That’s a great post. Would you be willing to cross post the whole thing here?
Hi CanuckDoc, thanks for the comment. Remember the accidental American who could get a 5% fine instead of 20 or 25% in the OVDI? Well they actually applied that fine to someone I know. That is, he didn’t even know he was an American and he had to file the FBAR. Does this not show that the purpose of the IRS is indeed nefarious, to confiscate the wealth of overseas Americans? Do not be deceived by Jacobson’s lies. It is about revenue. Renounce had a great post: the most valuable FBAR is the unfiled one. That way they can assign 50% fines, per year if they want, to a tune of 300% of a persons financial wealth. That is the purpose of FATCA, so that they can assign huge fines to unsuspecting US persons abroad who are not yet in compliance. There can be no other purpose for their desire for this banking information.
Was planning to – just want to fix a few things first (whatever they may be) – so later today – will post it here.
I really want to generate some comments on experiences with these “cross border professionals” – I think that add to the confusion – making it hard to know what to do. So, anybody with experiences with lawyers/accountants please share.
Comment at expat forum:
Originally Posted by AmTaker
I replied as follows:
The opt-out exposes the person to the full possibility of criminal charges just as would a Quiet Disclosure. That is why the innocent have not left en bloc from the program.
I’m not being dire, just realistic. Realistically a government that borrows now 43 cents for every dollar it spends is committing criminal mismanagement of the country and is in dire need of revenue. FBAR has become revenue program with a mentality of let’s congratulate ourselves for how much money we are bringing in! (news article after article). A great Canadian scholar once said the Medium is the Message. If the OVDI is as you say, an inflexible medium, then the message is “we need your money, we don’t care how unfair it is and how many of your constitutional rights we are going to tread upon!” The OVDI was only inflexible because Shulman and Geithner (Obama’s minions) decided that it should be–anyone who says it is the law itself that is inflexible (Jacobson) has either not read the Bank Secrecy Act or is lying. The problem is that there are still a lot of Canadians and others who don’t know how to read these messages coming from the US authorities. When FATCA comes down, they will assign wilful penalties to the people that have undisclosed accounts. You had your chance to enter the OVDI, so now the penalities will be wilful 50-300%. So, outside of the amnesty program, beware. Otherwise, why do they want the information?
If you still think the IRS and the United States government is a benevolent program, see this post: Ambassador Jacobson’s words as bad faith negotiation | The Isaac Brock Society All they have to do to show their good faith is to exempt RRSP, RDSP, RESP, RRIF, and TFSAs, and the nation of Canada from the reporting requirements. But they are not negotiating with the Canadian government in good faith.
The U.S. never negotiates in good faith and why should it. The U.S. believes so much in its exceptionalism that it sincerely is convinced that it is not bound by the same laws as is every other nation. And one law that it doesn’t have to abide by is the law that says you must “honor” your agreements. Citizeship based taxation is just one of those laws which violate the undermining principle, avoidance of double taxation, of all of the tax treaties that the U.S. has signed.
Over the years, Canada has been one of the most loyal allies that the U.S. has had but Canada’s thanks for this loyalty has always been to receive very shabby treatment from the Americans. Now the U.S. is treating Canada as if it is a huge tax haven when it isn’t and is threatening to withdraw millions of dollars of Canadian wealth from our economy.
On December 16 I attended an IRS conference in Washington DC and had the opportunity to publicly ask Douglas Shulman, the Commissioner of the IRS, about the Ambassador’s comments. In sum Mr. Shulman said that there would not be the “relief” that the Ambassador implied was coming.
Both my question and the response was quoted in Tax Notes, which you can find here:
Thanks for that reference to your blog. That’s helpful.
Mr. Berg: In fact, I believe it was that post at your blog that I read what I was looking for last night, that to get the “refund” you had to opt out:
“Penalty abatement for Canadian residents participating in the OVDI is available only if the taxpayer “opts out” of the program and successfully argues that he had “reasonable cause” for failing to file the returns.”
I will amend the orginal post to include this link. Thanks very much. And thanks for sharing your discussion with IRS commissioner.