Caution to U.S. Citizens and U.S./Canada dual citizens who are residents of Canada about the IRS announcement (IR-2012-5) January 9, 2012, regarding Offshore Voluntary Disclosure
On January 9, 2012, the IRS announced a renewed Offshore Voluntary Disclosure program. This is an IRS program designed to bring tax cheats into compliance. During the last two disclosure programs in 2009 and 2011, a significant number of unsuspecting Canadian residents entered these programs to “make it right” with IRS. We strongly warn law-abiding Canadian residents of the dangers of entering this program which is intended to attract tax cheats who live in the United States but have undisclosed offshore accounts.
The United States has dusted off a long neglected, possibly unconstitutional law which requires all United States persons to file a yearly disclosure of foreign financial accounts (FBAR). There is widespread ignorance of FBAR, and up until recently, very limited compliance. A significant number of Canadians learned about the 2011 Offshore Voluntary Disclosure program from the Canadian media and entered it in fear, not realizing that the IRS had every intention of levying fines of 25% of their net worth (or in some cases 5% for those who were unaware that they were United States citizens), even though in most cases they owed no taxes to the United States, had no knowledge of the FBAR reporting requirement, and had innocent and necessary bank accounts in accordance with the laws of Canada. As a result of this crackdown by the IRS, Finance Minister Jim Flaherty went to bat for Canadian residents, insisting that the IRS get off the backs of hard working Canadian residents who had done no wrong and who were abiding by the tax and banking laws of Canada. “Canada is not a tax haven”, he insisted. As a result of Flaherty’s efforts, United States Ambassador to Canada, David Jacobson tried to assure Canadians that the IRS was not out to get grandma’s bank accounts. He said, “My message on this is to sit tight. We are not unreasonable. We are not unsympathetic. We are not irresponsible.” Law abiding residents of Canada, please do “sit tight”. Do not enter this program out of fear, and do not allow a lawyer to enter you into this program without clearly explaining why you should. If you enter the program, the IRS will surely fine you up to 27.5% of all of your monetary and non-monetary financial assets.
All residents of Canada, who may be affected by the extra-territorial reporting requirements of the United States, should also know the following points:
(1) The Canadian government has said it will not enforce the collection of FBAR fines. Thus the IRS has no means to collect fines from any accounts in Canada.
(2) The Canadian government has said it will not collect taxes for the IRS from Canadian citizens, provided that the person incurred the tax liability while a Canadian citizen.
(3) The IRS cannot be trusted. The Tax Advocate Service, the ombudsman service within the IRS, issued a rare Tax Advocate Directive rebuking the IRS and ordering them to respect the terms of the program and be more lenient, returning to the policy of the FAQ 35 which said that those who enter the program would not be fined more than they would have under existing statutes. To date the IRS has ignored the Taxpayer Advocate Directive. This suggests that the IRS has decided that Offshore Voluntary Disclosure should be a revenue generating instrument and apply the fines of 20% and 25% without regard to the innocence of the people that entered into the program. The IRS presumes that everyone who enters these programs is a tax cheat.
(4) We must stress that the Offshore Voluntary Disclosure program, which the IRS has announced, is not a mandatory law but a voluntary program. Therefore, enter it only if you wish to relinquish voluntarily 27.5% of your hard earned savings and other assets to the IRS.
(5) If you are a United States citizen or Green Card holder and are or were unaware of your filing requirements, we urge you to get sound information regarding your rights and responsibilities from reliable sources. If you are living in Canada and abiding by Canadian tax laws, you are not a criminal nor should you permit the government in Washington D. C. to treat you as one. Know also that “cross border” accountants and lawyers do not have equal standards of competency or morality. Buyer beware!
Peter W. Dunn has written this press release on behalf of the Isaac Brock Society, which is an informal group of individuals who are concerned about the treatment by the United States government of US persons who live in Canada and abroad. We have come together to fight the overreach of the IRS and to provide one another with accurate information, peer-to-peer advice and comfort. Our website is http://isaacbrocksociety.com.
Good press release.
Sounds excellent.
Sent to media
This is really good. Do I understand you correctly, you want us to submit it? Who is working on this? I am happy to help.
Calgary, you mean you sent to all the media that was listed in earlier links? No help needed?
So far it has been emailed to / hope it made it to them all:
Margaret Wente, Globe and Mail mwente@globeandmail.com
Barrie McKenna bmckenna@globeandmail.com
Don Cayo, Vancouver Sun dcayo@vancouversun.com
Jaimie Golombek, Financial Post
email form on his site: http://www.jamiegolombek.com/contact.php
Jonathan Chevreau, Financial post:
email form on site: http://www.financialpost.com/contact/letters/index.html?name=Jonathan+Chevreau
Toronto Star: city@thestar.ca
Toronto Sun: torsun.citydesk@sunmedia.ca
Ezra Levant, Sun News: ezra.levant@sunmedia.ca
CBC National (fill out contact info on form page): http://www.cbc.ca/contact/
CTV: am@ctv.ca CTVCommunications@ctv.ca news@ctv.ca
globalnational@canada.com
feedback@canada.com
for Newspapers:
• Victoria Times Colonist: localnews@timescolonist.com
• The Province (Vancouver): tabtips@theprovince.com
• Vancouver Sun: sunnewstips@vancouversun.com
• Edmonton Journal: city@edmontonjournal.com
• Calgary Herald: submit@calgaryherald.com
• Regina Leader-Post: citydesk@leaderpost.com
• Saskatoon StarPhoenix: citydesk@thestarphoenix.com
• Windsor Star: http://www.windsorstar.com/send-us-your-news/index.html
• Ottawa Citizen: copydesk@ottawacitizen.com
• The Gazette (Montreal): mirichardson@montrealgazette.com
• Postmedia Community Publishing
Sun Publications:
Toronto Sun: torsun.citydesk@sunmedia.ca
Ottawa Sun: ottsun.city@sunmedia.ca
Winnipeg Sun: wpgsun.citydesk@sunmedia.ca
Edmonton Sun: edm-citydesk@sunmedia.ca
Calgary Sun: calnews@calgarysun.com
Also: JamesFallows@theatlantic.com
Leeds on Finance<sandyleeds@gmail.com
This is excellent! I hope someone publishes it soon. What about the Huffington Post? They operate here in Canada as well as the US. Would it be worth sending them this release too?
Hi zuccherro: by all means send it to Huffington. Press releases are to anyone and everyone who will pay notice. So there are no rules who we can send it to. Even Pravda. Please take the initiative to do this. You folks are the hands and feet of Isaac Brock.
Pravda. Actually, RT.com loves anything that is somewhat anti-American. They have videos on there of a few people who renounced citizenship and wanted to tell the world about it.
Ok Petros, I’ve submitted it to Huffington. Fingers crossed!
Petros, Great Work like always!!
May I suggest another reporter.
In YVR, there is Vaughn Palmer. He does a call in to NPR station KUOW weekly, for a program called Weekday. He has about a 10 minute recap of all Canadian news for Seattle and surrounding areas.
Back in September he did one of the best (actually) only recap I have ever heard on air about the furor in Canada amongst expats.
.He has a co-worker that is caught in the trap and has a strong interest in the subject. I have sent him your press release, but you might do so too…and think I will listen on Wednesday to see if he brings up the subject.
His email is vpalmer@vancouversun.com
They repeated the Reuters stories,
http://www.huffingtonpost.com/2012/01/09/irs-offshore-us-tax-dodger-forgiveness_n_1194760.html
and I have sent them things on FATCA and VDPs, but they have never done anything with them……
As you know they are mostly a news aggregator, but there is some original reporting and opinion making. Not sure that they would take a press release, but it would be good if your press release was sent to them as they have seen enough coming from my email address 🙂
Email:
info@huffingtonpost.com ;
scoop@huffingtonpost.com ;
Pingback: The IRS is the biggest obstacle to tax compliance for U.S. citizens living outside the United States « Renounce U.S. Citizenship – Be Free!
Be very wary of these voluntary discolsure programs. Three good reasons immediately jump out to me. I’ll be referring to the 2011 OVDP FAQ and the stated FBAR penalties on the IRS website:
http://www.irs.gov/businesses/international/article/0,,id=235699,00.html
http://www.irs.gov/businesses/small/article/0,,id=159757,00.html#penalties
First: Under OVDP you agree to accept a 27.5% penalty of the “highest aggregate balance in foreign bank accounts/entities or value of foreign assets” (FAQ 7, bullet 8). Foreign assets include your home (FAQ 35), particularly if you ever earned income from it (FAQ 36). Standard FBAR penalties only levy against the value of unreported FBAR items (i.e. financial accounts).
Second: Under OVDP you consent to extend the statute of limitations from three to eight years (FAQ 42). Scenario: your bank account generally has a $10K balance, but in 2007 you sold your house and $500K was temporarily on deposit.
Third: IRS Agents have absolutely no discretion regarding the terms of the OVDP (FAQ 50), meaning that you will lose 27.5% of your savings at least (lower rates might apply – FAQ 52 & 53). FAQ 50 states that the taxpayer won’t pay more under OVDP than he would have had to under the maximum standard penalties. Maximum standard penalties apply to willful and fraudulent violations. Chances are you’re violation is either non-willful ($10 000 per account per year) or negligent ($500 per year). Remember we’re talikng 3 (not 8) years here, so that last option means a maximum $1500 penalty.
So what do you do if you want to comply, but don’t like the OVDP terms? Same thing you always would have done: file amended or late returns, so called ‘quiet filings’. FAQs 15 & 16. Also watch:
So what to do? Pay an insurance premium of 27.5% of your savings or file quietly and risk an IRS criminal investigation?
Let’s look at it from the IRS’s point of view. They wish to bring all taxpayers into compliance and aggressively pursue wealthy and willful tax evaders. If you’re not in the latter category, they’re probably hoping you enter the OVDP and submit to the 27.5% insurance premium. If you file quietly, they’ll have to consider the merits and cost of pursuing you (and many thousands of others) for the hefty penalties levied against willful non compliers. This is a grey area that will depend largely on your level of unreported income and whether or not you have already paid local taxes on it.
If you are a willful evader, or feel you may be in a grey area here, there are important protocols to follw. First, if you’ve already been filing IRS returns, you’ll need to change accountants. Second appoint a good tax attorney and let him appoint your new accountant. Finally I believe the new accountants might actually provide information to yet another accountant who actually prepares your return. This procedure provides maximum attorney client privilege to your affairs. I don’t know if these professionals need to be in the US, but they’ll probably need to be US certified.
I have experience with quiet filings myself, having filed six years of amended and late returns in respect of a foreign asset holding structure. This was back in 2004, before the current bruhaha. There was only about $2000 dollars of unreported income resulting in a few hundred dollars of tax and interest. I retained the services of an attorney and former IRS agent who drafted a covering letter explaining why I shouldn’t pay penalties. I never heard back from the IRS.
Disclaimer: I’m not an attorney or legal practicioner of any sort. None of what I have said above should be construed as advice. Such advice should be sought from a qualified and practicing tax attorney with IRS experience.
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Sure am glad you guys in Canada. Here in Switzerland we are all angry and resentful, but aside from the (excellent) efforts of the ACA (American Citizens Abroad in Geneva), you don’t see any kind of “Let’s get together and do something about this.” I agree with you, I think it is unconstituional, and I think we should collect some funds and get some lawyers/lobbyists to fight for our rights. Soft peddling it doesn’t seem to impress anyone Stateside.
avowd, I’m in Brazil, but I’m also angry and resentful. Not for the just the FACTA and FBAR rules, but also for the US’s wanting to “limit” my life through taxes on businesses owned by Americans. I’m fed up.
I hate it that I have family and relatives that live in America; otherwise, I would never need to go back to that place ever in my life.
@avowd,
Lobbying is good, but expensive.
A steadily increasing number of citizenship renunciations (which is already beginning) will get the attention of the tyrants in Washington.
They have to be embarrassed politically. If not, the persecution of Americans abroad will escalate.
Hancock
John: That is the conclusion I have come to as well. We need to embarrass them. Best is through the press. U.S. press still not very interested (although the WSJ did a very good article on this a couple of weeks ago, which I will post here), but the foreign press is seeing a relationship to this and the ever-growing imperialistic attitude of the U.S. So the best is to try to get the press of your country writing articles about this. They will get picked up eventually.
Geeez: Yes and also the way they assume we are all criminals, and in fact make us feel like we’ve done something wrong when we haven’t, and the fact that they don’t appreciate what we do as expatriates.
Washington’s Assault on American Expats
The U.S. is the only developed nation in the world that taxes its citizens on income they earn abroad.
By WILLIAM MCGURN
Wall Street Journal, Jan. 3, 2012
This new year, spare a thought for that most under-appreciated class of citizen: American expatriates.
In a world where 95% of consumers live outside our borders, Americans working abroad serve as the sales and marketing force for Brand USA. All things being equal, people go with what they know: An American engineer will turn to American technology, an American businessman will hire fellow Americans, and an American contractor will likewise prefer American goods and services. In a nation trying to reach President Obama’s goal of doubling exports by 2014, that makes the expat a pretty valuable resource.
Alas, the U.S. tax code—the ugliest of ugly Americans—doesn’t work that way. To the contrary, new changes in tax law regard foreign financial institutions (banks, pension funds, etc.) as colonial subjects who must be dragooned into enforcing ill-thought-out U.S. regulations, or face huge fines. Indeed our tax code appears to rest on the assumption that the American expat is a criminal and must be treated that way.
This assumption is embodied in the IRS’s new Form 8938, which requires Americans who live abroad to report any foreign financial assets from stocks to partnerships to derivatives above a designated threshold. It comes on top of another form (the FBAR, or Foreign Bank Account Report) already required if a citizen has any foreign accounts that add up to more than $10,000. In some cases, you can be fined for failing to file even if you don’t owe the IRS any money.
As bad as this is, the burden will fall more heavily on foreign financial institutions. Within the next two years, these companies will be required to register with the IRS and to report information about their U.S. customers to the IRS—or face a 30% withholding tax on securities transactions that originate in the U.S. It’s all part of the Foreign Account Tax Compliance Act (Fatca), which Mr. Obama signed into law in March 2010 as part of one of his larger “jobs bills.”
Now most Americans have never heard of Fatca. Overseas, by contrast, it has become notorious.
Financial associations on several continents are screaming foul, and some foreign banks have responded the way you would expect them to respond to something that makes dealing with American customers more costly and burdensome: They’re dropping their American customers.
One reason attention in the U.S. has been so muted is because of the nature of those affected. Though the State Department reckons 6.3 million Americans (not including military) are now living overseas, these people come from all over America and thus have no single voice in Congress. In addition, they are easily demagogued by our political class as fat cats living the glamorous life overseas.
The idea behind Fatca is that by cracking down on Americans abroad, the IRS would bring in $8.7 billion in tax revenue over the next 10 years. Even assuming it works—a big “if”—that’s about $1 billion a year. By any measure it’s a puny amount, not to mention the damage it does to the U.S. economy by making Americans more costly and difficult to hire.
Last month IRS Commissioner Douglas Shulman acknowledged that foreign financial institutions have “major concerns,” but he continues to push with the determination of Inspector Javert. That’s probably to be expected in an IRS official. Yet surely there’s a larger perspective missing here, one that might begin by asking why we are the only developed nation in the world that taxes its overseas citizens, forcing them to pay taxes in America as well as in the country where they are residing.
Yes, collecting tax revenue is important. Far more important in our century, however, is creating an economy capable of attracting the world’s most precious resource—capital. That capital is human as well as financial. Frank Lavin, a former U.S. ambassador to Singapore who now serves as chairman of public affairs at the global PR firm Edelman Asia Pacific, suggests that Americans overseas provide a vital component.
“The future,” Mr. Lavin says in an email, “belongs to the networkers—those who can bring together ideas, people, products and financing from around the world. The expat community is the human counterpart to the social sites—and they help ensure that the best America has to offer is connected with individuals and businesses around the world.”
At the end of the day, after all, the global economy is really about human beings interacting with one another, bettering themselves and enriching their societies as they do. From the Ohio contractor working in Baghdad to feed his family back home, to the American professor teaching in Hong Kong, to the Boston-bred banker working in London, these individuals are overwhelmingly productive and law-abiding. In an ever more competitive global marketplace, their presence provides a critical boost to American fortunes in key parts of the world.
So here’s a New Year’s resolution for the IRS and its allies inside the Beltway: Maybe it’s time we treated these Americans as economic assets instead of criminal liabilities.
Write to MainStreet@wsj.com
@avowd yeah, that WSJ article was a good one. Hope it got some people’s attention. I’ve translated some FATCA/FBAR-related articles from China and South Korea on my blog (here). Very thin coverage in Korea but it’s been quite negative (because they’re hearing all the horror stories from Korean expats in the US who went into the OVDI). Coverage in China is more of a mix — people think FATCA is a horrible idea in theory, but in practice people aren’t worried about it because they think the US is never going to be able to get any straight answers out of banks in China. And surprisingly, no noise whatsoever from Hong Kong yet (either from the media or from US passport-holders here).
It seems to me that participating in the voluntary disclosure program is similar to accepting a plea bargain for a crime I didn’t commit… My particular questions revolve around what can the IRS to do us? Whether we file or don’t file, if they levy huge penalties against us, seriously, what can they do? That’s not a rhetorical question. I know CRA says it’s not going to collect on behalf of the IRS, so what recourse does the IRS have when someone simply cannot (or does not) file back taxes, fbars, etc. If the IRS levies huge penalties, what can the IRS do to collect? Is there any way to force a bank to foreclose on a mortgage (or refuse a renewal) based on having been assessed penalties? Realistically, what can happen if a person doesn’t own any US property, and divests themselves of any US investments in their retirement funds. What impact can this actually have on our lives? There are many people who simply do not have many thousands of dollars to engage tax specialists to get them caught up. Obviously, they’re not going to be able pay any penalties, either. Will the assessment of penalties negatively affect our credit rating?
There are so many opinions out there that I’m pretty confused. And it may just come down to what actual effect on my life this can have.
Provided your assets are in Canada and not the United States, I’m not sure they can do anything to collect FBAR fines. Taxes are another issue. They could go to trouble of going through the CRA to collect them–but if you are Canadian citizen, the CRA won’t collect on you.
The fear of course is that the United States would use border guards to enforce taxes and FBAR. That will back fire. If they want to stop Canadians snowbirds and Winter Texans and visit with the kids to Disneyland, the by all means keep the nastiness at the border up.
So I think the IRS biggest tool with regard to most of us in Canada is fear and intimidation.
Thanks, Petros. Personally, my ties to the US are so slim that I could live without ever going there again. So, that’s not much of a threat, in my eyes. And, yes, I became a Canadian in 1976. Since we’re on this topic of consequences, I’m wondering if anyone knows yet,what the possible repercussions regarding banks asking about place of birth, and our answers. What if we just say, we were born in the UK, or in Canada. Are they going to ask us to back that up with a birth certificate or passport? What if we just say it’s none of their business, and we’re Canadian citizens? I guess I don’t quite know what the banks can do about it…. Do you have any idea?
Review old documents like Insurance policies
(my CIAG life policiy has my birthplace in the application) If you maintained ties with your first bank or have an old credit card affilation place of birth my be lurking in their files. Best action relinquish if can, renounce if you must. Advise
everyone of your status if asked.