IRS going after Canadian-American citizens
Queen’s University law professor and tax law expert Art Cockfield is available to talk about the Internal Revenue Service (IRS) going after more than 1 million Canadians living in Canada who also hold U.S. citizenship.
The IRS is now saying any U.S. citizen, whether living temporarily or permanently in Canada, must file a U.S. return. If they do not comply they could be subject to penalties that include 25% of the amount of the undisclosed assets plus repayment of back taxes plus possible imprisonment. The IRS is going after everyone – including people who moved to Canada as children and have been living in Canada for decades and lawfully paying taxes to the Canadian government.
“The Harper government should continue to press the Americans for an exemption for all U.S. citizens who have lawfully paid taxes on their income to Canada, and thus have never taken steps to hide their assets,” says Dr. Cockfield. “If this dispute cannot be settled between the two countries, Parliament should pass retaliatory legislation that imposes the exact same enforcement regime on U.S. financial institutions that deal with Canadian ‘tax’ residents. Ottawa would garner a lot of attention by going after people like Celine Dion, Ryan Reynolds, Jim Carey and Seth Rogen.”
Dr. Cockfield is the editor of Globalization and Its Tax Discontents: Tax Policy and International Investments (University of Toronto Press, 2010). He testified about tax evasion and offshore bank accounts this past February before the Parliamentary Standing Committee on Finance.
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Thanks for posting this Calgary411. I think this refers to he is available to speak to the media, but I’ve sent a notice to the contacts that I would welcome an opportunity to speak with him.
You stated “The IRS is going after everyone – including people who moved to Canada as children and have been living in Canada for decades and lawfully paying taxes to the Canadian government.” This “going after” is not just in Canada, it is everywhere in the world. The objective of the IRS is that not one person who has US citizenship, whether or not they know they are US citizens and even though they don’t speak, read or write English, or for those born abroad to a US citizen parent whether or not they have ever held a US passport or ever visited the US, they are being pursued by the IRS as the IRS has been mandated by Congress and the President to do.
Canada is close by and there are lots of Americans who the IRS views as “low hanging fruit.” Indeed Canada should retaliate against the legislation and the extraterritorial mandate of Congress directing the IRS to do this. As an American I am reluctant to try to tell the government of Canada or any other nation what they ought to do, but perhaps it might be in order to make it illegal for residents of Canada to remit funds or pay to any foreign government that attempts to violate Canada’s sovereignty by levying and collecting taxes on the income of any bona-fide resident of Canada.
That is essentially what the Brazilian government did back in 1976 when the US Tax Reform Act of 1976 was enacted. I lived there then. At that time there were exchange controls in Brazil, which is of course different from Canada. It was necessary to apply to the Brazilian Central Bank (Banco Central) for any foreign currency to be sent or taken out of Brazil. It had to be for an approved purpose. All imports paid for in foreign currency had to be licensed before shipment from abroad was loaded on the plane or ship. All foreign currency payments were processed and made through the Central Bank. Travelers abroad could obtain up to US$1000, but they had to have their ticket in hand and the dollar purchase was stamped in their passport. And if they wanted to obtain an additional $1000 for a subsequent trip, there had to be stamps in the the passport that the person had actually left Brazil, arrived in the foreign coungry and and re-entered Brazil. If these were missing the answer was no dollars, sorry.
Applications from US citizens for US dollars were denied for the exact reason stated in my recommendation above.
Today Venezuela has very strict exchange controls and it is impossible for the several thousand US citizens, (probably at least 200,000) there to obtain and remit dollars to pay their US tax. Like in Canada, probably most of them are dual US-Venezuelan citizens. Dollars can be obtained on the black market at a very high premium price, but it is strictly illegal and violators apprehended are prosecuted and severely punished. It is not child’s play.
There are some 30 mostly underdeveloped countries that today have exchange controls. Some of them are very mild, but others are very severe.
Interestingly enough although long forgotten is Canada had exchange controls once too during the Second World War so situations like the one you described have been fairly common throughout history. This particular professor is actually fairly well known in this particular area of tax policy in Canada so perhaps if we are lucky maybe he will take note of this site and post some of his thoughts on the current situation here.
One retaliatory step I have heard rumored is Canada could eliminate the preferred witholding rate US investors including some very big multinational companies such as Exxon Mobil pay on their Canadian subsidiaries such as Imperial Oil distributed profits instead forcing them to pay the general 25% rate or in theory an even higher punitive rate only for US investors in Canada. Clearly there is definately an assymetry in size between Canada and the US but many US companies are quite eager to get access to Canadian natural resources and have to increasingly compete quite vigourosly with their European and Asian competitors in Canada to get access to these resources(This could really turn out to be quite similar to the situation you encountered in the 1970s).
@Roger Thanks for this suggestion. I think it suffices that Canada forbid residents of Canada to remit taxes to the United States. I wonder if the capital controls would be necessary.
I have to disagree with that the current action of going after Americans in such a draconian manner is mandated by Congress. Is Congress aware that retroactive US citizenship is being forced upon Canadians who long ago relinquished their citizenship? Furthermore, the enforcement of these laws at the border–using access to the United States itself as an enforcement tool, seems to me a invention of late. I can’t remember in the many times that I crossed the border being asked if I had paid my taxes. But now, there is even a rumor (only one step removed–someone who knows someone) that a persons was required to show six years worth of US tax returns at the Toronto airport, and had to have his office fax the forms to him, but he nevertheless missed his flight. I believe the rumor, though many refused to believe that this could be true. But perhaps you have heard similar stories?
This is sickening and not at all necessary means of enforcing the tax code. It has the effect of destroying NAFTA and cross border trade. It is the end of the global economy as we know it.
Roger’s comments are correct… they are going after EVERYONE. I know this is only mentions Canadians, but at least it’s a step in the right direction.
@geeeez Yes State and the IRS are going after everyone. But this expansive definition of a American citizenship, is it really the will of Congress? See my point? Congress, to my knowledge, has not required border guards to enforce income taxes either. This is the fault of the Executive branch.
I agree with Petros. The reality is that Congress doesn’t have a clue what is is doing or signing. I would bet that most members of Congress don’t even know about FATCA or any of these related issues.
Furthermore, the the IRS is given broad discretion in its administration of the law.
I believe that the IRS is simply a “rouge agency” within a government that is basically ignorant and indifferent to the issues regarding U.S. citizens living abroad.
The better way to put this is that:
Congress has given the IRS discretion and the IRS is abusing it.
The time has come for other governments to stand up to the U.S.
We in Canada MUST take the lead for the following reasons:
1. Canada is close enough to the U.S. so that for diplomatic reasons the U.S. cannot ignore it.
2. I would bet that a higher percentage of people affected by this are not just U.S. citizens but are dual citizens. In other words, the IRS is screwing around with the lives of Canadian citizens.
3. I would also bet that U.S. citizens constitute a much higher percentage of the population in Canada than in other countries.
4. Since Canada is not a tax haven and IS a high tax country, it is clear that the conduct of the IRS cannot be motivated by tax evasion.
and I am sure more.
But, I want to make another point. If there is no organized opposition to this very soon, this war will be lost. The time has come to stop discussing and find a way to get moving in some positive direction that:
– will involve Canadian politicians; and
– includes an organized citizen opposition to this.
@renounce I am not sure what action we should take. At this point, we have been somewhat effective in fighting a media war–I thank in particular Just Me for his indefatigable efforts.
You had mentioned an education session for the media in another thread. This would be good. But whatever we do, it requires a number of people to take on organizational roles. There has been no event yet in the Toronto area. Perhaps people can contact their MPs and get them to organize meetings like the one that Megan Leslie MP had in Halfax last week (http://isaacbrocksociety.com/2012/01/18/halifax-meeting-with-mp-megan-leslie/ ).
I have focussed my efforts in this blog. I see it now as the new international hub for information and for organizing a collective response to the US attack. The operatives have been busy gathering information and making comments in other media sources. Once we are up to over 10,000 hits a month, we could probably call a meeting in the Toronto area and have a thousand people show up.
Whenever such a meeting takes place, I think it would be good for people to take handbills for those who attend, telling them about the work that the Isaac Brock Society is doing.
The next thing I hope is that we can get a major newspaper in Canada, like the Globe, to publish about our plight in our words. The influence of Isaac Brock is growing to the point that we have a growing attention and some of our readers have connections. It is a question of wisely exploiting those connections.
At this moment, I am one of the few point people who is exposed (along with MVH, Roger Conklin, Victoria, and a few others). It may be necessary for some others to come out of the shadows–I am not sure. In any case, organizing and having public meetings will require some exposure for everyone involved.
The major problem that the majority of people in the world will have is that they will see us as upsetting the apple cart of the entire global economy. Yet it is not us. We are the messengers. The United States is the perpetrator. So I expect that we will face opposition from all kinds of directions. But we need to maintain our poise and resolve of purpose.
I appreciate the thought of the CRA retaliating in kind, but I think the US has thoroughly demonstrated that cross-border citizenship-based taxation isn’t cost-effective.
Organization is emerging, and Isaac Brock seems destined to become the hub for Canada. The epicenter will be Toronto. There is little reason to believe that mainstream media will ever do much good with this story.
Large public meetings are an excellent means of making the problems visible. New Brunswick and Halifax and even the October consulate meeting in Toronto are what we have so far. The consulate meeting story ranks among the most useful media pieces so far, in terms of dramatizing the situation.
Only a minority of affected persons has an inkling now, and most of those still seem to count on hiding out somehow. This is early days in a long haul, unless Congress or the executive branch unexpectedly turn sensible.
A cross-Canada network may emerge eventually, as well as something parallel at the international level.
Key to messaging are the damage and costs that will be suffered by all Canadians: huge banking compliance costs, impacts on the health system by stressed-out victims, compelled wealth exodus from Canada, resulting cost impact on social services, etc.