Soon after I finished my PhD, I had the experience of teaching as an adjunct professor in Ontario. Eventually, I quit because I felt that the working conditions for contingent labor in higher education sucked–and they do: just google the terms “adjunct hell”. Then, I worked another job which I soon quit. But to damage my reputation after I quit, one of the people from the second job asked for a reference via e-mail from the first employer and soon a flurry of e-mails had damaged my reputation among about a couple dozen people. The first employer had even gone so far as to accuse me of “unpleasant breaches of trust”, not realizing that the term “breach of trust” is legaleze, usually for criminal behaviour related to money or the virtue of young women. Later, the man apologized to me, saying that what he meant is that I had let them down.
This whole incident made me look into privacy laws in Ontario, and soon I found that I could have sued my first employer for defamation of character and the improper divulging of private information with malice. Employers must be circumspect about information: about what information they share with outsiders; about the recipients of the information; and about who within the company gives out the information. Since the recipient of the information was no longer my employer, it no longer served any purpose as a reference. Since the person who wrote the damaging reference evidently felt malice towards me, he should have found someone else to write the reference. Since the information could potentially damage my reputation, the first employer should have made sure that they followed proper protocols as an institution in order to avoid a defamation or privacy of information lawsuit. The guiding principle is: Information is on a need to know basis. Never divulge private information to someone who is not in the need to know.
This is the curious thing about FATCA. The Canadian government has announced that it has serious concerns about FATCA. Furthermore, Finance Minister Flaherty has insisted to the Americans that Canada is not a tax haven, and therefore there is little likelihood that the IRS will glean information through FATCA that will help with tax enforcement.
So if FATCA isn’t about tax enforcement, what then? Well, as our own renounceuscitizenship has so adeptly pointed out, the most valuable FBAR to the IRS is an unfiled FBAR.
I believe that this is all part of a master plan: The first part of the plan is to saturate the media with the OVD offer. Then, those who still remain can no longer use the excuse of ignorance; the IRS will say, “Where the hell were you, in Timbuktu, that you didn’t hear about FBAR and OVD programs?” So any remaining undeclared accounts that they find will now be subject to wilful penalties up to 50% of the contents of the account. But the perennial problem of FBAR is this: since the account is in a foreign country, the only way that the US government can learn about it is if you tell them. So if you don’t tell them they won’t know.
So the second part of the master plan is FATCA: they will force your bank to rat on you.
Now the Canadian government has said that it will not collect FBAR fines. So if you don’t have to pay the fines, and the information is useless for tax enforcement, why then does the IRS need the account information? In other words, the basic test for divulging private information is not satisfied: the IRS is not in the need to know because the information should be useless to them.
But it won’t be useless to the IRS, because the third part of the master plan is this: the IRS will start sending fines to Canadian residents, based on the FATCA information that the Banks have sent them. These fines will consist of 50% of your account balance, for wilful failure to file FBARs (this is implied by what the IRS has official stated). Even though the Canadian government has said they won’t collect these fines, the IRS is hoping that there will be some very frightened people who will nevertheless pay the fines to them directly, either the full amount or a settlement of a portion of the extortion.
Thus, the banks are preparing to divulge information to the IRS that the Canadian government has said is unnecessary since Canada is not a tax haven. Not only so, but that information can do great damage to many Canadians residents who have undisclosed accounts. This is a disaster and this is why we must stop the Canadian banks from implementing FATCA and giving millions of account numbers with names and addresses to the United States. We must plead with the Canadian government to stop them. If that doesn’t work, we need to begin protests and other actions against the major banks.
Makes me think of flies on a body — a living bloodied body. I see Just Me was first in with another excellent comment.
*Speaking of need-to-know basis, is there any way in H to do American taxes in Canada without divulging our SIN numbers to the IRS? I don’t care if they know our social security numbers but, if the IRS have our Canadian SIN numbers they can spy on our accounts and track us everywhere. I am extremely uneasy about giving my SIN number to them. This is way beyond disgusting and terrible.
@Banay: Provide no paper work with your SIN–it is irrelevant to their processes in any case. It doesn’t have OMB number.
@Tim, don’t know if you’ve added this at IBS, but I’m reposting the link and the citation http://www.ctf.ca/ctfweb/CMDownload.aspx?ContentKey=7ae51268-fbf4-4abf-a07a-41c7be3af7f6&ContentItemKey=c3e8c6ab-f4f9-45b3-8d34-c8dde8c018a2 for the very valuable paper you brought forward elsewhere, published in the Canadian Tax Journal.
canadian tax journal / revue fiscale canadienne (2012) 60:2, 305 – 54
FATCA and FBAR Reporting by Individuals:
Enforcement Considerations from a
I think everyone here- particularly in Canada, should read it – in entirety very closely. The focus is enforcement of US extraterritorial tax claims in Canada, constitutional issues (both US and Canada), but also very very interesting to all expats living outside the US, is the description of how FATCA – works in concert with FBAR as a new type of *revenue generator – essentially not an ‘income’ or ‘earnings’ tax, but through confiscatory penalties levied solely on the non-filing of administrative reports on already post-tax, legal assets originating outside the US, and held in our entirely pedestrian local bank accounts (see end section of paper). The imposition of this wholesale on all accounts located outside the US is very cleverly *designed to impose this ‘tax’ on those with the least representation and recourse within the US – and there is no escaping being ‘impressed’ http://en.wikipedia.org/wiki/Impressment into the liability, as we all need to have bank accounts where we live, and of course, as we all live outside the US, so all of our accounts and assets are ‘foreign’ by US definition. It would be impossible for all of us to shift all of our bank accounts and assets to be held in the US. That is also why the FATCA and FBAR reporting is required even if no actual US tax return is due (in the smaller class of individuals who fall below the incredibly low filing threshold for the actual return but meet the aggregate account balance thresholds for FBARs and FATCA respectively).
*From the end of the abstract: “He concludes that, at least at present, no penalties arising out of failure to remit FBAR and/or FATCA returns would be enforceable in Canada. He also considers whether the US government might relax its enforcement effort with respect to US taxpayers living in Canada. He suggests that this is unlikely, given that FATCA appears to be designed to facilitate the collection of revenue in the form of fines and penalties, and to replace FBAR with a law that has a greater chance of enforceability in foreign jurisdictions“.
In fact, it occurs to me that the TAS Nina Olsen may be very interested in this paper, as it directly addresses the purported vs. actual intent and end result of FATCA – reaping confiscatory penalties vs. collecting actual outstanding traditional ‘taxes’ from those deemed to be ‘US international taxpayers’. If Congress, the IRS and the US want to create and enforce a new type of expatriate ‘tax’, based on our already post-tax assets, to get around the FEIE and Foreign tax credit, resulting in the double taxation that our reciprocal treaties are supposed to address, then the US should just come right out and say that. I strongly suspect that they don’t, because ‘crime prevention’ puts a more acceptable public face on their efforts, and doesn’t add to anyone raising uncomfortable questions about the ethics of ‘taxation through penalty’ generation for mere administrative faults and errors – and which by it’s very design will fall on to a specific subset of the US citizenry – those abroad. It may also have been targeting new immigrants to the US, with existing home country accounts, or they may have been included by default. It would be good to see tax academics address this.
What would the US constitution say about generating revenues by creating tax structures fraught with confiscatory penalty levels that primarily only apply to a subsection of US citizens – those living abroad with local bank accounts – who owe no actual tax, but make an inadvertant reporting error?
The argument that FATCA is about preventing crime doesn’t hold any water when applied to Canada and many other jurisdictions – that is without question. That the US disingenuous claim has not been more ridiculed in public is hard to comprehend. Here is an author, in a respected scholarly journal, who directly unmasks FATCA as about revenue generation – not from locating earnings and income that should have been reported and subjected to US taxation abroad, but from the penalty structures imposed for the administrative requirement of reporting (filled with complexities that make the penalties more likely). So the US is spared the bother of identifying and proving whether expats have earnings they haven’t reported, it is the mere act of reporting or not that provides the revenues. This supports the notion that the US will never make ‘compliance’ simpler and easier to achieve, or change thresholds for the FBAR to make them more reflective of current values (e.g. 10,000. adjusted for 2012 levels). Compliance and data-mining of account numbers, values, locations, joint owners, and eventually transactions, from more of those abroad may be a welcome result for the IRS, but the draconian penalties are even better.
FATCA and FBARs also may get around the objections by other sovereign nations who rightly argue that the first turn at the trough of our income and earnings belongs to the countries where we actually live, work and receive services. Since Canada already receives automatic reports of our interest earned on accounts, and we are assessed Canadian taxes on them, the US indirect taxation via assessment levied on our post-CRA-taxed account values doesn’t threaten Canada’s share – except to the extent that penalties suck our assets out of Canada’s economy and flow into the US. Since the penalties under FATCA and FBARs are so large, and can be levied on balances that no longer exist, or which may even be debts or loans (ex. mortgage loan in an account for 1 day) they are so much more attractive than trying to see if US traditional tax is owed on some actual real taxable gain or interest on an investment or savings vehicle.
Badger, interesting comment post worthy. This was actually what I was saying in the lead post. The IRS has used FATCA as the reason why one should enter the OVDP. Why would we suspect that they had any other intention than to impose draconian fines on those exposed to them through FATCA regulations? Just take them at their word.
It was very interesting to read some of the things we’ve been saying written by an academic author who cannot be accused of being a tax evader and criminal, which is how the US denigrates and dismisses all criticism on these issues.
I want to thank Tim and others who follow and post citations from the professional tax literature for alerting the rest of us to this and similar resources. It would be a good article to cite in some of our correspondence.
Thank you. That CTJ pdf is loaded with useful information and your summation appears to be very accurate. I’m still reading but so far it looks like D.H. Bonham has a good understanding of the situation and our predicament.
@Badger and @Tim
Thank you for the link to the valuable article by Andrew Bonham. I think this is worthy of its own thread. As the both of you were on this initially, would you consider doing so. I think there are a number of issues contained in the article worth discussion. Also, I think one might invite Bonham himself to comment and respond to questions.
@ Northern Shrike, I don’t feel confident that I have the contextual grasp and knowledge that Tim seems to have in order to know how this article fits into the bigger political and legal picture – and go beyond the summary. I don’t know if going beyond the summary I attempted would just distort or be misleading for readers. I would urge everyone to read it for themselves, and then perhaps we could discuss it further here.
I do think that it may persuade some Canadian politicians that FATCA is not really about catching tax evaders, but is an end run around the provisions of the Canada/US tax treaty intended to prevent double taxation. It may spur some to speak up to protect the Canadian tax base – from poaching by the US – which would make them take an interest in FATCA that we haven’t seen much evidence of recently.
Since I think the author stated quite clearly that he considered FATCA to have an other than stated purpose, it would not rest on our interpretation and grasp of the paper – we can just quote the pertinent portion and give the citation. “FATCA appears to be designed to facilitate the collection of revenue in the form of fines and penalties, and to replace FBAR with a law that has a greater chance of enforceability in foreign jurisdictions”
That quote appears to me to be closer to a ‘smoking gun’. Since when is it legitimate to create a ‘pseudo-tax-like’ obligation through penalty generation on post-taxed assets, when NO actual tax can be demonstrated to be assessed or owing on those assets – and enforce that inside another sovereign country? I am going to re-read the Taxpayer Advocate reports to Congress, and her most recent report describing international taxation issue for 2013, since I think that she alluded to the use of penalties as revenue generation as an issue for US ‘international’ taxpayers abroad.
@Badger and @Tim
A point from the Bonham article to share with other IBS readers is the following:
The motivation in the preparation of this article is to attempt to allay the fears of those individuals resident in Canada who are not in any way attempting to subvert the US tax system but are essentially “innocent bystanders” – victims, for lack of a better world, of their own US citizenship.
Badger, you can post your comment with the link to the article. I think your comments are very appropriate and adequate to launch a discussion.
I agree with Northern Strike that the Bonham paper is worthy of a thread all its own. (Sorry for referring to Bonhan as D.H. instead of Andrew in my previous comment.) It is a well written account and provides a lot of background information. One section about green card holders sent me back to square one, fear and anger wise, but it also made me realize just how much our fate lies with the Canadian gov’t right now and although it will do anything for corporations (hence secret NAU meetings and such), I’m not so sure it wouldn’t throw individuals under the bus to appease the mighty elephant across the border. I’m not liking that term “comity” at this point; much preferring “sovereignty” instead.
Further to the Bonham article:
I have a couple of questions that I would put to the author. I think the answers ought to be of interest to everyone:
First, you make the case that FBAR and FATCA laws are unlikely to be enforced by Canadian courts. However, implementation of FATCA as I understand it would not entail going through Canadian courts. Once an account in Canada is identified by a Participating Foreign Financial Institution as “recalictrant”, it would be subject to 30 percent withholding, payable directly to the IRS, etc. Becoming non-recalcitrant would entail obtaining a TIN and settling up with (paying penalties to) the IRS. Am I missing something in your article?
Also, you make the point (p. 345 and elsewhere) that”no claims consisting of only a punitive component could properly form the subject matter of a revenue claim.” This is really good news. As Canada has higher taxes than the US, it might be assunmed that no taxes will generally be owing, leaving the penalties “stranded”. However, although Canada does have higher taxes, there are possible problems due to the fact that the two tax systems are non-congruent. So, RESPs and TFSAs are not recognized by the US, creating the possibility for taxes owing, upon which penalities might be attached. How would you (the author) respond to that?
Here’s the last paragraph of the Bonham paper which contains that new (to me at least) term “comity” which I alluded to in my last comment …
“Finally, although the revenue rule and the penal/public-law rule would currently preclude Canadian courts from assisting in collection, the ever-expanding role of judicial comity may one day see a repeal of these rules, or at least a relaxation of their strictures. Should that occur, the United States would be in a position to resort to principles of public international law as a basis for enforcement, even against dual citizens. In such a case, it may well be open to defendants to argue that the mere fact of their US citizenship should not, in and of itself, be enough to satisfy the real and substantial connection test — especially in cases where the defendant has had little or nothing to do with the United States and has certainly derived no benefit from his or her US citizenship.”
Issues surrounding FATCA and FBAR appear to be gaining more notice in the legal community, both among academics and practicing lawyers. Even though the MSM has mostly ignored the subject, hopefully policy makers are paying attention. Papers such as Andrew Bonham’s and Allison Christians’, among other, do much to move the discussion along in places where it may have the most impact.
Reuters reports today that the UK is looking at new legislation “to introduce U.S.-style automatic disclosure of information on UK citizens by foreign institutions and tax authorities to help stem global cross-border tax evasion.” “The proposed legislation takes as inspiration the new U.S. Foreign Account Tax Compliance Act (FATCA)….” >
Maybe Mr. Mopsick is right when he says:
“European and other governments scramble to get on the FATCA bandwagon to help create an international banking data base which they can’t wait to get their hands on.“
Lawmakers in France recently submitted a law proposal designed to “increase the link between citizenship and taxation, and fight tax evasion“
It hasn’t become law yet, but even Sarkosi was in favor of something like it. Now that the left is in power, I am afraid that sooner or later, it will become law.
The problem with their proposal is it does not make clear whether their intent is to override all of France’s Tax Treaties which would be necessary for the law to have legal effect.
‘Congress might have originally thought of a simple concept when they drafted Fatca rules, with the intention of requiring offshore investor to disclose their identity but they left the details to the IRS which made the issue become a major problem.’
Asian hedge fund managers burying their heads in the sand on FATCA:
The IRS made it a problem?
@Em, funny, re; “the United States would be in a position to resort to principles of
public international law as a basis for enforcement, even against dual
citizens.” ( From the Bonham paper ). The US doesn’t recognize international law unless it suits their purpose, and ignores it when it doesn’t suit. Same with the tax treaties with other countries under that last in time rule.
A useful timeline re FATCA, for those interested in some of the more technical details. Website also has many other FATCA resources.
Very interesting and worthwhile article containing quotes and comments re feedback to FATCA forms – tax professionals flagging dangerous potential for errors and confusion, and demonstrating that the IRS is consciously choosing to make it more complex to comply, and more difficult and fraught with potential pitfalls – in order to meet their own goals and deadlines – at the expense of taxpayers and everyone else – on an unprecedented international scale. The IRS chose a path that would circumvent the Paperwork Reduction Act, and consciously chose not to adjust or create separate and tailormade forms that would be more applicable for specific circumstances:
“Form to Certify FATCA Status May Spur Errors, Practitioners Say”
By Alison Bennett
Publication Date: 08/15/2012
“A new draft version of a form that intermediaries and other
entities will need to submit to withholding agents under the Foreign
Account Tax Compliance Act is very complicated and will be difficult for
many taxpayers to complete, practitioners told BNA in interviews Aug.
…“It is going to be very complicated to prepare,” Candace Ewell, a
director in the Washington National Tax practice of
PricewaterhouseCoopers LLP, told BNA. Noting that the form has gone from
two pages to eight pages, Ewell predicted that in many cases, “this
form is not going to be prepared properly.””….
Ewell told BNA that “at eight pages, this has just gotten worse.” She
said there had been suggestions that IRS create several shorter forms
instead of combining all the reporting and certification requirements
into a single form, but acknowledged that IRS is working against the
New forms would have to go through the Paperwork Reduction Act and
likely would have taken time that is in short supply, Ewell said. “There
would be additional approval processes, so they don’t have the time,”
As the saying goes: ‘haste makes waste’. In this case, the goal of the IRS has nothing to do with treating ‘taxpayers’ fairly. It has to do with advancing a singleminded agenda – no matter the size of the ‘unintended’ consequences for everyone else. The legal, tax and financial implications of errors under FATCA will dwarf the problems that already exist for ordinary people living normal lives outside the US. And, we’ve got proof that tax and legal professionals have been trying to warn the IRS of the size of the quicksand inherent in the IRS processes and forms. Just as the GAO report warned of the complexity of the FATCA form for individuals due with the 2011 tax year return – to no avail.
Now we have the additional layer of FATCA reporting that will control the treatment – and possible 30% withholding of our entirely legal, post-tax, registered bank accounts and assets earned, fully taxed and transparent to the governments where we were born, live and earn. And for the UScompliant – already reported on the FBAR – so not ‘hidden’. But, the reporting is so complex, and difficult to comply with that professionals are flagging it already. The penalties and Statute of Limitations under FATCA are so extreme, that it is hard to believe that it could be anything but criminal negligence on the part of the IRS to put it into force as is, if not concrete evidence of deliberate entrapment of those subjected to it.
Further to the discussions on another thread here about whether the Canada-US treaty would allow the US/IRS to force the CRA or some portion of the Canadian government to assist in collecting penalties under FATCA. If Canada were to assist, it would be complicit in the already obvious and serious damage that will inevitably result from the already evident flaws in the design of FATCA forms and processes – quite apart from all the other compelling reasons why FATCA is inherently wrong.
How the US can subject honest individuals who have entirely legal and already fully taxed and transparent assets, living in another sovereign country, and in many cases – with another dominant nationality, is beyond any comprehension. If Canada’s government and media do not stand up in public to point out the trainwreck that is coming closer and closer for duals and Canadian citizens with green cards, etc., it will be complicit in the damage as well.
MONDAY, AUGUST 27, 2012
Phasing in FATCA: How Will Foreign Banks Determine Which Of Their Customers Have To Be Reported To The IRS?
Hypothetically, USP with $10B in the bank, even with a manual search could fly under the radar as long as he has none of the incidia Mopsick mentions, but will receive a request for self-certification (not mentioned by Mopsick) by the bank:
‘Thus, this rule seems to require that the Partner FI ask for residency and citizenship information and, more importantly, ask whether the person has dual citizenship (one being U.S.). The rule further provides that the Partner FI must confirm the “reasonableness” of the self-certification based on the information it obtains under AML and KYC. It does not, however, provide details regarding how this determination is to be made nor does it provide information regarding what a Partner FI should do if it cannot confirm such reasonableness. Given the subjective nature of this determination, compliance with the requirement is likely to vary significantly from Partner FI to Partner FI.’
In other words, the customer with accounts exceeding $1M can lie if asked if he has US citizenship (no mention of US permanent residency). Hardly seems fair to those of us who are ‘overtly’ USP’s. Discrimination based on wealth levels and birth place and still sees the whales getting away. What a sham of program.
Yes, a sham, trapping many!
FOR ME, THIS IS KNOWN AND COULD EASILY BE KNOWN FOR MY SON.
SAME AS (1) FOR ME.
SNOWBIRDS HAVE US ADDRESSES?
SNOWBIRDS HAVE US TELEPHONE NUMBERS?