Mike Sullivan, MP, York South-Weston, has given his permission to share my email “conversation” with him.
My original email to Honourable Mike Sullivan, MP (NDP):
Sent: January 17, 2012 6:36 PM
To: Sullivan, Mike – M.P.
Subject: Fw: We need to make a priority the way RDSPs (as well as RESPs and TFSAs) are treated in the Canada/US Tax Treaty and taxed by the US
Dear Member of Parliament Sullivan,
I live in Calgary so am not represented by you. However, it has been brought to my attention that you were born in the US and, as such, I am interested in your views on this, personally, and for the constituents you represent.
- What are doing about your status as a US person in Canada?
- What are you doing in Parliament to fight the invasion of the US IRS?
- Have you been following in the media all of the IRS instructions and inequitable treatment to US persons in Canada and abroad, for yourself and for your US person constituents affected?
- Do you appreciate being painted with the same brush by IRS Commissioner Shulman as for real persons evading taxes that you are a tax evader?
- Do you feel that you and your ‘US person constituents’ are second-class citizens in regard to your choices for retirement savings, RESPs and RDSPs (should you have a disabled member in your family), cost of tax preparation, and loss of privacy to the US of your financial holdings?
It is interesting that I have gotten acknowledgements of receipt of the email below from only my MP’s (Diane Rempel) constituency office and the office of Finance Minister Flaherty, with no discussion from them of what their positions are on this or if and how they are proceeding on an issue that affects about one million of their fellow Canadians.
US persons in Canada, not tax evaders, but hard-working, tax-paying people in Canada, are either paying huge sums for advice and help from US tax lawyers and accountants to bring themselves into compliance for back US tax returns and FBARs; threatened into entering into OVDI, which means they are saying they are criminals with huge penalties; hiding their heads further in the sand and hoping and praying that this will go away and they will not be affected, but then afraid to cross the border to visit aging relatives and family; or choosing to renounce their US citizenships, for some at a very great financial cost (a good portion of them “Accidental Americans”). The stress this is putting on families is staggering. Where is the outrage?
You may be interested at the inequities pointed out in this link, just released by the Association of American Residents Abroad: http://aaro.org/position-papers-2011?start=1
Sent: Wednesday, January 04, 2012 1:53 PM
Subject: We need to make a priority the way RDSPs (as well as RESPs and TFSAs) are treated in the Canada/US Tax Treaty and taxed by the US
Finance Minister James Flaherty
Member of Parliament Michelle Rempel
US Ambassador to Canada David Jacobson
Canadian Ambassador to the USA Gary Doer
Dear Government Representatives,
The Canadian disabled population who happen to be dual Canadian/US citizens, many of them “Accidental Americans” who have lived in Canada all or most of their lives, are being very much discriminated against by the IRS of the USA. Holders and Beneficiaries of Registered Disability Savings Plans, until this is addressed in the Canada / US Tax Treaty*, last revised on September 21, 2007, http://www.fin.gc.ca/treaties-conventions/USA_1-eng.asp are not getting full benefit of these plans, which are in many cases used as pension plans for the better futures of disabled Canadians.
* Protocol Amending the Convention Between Canada and the United States of America With Respect to Taxes on Income and on Capital Done at Washington on 26 September 1980, as Amended by the Protocols Done on 14 June 1983, 28 March 1984, 17 March 1995 and 29 July 1997
This electronic version of the Canada-United States Protocol signed on September 21, 2007, is provided for convenience of reference only and has no official sanction.
Can you, Minister Flaherty, Member of Parliament Rempel, US Ambassador to Canada David Jacobson and Canadian Ambassador to the USA Gary Doer, advise what you are doing to make this issue a priority or advise me if the information below is incorrect?
As far as we know, the IRS will most likely consider RDSP’s a foreign trust requiring the standard reporting requirements (i.e. IRS form 3520/3520A and quite likely IRS form TD F 90-22.1 under the FBAR requirements) for U.S. citizens and residents that are RDSP plan holders. Unlike RRSP’s/RRIF’s held by U.S. citizens that are afforded a tax deferral under Article XVIII(7) of the Treaty, RDSP’s are not yet eligible plans for such tax deferrals for U.S. citizens or residents. As a result, RDSP plan holders and beneficiaries that are U.S. citizens or residents will not benefit from the tax deferral currently enjoyed by Canadian RDSP plan holders.
More importantly, the U.S. reporting requirement in itself may make it too difficult for U.S. citizens to be plan holders or beneficiaries of RDSP’s. Adding the RDSP to the agenda for Canada-U.S. Income Tax Convention discussions is critical for RDSP beneficiaries who are American citizens.
Hope this helps. If you require any further assistance, please let me know.
Mackenzie Financial Corporation
180 Queen St. W., 16th Floor
Toronto, Ontario M5V 3K1
It is more than unfortunate, in fact it is immoral, if this is not a priority for the Canadian Government to address with the USA as treatment of the RDSP by the IRS makes this vulnerable population, that happen to be US / Canadian dual citizens, SECOND-CLASS CANADIANS. They should receive, as other disabled Canadians, full benefit of the Registered Disability Savings Plan.
Kind response from Honourable Mike Sullivan’s Constituency Office:
Mr. Sullivan is currently out of the country, so I am taking the liberty of providing an initial first response to you. Please be assured I will bring your email to his attention at the first opportunity, likely to be after his Caucus Retreat at the end of January.
As I have never spoken directly to him about this I cannot speak to his position on some of your questions. Mr. Sullivan is a member of the parliamentary Canada-US Association and I am sure will be interested in your concerns and in corresponding with you directly. Certainly, it is an issue that is of great interest to him, as he serves as the deputy critic on Persons with Disabilities.
Thank you for writing.
Administrative Assistant to
Mike Sullivan, MP – York South Weston
A short note from Mr. Sullivan, as well…
From: Sullivan, Mike – Personal
Sent: Wednesday, January 18, 2012 02:36 PM
Subject: US abroad issues
This subject interests me a great deal. However I’m away from my office so will give you a more thoughtful response when I return.
Mike Sullivan MP.
Then, January 30th, from Honourable Mike Sullivan…
Sent: Monday, January 30, 2012 2:45 PM
Subject: RE: We need to make a priority the way RDSPs (as well as RESPs and TFSAs) are treated in the Canada/US Tax Treaty and taxed by the US
Thank you for your email. You and hundreds of thousands of other Canadians who have past ties to the U.S. are grappling with the situation of filing IRS tax returns and FBAR report.
That said, the IRS also recognizes that the profile of the issue has been raised around potentially hundreds of thousands of Americans not filing their taxes and FBAR. The IRS also states its purpose is to bring Americans abroad into compliance with their citizenship responsibilities.
The NDP strongly supports measures to crack down on off-shore tax evasion and avoidance, but believes such efforts must target criminal behavior and not innocent law-abiding citizens.
On December 14, 2011, at the initiative of Alex Atamanenko MP for the Southern Interior of British Columbia, who has been working very hard on this file, met with U.S. Ambassador David Jacobson, together with Peter Julian (Burnaby-New Westminster) NDP Finance Critic and Hoang Mai (Brossard-La Prairie) NDP National Revenue Critic in order to address the harsh penalties.
The Ambassador confirmed that while requirements to file will not be relaxed, there was an indication of a possible loosening of the interpretation regarding the application of penalties.
IRS December memo
In December, the IRS confirmed that U.S. and dual citizens who failed to file their annual income tax returns and/or file under FBAR or pay their tax may be exempted from paying penalties, provided that they are able to show that the failure was due to reasonable cause, not wilful neglect.
For further information, see the IRS memo “Information for U.S. Citizens or Dual Citizens Residing Outside the U.S.” at http://www.irs.gov/newsroom/article/0,,id=250788,00.html.
According to the U.S. Ambassador and the IRS memo, the IRS may consider reasonable cause for noncompliance to include being unaware of the requirement to file or pay tax.
The memo further states:
“Whether a failure to file or failure to pay is due to reasonable cause is based on a consideration of the facts and circumstances. Reasonable cause relief is generally granted by the IRS when you demonstrate that you exercised ordinary business care and prudence in meeting your tax obligations but nevertheless failed to meet them. In determining whether you exercised ordinary business care and prudence, the IRS will consider all available information, including:
- The reasons given for not meeting your tax obligations;
- Your compliance history;
- The length of time between your failure to meet your tax obligations and your subsequent compliance; and
- Circumstances beyond your control.
Reasonable cause may be established if you show that you were not aware of specific obligations to file returns or pay taxes, depending on the facts and circumstances. Among the facts and circumstances that will be considered are:
- Your education;
- Whether you have previously been subject to the tax;
- Whether you have been penalized before;
- Whether there were recent changes in the tax forms or law that you could not reasonably be expected to know; and
- The level of complexity of a tax or compliance issue.
You may have reasonable cause for noncompliance due to ignorance of the law if a reasonable and good faith effort was made to comply with the law or you were unaware of the requirement and could not reasonably be expected to know of the requirement.” (http://www.irs.gov/newsroom/article/0,,id=250788,00.html)
As for the RDSPs and TFSAs, the IRS treats them as foreign trust, they are not eligible for such tax deferrals for U.S. citizens or residents. Adding the RDSP and the TFSA to the agenda for Canada-U.S. Income Tax Convention discussions is critical for the numerous citizens holding these saving vehicles. We will look into this issue and discuss it further with our foreign affairs critic.
For further information regarding the U.S. Examining Process for FBAR, please see http://www.irs.gov/irm/part4/irm_04-026-016.html.
You may wish to keep abreast of developments through the U.S. Embassy in Ottawa website for Taxpayers Assistance at http://canada.usembassy.gov/service/taxpayer-assistance2.html.
I hope this information is helpful. Please rest assured that my New Democrat colleagues are hard at work to persuade the authorities to loosen the interpretation regarding the application of penalties, by broadening the scope of ‘reasonable cause’.
I hope you find the foregoing helpful. Please do not hesitate to contact our office if you have any questions or comments.
Mike Sullivan, MP, York South-Weston
My further questions to Mr. Sullivan, with bolded permission and caveats…
Dear Honourable Member of Parliament Sullivan,
Thank you very much for taking the time to reply to my queries. It is certainly an example of how a government representative should be responding to their constituents, and you are not even my MP, so I appreciate it very much.
I am pleased to know that your and your NDP colleagues will keep this issue alive in your quest to persuade authorities to loosen the interpretation regarding penalties and “reasonable cause”. Many are waiting to see the response to the Taxpayer Advocate Directive from the Taxpayer Advocate Service: http://www.irs.gov/pub/irs-utl/recommendations_tad2011-1.pdf. The TAS Report to Congress is most enlightening: http://www.taxpayeradvocate.irs.gov/Media-Resources/FY-2011-Annual-Report-To-Congress-Full-Report
I would like to ask permission to share the information you’ve provided me on http://isaacbrocksociety.com/, where a growing number of Canadians and US persons around the world are discussing this important issue? Your response to me is relevant.
[response] As for my personal situation, I came to Canada with my family as a very young boy and so my Canadian-born children are not, as you call them, ‘accidental’ Americans. I would have had to live in the US for 10 years, at least 5 of which after I turned 14, for that to happen.
Further, (You can use my info, with 2 caveats. One, I’m not exactly sure of the rules. I was told 10 years, 5 of which after age 14, but now am told 5 years, 2 of which after age 14, is what I had to live in the US for my kids to be accidental Americans. I left when I was 5, and did not return to live.)
I am very pleased that your children do not fall into the category of “Accidental American”. My adult children, born in Canada to US parents, are considered US citizens as many others in Canada, some of them not even aware of the status the US has given them. When they find out what their responsibilities are as such, it’s truly a life-changing moment.
[response] With respect to your question concerning MP’s born in the U.S., I note that there is currently no general prohibition on U.S. citizens’ running for an elected office in a foreign government. However, it would appear that “ accepting, serving in, or performing duties in a foreign government is a potentially expatriating act if the person is a national of that country or takes an oath of allegiance in connection with the position.” As a Canadian Citizen and a Canadian Federal Government Member of Parliament, I most assuredly took an oath of office and am proud of it.
Further, (As for the ‘certificate’ I have never had one, nor was I offered one. Apparently the law changed in 1967, meaning merely voting in a foreign election ceased to be a loss of nationality event after that date. And apparently if I want to lose my US citizenship, I must actively go to a consulate and do so.)
As you should be proud of it! Do you, though, have that important piece of paper to accompany your Canadian passport – your personal Certificate of Loss of Nationality? You likely have special status to cross the border without question, but many of us who came to Canada in the 1960’s and 1970’s and were warned that we would be relinquishing our US citizenship when we took our Oath of Canadian Citizenship did not know of and did not receive that important piece of paper. We were not informed by the US when they changed their laws that we were actually again US citizens. We were not given a choice to opt in or opt out. We assumed and lived our lives as only Canadians – working, raising our families, paying our Canadian taxes, generally trying our best to be good citizens, living in the country of our choice.
I appreciate that you are giving of your valuable time. Could you give your further response to the above? There are many taking note of the NDP position on this important subject.
Again, thank you.
(Mr. Sullivan’s response inserted into message above)