Our new friend, 30-year IRS veteran, Steven Mopsick, has been a really good sport. He’s defended the orcs of Mordor, his former colleagues at the IRS fearlessly, and he’s taken our abuse like a trooper. He’s asked me if I wanted to put up his new post on FATCA, and I said to myself, why the heck not? Meanwhile, go have a look at his blog, especially this little piece, called FATCA Red Herring, which starts with this whopper, “For all the groaning about FATCA, there is one ‘red herring’ which should be given the lie right away, and that is the silly notion that FATCA is an attempt to force the application of U.S. law on foreign financial institutions.” Well, if nearly 400 pages of orcish regulation isn’t an attempt to force U.S. law on FFIs then I don’t know –but wait, these regs still hadn’t come out when Steven wrote that post–so you’re off the hook, Steve–I am being unfair.
Again, caveat emptor! The Isaac Brock Society maintains a non-endorsement policy of tax-professionals (see here). Also, please read not just the post, but the full comment stream.
New Rules For Foreign (Non-American) Banks with American Clients
by 30-year IRS veteran
With the publication on February 8, 2012 of the FATCA bank withholding regulations, it is clear that the FATCA train has left the station. The 400 pages of new Regulations would apply to almost every non-American bank in the world if they wish to continue to do business with American clients and financial institutions.
How FATCA works in a nutshell. The impact of the new law is two-fold. Americans with assets outside the United States starting with their 2011 tax returns, now have to disclose to the IRS, all of their foreign financial assets exceeding a specified dollar threshold, including their non-American bank accounts.
For non-American banks with American clients, they must agree to become a “withholding agent” of the United States government through the IRS, agree to an IRS review of their internal procedures, file an annual tax information return with the IRS disclosing the names and ID numbers of all their American clients, and if the American client refuses to cooperate with the bank, close the account immediately.
As part of a worldwide effort to stop Americans from using offshore banks and other financial institutions to cheat on their taxes, it was also announced on February 8, that five European countries including Spain, are working toward sharing certain data bases so that the European countries can benefit from FATCA and catch their own people who are cheating on their taxes, as well as European bankers and advisers who have been counseling American investors about how to evade taxes by using European banks and other entities. What is significant about the European announcement is the FATCA concept that participating European banks in those five countries will soon be able to give their information on American account holders TO THEIR GOVERNMENTS instead of directly to the IRS. Banks in those countries may soon be relieved of the requirement of entering into a separate agreement with the IRS. Their governments will turn over their records on their Americans and their banks will not have to deal with the IRS. We believe this creates a huge advantage for banks in those countries and we predict a scramble in other western countries to become part of that elite group of countries which are working hard to implement FATCA.
DETAILS ON THE NEW REGULATIONS AS THEY APPLY TOFOREIGN BANKS AND WHAT IS COMING UP NEXT.
The Regulations published on February 8, 2012, reflect the IRS response to the many comments the IRS has received from banks all over the world over the past several months. Most banks today have been very busy making changes to their IT systems to identify their American customers and comply with the new FATCA rules.
The IRS announced a formal comment period on the proposed Regulations which closes on April 30 of this year. Banks with concerns about the implementation of FATCA should participate in this process by submitting comments. Following the comment period, there will be a public forum on May 15 in Washington, D.C., at which time banking institutions will have another opportunity to talk directly with the IRS and raise any concerns they may have on how the processes are supposed to work.
Some foreign bank compliance officers with whom I have spoken have confirmed they are busy revamping their systems to get ready for the new rules which will be summarized below. Foreign banks which are inactive, waiting for further direction from domestic ministries or fiscal agencies are losing precious time and are doing so at their extreme peril. Moreover, even if the deadline to apply to be a withholding agent for the IRS is postponed again, those foreign banks who are late getting in their paperwork are going to cost their shareholders and owners money because of lost business, direct liability for the taxes they should have withheld, and attorney and accounting fees to straighten the mess out with the IRS once the bank fully complies.
Here is what each foreign bank must do if it wishes to continue doing business in the United States’ financial arena
A participating bank must agree to become a withholding agent of the IRS and
(1) Report certain information on an annual basis to the IRS with respect to each U.S. account and other accounts controlled by Americans and to comply with requests for additional information with respect to any U.S. account.
(2) The information that must be reported with respect to each U.S. account includes: (i) the name, address, and taxpayer identifying number (TIN) of each account holder who is a specified U.S. person (or, in the case of an account holder that is a U.S. owned foreign entity, the name, address, and TIN of each specified U.S. person that is a substantial U.S. owner of such entity); (ii) the account number; (iii) the account balance or value; and (iv) the gross receipts and gross withdrawals or payments from the account .
(3) The bank must obtain a signed waiver of its American clients’ privacy rights, if any, in that foreign country.
(4) If the American depositor refuses to cooperate, the bank must close the account.
All banks which decline to participate in the program will be at risk for a 30% withholding tax on certain defined transfers of US source income to them. This includes pass through payments of US source income to, or from other foreign banks who the IRS determines are non-Participating Foreign Financial Institutions.
ONE OF THE MOST IMPORTANT POINTS IN THIS PAPER IS THE FACT THAT FATCA APPLIES TO TRANSFERS OF US SOURCE INCOME BETWEEN FOREIGN BANKS; IF JUST ONE OF THE BANKS IS NOT PARTICIPATING, THE WITHHOLDING REQUIREMENTS APPLY.
In today’s world, a banker cannot do his job properly if he does not ask whether or not FATCA applies to every single transfer of funds involving US Source Income to or from a bank which is not a U.S. bank.
I have extensive information on the implementation dates, the rules for identifying Americans from amongst other depositors, streamlined rules for affiliates and branches of banks, the circumstances of how a bank might qualify as a “deemed compliant” bank which permits certain relief from some of the administrative burdens, key definitions, record keeping requirements, how the Anti-Money Laundering and Know Your Customer rules operate within this arena, the treatment of certain life insurance policies, and the potential liability of the banks themselves for the payment of withholding taxes which were not correctly reported.
The newly-published rules also announced a relaxation of the threshold for rules which are specifically targeted toward Private Banking and personally against Private Bankers.
Banks all over the world have realized that compliance with FATCA is simply the cost of doing business in today’s computerized, modern financial environment. Please feel free to share my summary of the new regulations contained herein as you deem appropriate. Additionally, I am available for consultation, which can be arranged by contacting my office.
@ immigrant: Why would they bother using their resources to prosecute people when they scare the hell out of them so that they line up into the OVDI to give their money to the IRS? This is bullying. One question I have for you: how do you know that no grandmas have entered the OVDI? I bet you some have, and that they don’t even use the internet so that they don’t know about the Isaac Brock Society and that there are people fighting the extortion. IN FACT, I bet you that half the Canadians who have entered the 2011 OVDI are grandmas. Prove I’m wrong!
Remember, Steven worked for the IRS. He is buds with them. He believes we are just make this stuff up and that all the problems that we are talking about our just in our imaginations. He’s not the last guy I want fighting for me, but he isn’t necessarily the first either.
@Petros – you may be correct. There is a good possibility that some of those grandmas may have entered the OVDI if not due to the posturing of IRS then atleast due to the lawyers, most of whom are hell bent on pushing all and sundry into this program.
My question was more on how can we direct this energy we have in this board and make our voices heard at the right corridors so that something positive comes out of it. Other than taking it with the Canadian Govt or representatives Do you or others have a suggestion?
@anon-immigrant,
Indian Immigrants/Indian Americans Association tried to work with IRS and it did not work. IRS won’t change its policy on OVDI. Instead, they want you opt-out. A lot people don’t have the guts to face wide range of FBAR penalty.
While expats have support from their countries of residence (they pay full tax there) immigrants will have hard time to sell their stories.
American public may see us to take advantage of the country but not to share the responsibility.
@anon-immigrant,
Also, IRS does try to scare taxpayers with FBAR penalty on the table, as it is listed on FAQ to compare in lieu penalty with possible FBAR penalty.
So far, we have not seen anyone who has been imposed FBAR civil penalty except those who have been criminally prosecuted — in the plea deal.
So, it would be interesting to see how FBAR penalty is imposed on grandpa/grandma and immigrants/expats who have never tried to hide money offshore but just fail to report (I mean hiding money using entity or something like that)
@anon-immigrant
If it’s a petition you’re looking for, there’s one here:
http://www.signon.org/sign/repeal-fatca?source=c.em.cp&r_by=188650
It’s a good effort, but I fear it’ll be ignored. Just like every other similar representation has been in the past.
As ij says, all attempts to reason with US policymakers have gone nowhere. The situation for US citizens abroad and for non-citizens immigrants into the US is now worse than ever, even though American Citizens Abroad, AmCham and others have fought US policy for years. I have tremendous admiration for their efforts. If it were me I would have given up long ago, since plainly nobody is listening.
This site arose precisely because other conventional methods to solve the problem have failed. To borrow Petros’ phrase, it’s the “line in the sand”. The point where reasoned discussion begins to turn into concrete resistance.
@steven: “But that fight has to be fought according to a set of rules, almost every one of which has at one time been the subject of challenge and litigation, yet another example why we are a country subject to the rule of law.”
While you might like that to be so, it simply is not. There has been no challenge to or litigation on HEART. Ditto FATCA. Not just that, but neither was there was any legislative discussion over these. Both were simply “robo signed” by a congress interested only in demagoguery and spite. Four years ago I asked my congressperson directly if she had voted for HEART. She first claimed no knowledge of it, and then later claimed she had not voted for it. Her voting record shows that she did. Representation?
In the area of international tax, if not taxation in general, the US now quite well fits the description of a mobocracy. That is, the tyranny of the majority over the minority.
@ Watcher You have a representative? Did you know that US expats are residents of District of Colombia for tax purposes? DC has no representation. It is deemed constitutional by the Supreme Court.
@Petros: “You have a representative?”
I did have. Four years ago I was living in the US. I left when I saw what HEART was going to lead into. First erect the fences, then skin the sheep.
@watcher, Thanks. Your representative was incompetent, like most in Congress today.
I can understand your reluctance to tell too many details of your situation. I am living in Canada. I began preparing to relinquish as soon as I heard about HEART. All it takes is for the US dollar to be hyper-inflated and then suddenly people living overseas with only a modest amount of wealth are covered expatriates. Indeed it is already happening. Own a house in a major Canadian city, it could be worth a million US even though you paid much less than that for it. Our house, a starter home in the GTA (Toronto area), is worth over $400,000 whereas we paid half that for it in 1997.
Were you already the citizen of another country or are you taking the sovereign investor route and fleeing before the ship sinks? I’d be happy to hear the details.
The other day I said at the Globe comment session that I did not know anyone at the Isaac Brock Society who had recently left the US with their wealth–that all of us, that I knew, were already long term expats. You would be, my friend, the first who has surfaced. Welcome. I hope more people like you would follow us and talk to us.
Watcher I love that term “mobocracy”.
In 2011, 12% of millionaires in the US were audited (that’s double what the rate was under Bush).
In 2011, 1% of people making under $200K were audited.
The IRS response to the above stats was that the high ratio was part of an effort to demonstrate that tax laws are applied fairly.
What is the IRS smoking? The statement of the IRS is the opposite of what a normal (non US, non mob mentality) person would consider fair.
The IRS has been engaging in unfair audit practices and has the audacity to defend it by saying it was necessary to be fair.
No wonder ther rich are fleeing. They’re being targeted by the IRS which is being encouraged to do so by the mobs.
You can’t discriminate in the US unless the person you are descriminating against is a millionaire. America has clearly lost it’s way. They used to love millionaires.
With a President that daily demonizes the rich, can you blame them for wanting to leave the US?
@steven: “I also know that many of you are basing your opinions on misinformation and I will continue to speak out about that. For example, you just don’t get a bill from the IRS for estate taxes. There first has to be a legal notice of an audit….”
Who said anything about an audit?
A US citizen living outside the US is quite likely to be married to a non-US citizen. If the former dies, there is *no unlimited marital deduction* in US estate taxes for non-citizen spouses. So the US might seek to collect a chunk of a *non-US* estate, and in the process perhaps drive a *non-US* citizen out of their *non-US* home. No audits, no court cases. US law demands you fill in form 706 and send it with a check.
@steven: “In fact I would represent that family pro bono and take it all the way to the Commissioner of Internal Revenue…”
Let’s make this real, rather than hypothetical. A challenge. Please take on Calgary411’s case pro bono. Her story is here:
http://isaacbrocksociety.com/2011/12/14/my-story-calgary411/
This is somebody in Canada who is desperately trying to do the right thing, and whose every turn is blocked by US laws. Her developmentally delayed son is being denied rights in Canada to an RDSP purely because he is an accidental US citizen. He cannot renounce US citizenship himself, and she cannot renounce it for him. There is no escape. Each time I think of her story I find myself shocked and disappointed at what the US has become. You could certainly help here.
@ steven mopsick
I would like to ask a couple of questions – if you are still willing to hang in there with us!
1) Regarding the exit tax and Section 511(g)(3)B – submitting Form 8854 will not be required ” if the individual establishes to the satisfaction of the Secretary of the Treasury that the individual’s loss of US citizenship occurred before Feb. 6, 1994″. In your opinion, will the IRS accept this and not require submission of form 8854 and/or back tax returns and FBAR’s once an individual has obtained a backdated CLN? A lot of people are depending on this clause, including possibly myself, and I find it worrying because –
2) Nowhere in the instructions for form 8854 is this 1994 date mentioned and if indeed it is valid it would affect a lot of people. It seems underhanded to sweep these people who expatriated before 1994 into the exit tax regime without telling them all the facts. It is unreasonable to expect individuals to either comb through tax law themselves or hire a professional to do it for them. Surely, if this Section is valid, the IRS should make that clear in their instructions.
Again, we appreciate your participation in this forum.
@Watcher. Thanks so much for your challenge to Mr. Mopsick and for your continued support, which in addition to education is the value of the Isaac Brock Society site.
I agree my issue, or more importantly the bigger issue for all families in this situation …
(and many not yet knowing it; many with no voice; many with no extra dollars to hire expert counsel for help — they are too busy doing so many other things for their disabled family member on a day-by-day basis and just putting food on the table)
… needs to represented.
In fact yesterday I committed another amount of my retirement savings for further representation for my son to be able to renounce his “accidental” US citizenship (although what I define as his citizenship and what the US defines as his citizenship differ).
I am also sending letters today to my government representatives, asking if it is appropriate for families in my situation to be paying these sums for our individual problems. Can my Canadian government representatives tell me what they are doing to provide protection to these Canadian citizens who are discriminated against by virtue of their US citizenship (in my family’s case with my son, born in Canada, raised in Canada, never registered with the US, never lived in the US, never received any benefit from the US).
My thank you letter for the meeting I had yesterday included this information:
“Attachments:
1) Alberta Assured Income for Severely Handicapped (AISH) trustee Appointment for mom for financial matters for son
2) Disability Tax Credit Certificate for my son (see page 6 for “mental functions necessary for everyday life, markedly restricted since 1979 diagnosis; page 9 for physicians certification, marked “not likely to improve”)
3) Registered Disability Savings Plan (RDSP) Application for my son
4) RBC Declaration on AISH Trust Account for my son (me as, financial administrator / trustee for distribution of AISH monthly payments)
Information and links to:
1) RDSP (Registered Disability Savings Plan)
2) AISH (Province of Alberta’s Assured Income for Severely Handicapped)
3) PDD (Province of Alberta’s Persons with Developmentally Disabilities and the services they provide, including my son’s accommodation, which is a shared “supportive roommate program” in a home setting. My son thrives in being somewhat independent of his mom, but visits his family home often, almost every weekend.
4) The Venturer’s Society – his Monday through Friday experience, working in the foothills of the Rocky Mountains at Camp Horizon that provides many camp experiences for people with all types of disabilities, maintaining provincial parks in the area, etc. He knows that his work is valued by many – and he is a hard worker, gaining self-confidence each day. For this, he receives an honorarium of $115/month.
These are services in place for my son in Calgary, Alberta, Canada. Can the US provide something of the same value for him and assure that all of his medical needs (in addition to his perceptual and developmental disability — asthma, attention deficit disorder, hereditary hemochromatosis — are looked after)? It’s my opinion the US cannot. (I absolutely know if I were a single parent in the US as I had been here for many, many years, I would have been a welfare mom, if only by virtue of pre-existing conditions for myself and my son — I would not have been a contributing member to the society I lived in.) And, of course, Canada is where his mother, his sister and his step-father reside, and he needs to be here, with us. I have planned so that when I am gone, my son’s life can go on somewhat seamlessly. All the US tax and reporting compliance, with the cost and stress of administration, detracts markedly from Joel’s quality of life and I can almost assure you that his regard for himself would suffer – someone else (and there have been many) saying that there was “something wrong with him”. Why is any of this necessary?
Thanks again for representing my family’s story.”
@Mr. Mopsick — is this your definition of martyrdom?
@Calgary411: I am sorry you are having this turmoil in your life. As you know, my area is solely federal taxation so unfortunately I cannot advise you on anything else, but it seems the tax issue is the fact that according to your understanding, gains realized by an RDSP are subject to tax and therefore your son loses the benefit that other Canadian citizens with a disability receive under these same plans. That benefit would be, the ability to grow a portfolio of securities without having to pay tax on its annual earnings. Am I correct?
If you would care to contact me privately I would be happy to talk to you about pro bono representation. My approach at first would be to contact IRS experts in the National Office in Washington and verify the federal tax treatment of an RDSP. If there is a Congressional statute to blame for the inequity, we would then verify under what circumstances the IRS may make an exception.
If there is no statute or regulation which denies the tax deferral, I would then consider applying for a Private Letter Ruling and argue, if the plan so provides, that the substance of your son’s plan is equivalent to the US plans which do permit the tax deferral.
Please let me know if I have not fully undrestood the tax issue.
30 Year IRS Vet
@highjacked2012,
Where does this come from ? “Regarding the exit tax and Section 511(g)(3)B – submitting Form 8854 will not be required ” if the individual establishes to the satisfaction of the Secretary of the Treasury that the individual’s loss of US citizenship occurred before Feb. 6, 1994”
I will have a better handle on your question once i know that.
30 Year IRS Vet
@watcher: your facts are a fantasy, right? You know of no case where the IRS is trying to kick a widow out of a house in a foreign country because she was married to an American. Or are you talking about a widow who is an illegal alien living in an American house? Also, no one simply files an estate tax return, sends in a check, and then just rolls over lets the IRS have its way with them.
Petros says we shouldn’t make jokes on this blog!
30 Year IRS Vet
Steven,
You are a stand up guy. I am impressed with your willingness to engage. I do think you should reconsider that lack of opinion on Citizenship taxation, as that is core to much that is wrong with IRS practices these days, but your offer to help Calagary411 is duly noted and appreciated by me. Thanks for continuing to comment here. It keeps this blog balanced and reasoned which has been Petros’s desire if I can so boldly speak for Petros! 🙂
@ Steven
Reposting an interesting article for comment – how does the authors’ conclusions match your own experiences & opinion?
RE: US TAX COLLECTION IN CANADA
Final & summary paragraph from a recent legal opinion article.“US Tax Collection in Canada”, published in “Canadian Tax Highlights” Vol. 19, Number 9, Sept 2011-10-14
Canadian Tax Foundation.
Article documented the difficulty of enforcing US tax claims in Canada:
– Canadian courts have not enforced US tax revenue claims in Canada
– Canadian courts also very unlikely to enforce FBAR penality
– Under the Canada-US tax treaty, Canada Revenue Agency cannot collect US taxes from Canadian citizens, unless the tax claim proceeded their date of citizenship.
Final paragraph:
“In summary, a Canadian citizen need have little concern about the collection of US tax, interest, and ancillary penalties. However, a US taxpayer who is a Canadian resident and not a Canadian citizen and who owes US tax, interest,and penalties may face collection thereof by the CRA pursuant to treaty article XXVI A. It is extremely unlikely that Canadian citizens or residents will have to face collection of FBAR penalties, except in the very unlikely event that those penalties may be characterized as registrable civil judgments.”
The authors are: Erin L. Frew and S. Natasha of Reid Thorsteinssons LLP, Vancouver (tax law firm)
@steven: “your facts are a fantasy, right? You know of no case where the IRS is trying to kick a widow out of a house in a foreign country because she was married to an American.”
Well, no, they’re not a fantasy. What they are though is the very extreme of what can happen, and it’s certainly true that I know of no case where this actually happening — sorry if my tone was alarmist. The threat is however real enough that there are documented cases where US citizens have renounced purely to avoid it happening to them. Which of course may account for much of why it’s rarely seen in practice.
http://www.buteralaw.com/newsletters.asp?c=109&id=768
“One of the most important tools used in federal estate taxing planning is the estate tax marital deduction. This deduction normally provides for an unlimited deduction for any transfers made to the surviving spouse. Unfortunately, this deduction is not automatically available when the surviving spouse is a non-citizen. Currently, there is a unified credit of $5,000,000.00, which generally allows an estate of up to that amount (subject to adjustments for past gifts) to pass without estate taxes being imposed. Thus, currently the availability of the marital deduction is not an issue for estates valued at less than $5,000,000.00. However, if the citizen spouse has an estate of greater than $5,000,000.00, transfers to the surviving, non-citizen spouse at death would, unless otherwise planned for, be subject to tax.”
Some years back the credit was $1mm, which would have captured a lot more people. And it might well be lower in future. US estate tax captures all a deceased US citizen’s assets, both inside and outside the US. As a home is many people’s major asset, it’s not hard to foresee circumstances where the only way to raise cash to pay a US estate tax bill is to sell it.
The article I quoted goes on to describe how a QDOT can get round the estate tax issue. Using a trust often means pre-death planning, though; not always possible. And a trust could of course lead to other issues of its own later on.
@steven: “Also, no one simply files an estate tax return, sends in a check, and then just rolls over lets the IRS have its way with them.”
I’m honestly not sure what you mean by this. The instructions for IRS form 706 are quite clear. You have to file it for affected estates, and on it you have to calculate the tax due yourself and attach a check when you send it in. More or less just like a regular 1040 (except for its sheer bulk). At this point you can perhaps hope that IRS won’t “have its way” with you. It seems more likely that they would do this if you in fact didn’t send in a 706.
@steven: “If you would care to contact me privately I would be happy to talk to you about pro bono representation.”
And I would very much like to add my thanks to Just Me’s. You are a thoroughly decent person to make this offer.
I realize that we’re often hard on you here — perhaps more than is warranted at times, shoot the messenger syndrome — and I really do appreciate your involvement to keep us honest. From reading your early posts, it looks like over the time you’ve been here we have started to convince you that we may have a point. I certainly hope so.
FBAR, FATCA and so on appear, on the surface, to be justifiable anti tax evasion laws. That’s exactly how congress and the IRS paint them, and probably how they intended them. But these laws morph into something much more sinister when they intersect with US citizenship laws and the US’s unique policy of taxing based on citizenship. For every large scale tax evader these laws catch, there will be hundreds or thousands of ordinary people, like calgary411, who suffer significant harm from them while just trying to lead normal lives either in or outside of the US. That just doesn’t seem right.
@Stephen, as the messenger who has to suffer the arrows of the angry unintended victims of bad US tax policy, might I recommend to you some words from Victoria who often posts here…
I take them straight from her Franco-American flophouse blog…
“FATCA is a road to hell in the service of at least one good intention. The original purpose seems to have been to expose American citizens living in the U.S. who might be hiding taxable assets abroad. Somehow in the making of this law it escaped the notice of Congress that there are around 6 million “regular folks” (Americans who live and work abroad as teachers, managers, nurses, and so on) who are directly and adversely impacted by it. An American living in London does not have bank accounts there to evade U.S. taxes – he or she has them in order to be able do manage such mundane tasks as getting paid and saving for retirement or paying rent and buying food. One very concrete and unfortunate consequence of this law is that European banks are dumping customers with U.S. citizenship as fast as they can. I can only cringe as I imagine the reaction of an overseas Americans to the news that he is no longer a valued customer but an annoyance to be reluctantly, but firmly, cast off lest his bank suffer the unpleasant attentions of the American IRS.”
I might encourage you to read the entire post here, as it represents the feelings of those that you have come up hard against on this blog… (you are holding up quite well, I might add)
http://thefranco-americanflophouse.blogspot.co.nz/2012/01/2012-diaspora-tax-wars.html
PS… Victoria, I hope you don’t mind, but you are more eloquent than me! 🙂
@Steve,
Even US citizenship taxation is a long standing law, FATCA ( and enforce FBAR, as well) should be only limited to US residents if the goal is to track/crack down those who hide assets offshore for tax evasion.
The fact 5% penalty on US expats inside OVDI shows the true intent of IRS — they are after expats — as the majority US citizens who keep the money offshore are US expats as they live offshore as well.
As a US resident, I can see myself as a target of this crack down, but I can never understand expats are so explicitly included.
We have a well known Chinese saying
司马昭之心，路人皆知 (the villain’s design is obvious)
@ ij, “The villain’s design is obvious.” Exactly. This is what I’ve been saying to people. No matter how laudable you can make FBAR/FATCA sound as a measure to get back at tax cheats, the villain, the IRS, has shown that he plans to steal from anyone who will give him money. That is why our dear friend Just Me was handed a bill for $170,000 and they included his primary residence in the fine base. That is why the RRSP is included in the fine base. The IRS wants FATCA to be go after undisclosed offshore accounts at with 50% maximum fines, and they will include everything that they can in that fine base: RRSP, TFSA, RDSP, RESP, in addition to regular accounts; they want the retirement money of all expats around the world.
Steven is losing this battle. He’s coming off as a nice enough guy, but strangely, as a prophet of peace, “Peace, Peace” he says, when there is no peace. But he is not right. We know the true character of the IRS in the actions that they have done in the OVDI, and we know this too: they have promised to be ever more severe to those accounts which are revealed as a result of FATCA. We can only take them at their word.
This is why we need to strengthen what remains: our own countries can offer us protects. Perhaps its time for Canadians living the United States to return to Canada. We need to reach out to all the Canadians in the OVDI programs and get them to inform our politicians of how the IRS has extorted money from them, and from their RRSP. That steals from the well being of all Canadians, as the money in RRSPs is mostly invested in businesses here and creates jobs here. When the IRS goes after an RRSP it is an attack on Canadian businesses and Canadian jobs, and it pisses me off. It is time for Canadians, all Canadians, get angry.
@Watcher I have had a few conversations with my lawyer, who has handled cross border estates of his Canadian/American clients. His very words regarding the manner that the IRS handles these matters: “They don’t play fair.” This is just after he told me to get my accounts, including trading accounts and self-directed RRSPs, out of TD Bank, because its billions of assets gives the IRS leverage over them to get to me. Now, Steven, you may say my lawyer is a paranoid fearmonger: but this is what I can say about him: he never exaggerates, he is a man of few words, and he hasover 40 years experience in a Bay Street firm. I took my accounts out of TD and put them where the IRS won’t so easily find them. I’m sure I probably broke some law in the United States. I mean if Conrad Black sits in a federal prison for taking boxes out of his Ontario office, then what about me? Moving my RRSPs to where the IRS can’t easily find them? I probably broke a whole bunch of Bank Secrecy Act rules, and was probably supposed to fill out a hundred forms with penalty of $10,000 each for making a mistake. Wait till the Wegelin-type indictments come down against my beloved Credit Union!
司马昭之心，路人皆知 — yep.
@Mr. Mopsick. I want to thank you very much for your generous offer in taking up the challenge from ‘Watcher’ for representing my and my son’s specific conundrum. I do have representation right now so believe what you offer me would be, in part, duplication. If you would want to act pro bono act on behalf of “all US persons in Canada” on this issue, that would be a major step forward as RDSPs are not addressed in the CONVENTION BETWEEN CANADA AND THE UNITED STATES OF AMERICA WITH RESPECT TO TAXES ON INCOME AND ON CAPITAL (http://www.fin.gc.ca/treaties-conventions/usa_-eng.asp).
My goal is to extricate myself and (somehow) my son from any connection at all with the US, to remove myself and my family from the stress, the waste of precious energy in my and my husband’s retirement, the absurdity of time and expense for administering our compliance with the US IRS. I want to make sure we adequately comply and then I want release from the US, going forward. I have no desire to continue this year after year after year. I think, for our family and many others, it defies any kind of sanity or common sense. It is my opinion that neither I nor my family in any way benefit from citizenship with the US. It is our choice to live in Canada – for us, it makes no sense to have the burden of an extraneous citizenship, especially one that taxes on the basis of citizenship rather than most of the rest of the world – residency. Those are my beliefs; my reasoning; my wish to get off the merry-go-round my family has been on since I, incredulously, learned of my tax responsibilities to the US.
My reply is going to be lengthy, so I apologize to everyone before delving into this.
As said in my postings, I have taken my personal matter into my own hands and have used and continue to use my Canadian earned retirement savings and investments for engaging cross-border accountants, and US tax and immigration lawyers to determine how I can 1) make sure all of my US tax returns from 2005 through, currently, 2010 were filed; 2) make sure all of my US tax returns are complete (and I know they are not as my son’s Registered Disability Savings Plan (RDSP) was never mentioned to the CA doing my returns (my negligence!) since this Canadian registered plan came into effect as a tool for Canadians with who qualify for the Canadian Disability Tax Credit to save for as explained below *.
Once amendments have been made and I am sure that I am absolutely compliant with the IRS, it is my goal to immediately renounce my US citizenship (and you and most here know my story of having been warned I would be relinquishing my US citizenship when I took my Oath of Canadian Citizenship in 1975, along with the unwise decisions I made along the way to reverse that relinquishment. I realize all the mistakes I have made and won’t bemoan that here.)
* My son’s RDSP is not included in my or my son’s tax returns to Canada Revenue Agency (although it is a registered account with the CRA). He also holds a small amount in a Tax Free Savings Account, another account the US considers a “foreign trust”. There have been no US tax returns on behalf of my son, although I have filed CRA returns on his behalf each year. Of course, he would owe $0.00 to the US. I believe that I, as the Holder of my son’s RDSP, am the one immediately taxable for the Bonds and Grants that the Canadian Government has contributed to my son’s RDSP. The withdrawals he would make after the age of 60 (although he could do this sooner) would be taxable to my son. My son’s RDSP is intended as an alternative to saving in a Registered Retirement Savings Plan (RRSP) for his retirement as the RDSP does not affect a disabled person’s provincial benefits that do have a ‘non-exempt asset ceiling’ in qualifying for this provincial monthly benefit.
The RDSP is a long-term savings plan. The Canadian grants and bonds are intended to encourage savings and must remain in an RDSP for at least 10 years. Whenever money is withdrawn from an RDSP, all grants and bonds paid into the RDSP during the 10 years before the withdrawal must be repaid to the Government. Private contributions and investment income earned are not affected by the Assistance Holdback Amount.
When you have decided to access the money in your RDSP there are two ways to receive it:
• Disability Assistance Payments (DAP) –
o A withdrawal from the RDSP to the beneficiary
• Lifetime Disability Assistance Payments (LDAP)
o Regular withdrawals that must begin by the age 60 (but may begin earlier).
o Once started, LDAPs must continue to be paid at least annually until the beneficiary passes away or the plan is closed
Withdrawal Notes:
• The money in your RDSP can be used for any purpose
• Only the beneficiary will be permitted to receive payments from the plan
• Withdrawals from RDSPs are not considered as income and they will not impact federal assistance program Money paid out of an RDSP does not affect your eligibility for federal benefits such as the Canada Child Tax Benefit, the Goods and Services Tax credit, Old Age Security, or Employment Insurance
• All provinces and territories have announced a partial or full exemption of RDSP assets and income” or “RDSPs will have little or no impact on provincial and territorial social assistance payments.
• If the person has a shortened life expectancy (within 5 years) they can take out payments of any size.
I really do appreciate that you would consider applying for a Private Letter Ruling for my case. While I do want my case determined and that is my first goal, this is a matter that I want solved for all disabled US persons in Canada. You can substitute where I refer to “my son” with “all disabled US persons in Canada”. I don’t want my son to have special treatment – whatever is determined for him should translate to every like situation.
Yesterday I sent emails to Prime Minister Stephen Harper, Finance Minister Jim Flaherty, my Member of Parliament Michelle Rempel, the US Ambassador to Canada (who has been silent after asking Canadians to “sit tight”), the Canadian Ambassador to the US, NDP members who have actually taken a stand on protecting rights of US persons in Canada, asking among other things if they consider the amounts of money being spent by some of us for dealing with our tax issues with the US appropriate (and that many affected families cannot ever put this into their budget of expenses from their family’s Canadian-earned income). I also forwarded that correspondence in an email to the Minister responsible for Alberta’s Assured Income for Severely Handicapped and Persons with Developmental Disabilities, George VanderBurg, asking:
“Is the cost of administration for compliance of my son’s US yearly income tax returns and yearly Department of Treasury **Foreign Bank Account Report (FBAR) requirements as a US citizen an appropriate use of his Alberta’s AISH or PDD funding? (As an Alberta taxpayer, I would hope not!) **FBARs include all financial accounts (including his RDSP and TFSA which are taxable in the US and regarded as “foreign trusts” by the US, so benefit negated to him vs a Canadian without a US citizenship) when the aggregate amount is over $10,000.”
Once again, I wish to thank you for participating at the Isaac Brock Society site as I feel the point of view of professionals gives the site a broader perspective. You have certainly hung in there through our comments to you and you have my respect for that. On a personal note, I am humbled that you would consider representation of a particular aspect of my situation on a pro bono basis.
Would you consider representing the larger disabled population of Canada (and by extension other countries)?
@steven mopsick
Sorry that my previous questions were poorly referenced.
1) Regarding the exit tax – submitting Form 8854 will not be required ” if the individual establishes to the satisfaction of the Secretary of the Treasury that the individual’s loss of US citizenship occurred before Feb. 6, 1994″. In your opinion, will the IRS accept this and not require submission of form 8854 and/or back tax returns and FBAR’s once an individual has obtained a backdated CLN? A lot of people are depending on this clause, including possibly myself, and I find it worrying because –
2) Nowhere in the instructions for form 8854 is this 1994 date mentioned and if indeed it is valid it would affect a lot of people. It seems underhanded to sweep these people who expatriated before 1994 into the exit tax regime without telling them all the facts. It is unreasonable to expect individuals to either comb through tax law themselves or hire a professional to do it for them. Surely, if this Section is valid, the IRS should make that clear in their instructions.
Links are:
http://codes.lp.findlaw.com/uscode/26/A/1/N/II/A/877/notes
Under Effective date of 1996 amendment – (3) special rule (B)
http://www.unclefed.com/Tax-Bulls/1997/Not97-19.pdf
Under Section X, and
http://www.gpo.gov/fdsys/pkg/USCODE-2010-title26/pdf/USCODE-2010-title26-subtitleA-chap1-subchapN-partII-subpartA-sec877A.pdf
Under Effective date of 1996 amendment 511(g) (3)(B)
See also sidebar “Did you relinquish before Feb. 1995”
Thanks so much for your help.