Busy night here at Isaac Brock Society but we have a response up from Government/CRA on their position on FBAR. Somewhat legalistic language and a lot of information we already know but I want everyone to take a look at it. Key points: IRS ADMITS FBAR is NOT a tax and IS UNCOLLECTABLE in Canada and CRA has NO obligation under the tax treaty to help the US enforce it against anyone on Canadian territory.
Some of the regulars over Jack Townsend’s blog may want to pass this along
@greyowl: I made a similar comment at Hodgen.com.
@monalisa1776, I am sure there are a number of cases in Europe of long-term US citizens and dual US citizens who have been clobbered with maximum non-filing penalties. And there was one early case of a Canadian in BC who had been born to Canadian parents in San Diego when they were students there. She returned with them to Canada as a baby-in-arms and never knew she had US citrizenship. When US immigration at the BC-Washington border noted her Canadian passport indicated she was born in the US, and asked for for her US passport, she only then became aware of her US citizenship. She may have been bullied into paying the 6 x $10,000 penalty for failing to file FBAR reports, and additional penalties for failing to file US tax returns, but she paid them. In her case “not knowing” was not an acceptable reason for failing to comply with US laws.
Banks all over the world are closing down accounts of US citizens because of the FATCA requirement that they violate the privacy laws, and in some cases even the constitutions of their own countries in revealing confidential information of their residents to the tax authorites of a foreign country.
I understand that at least one Swiss bank has opened a compliant-with-FATCA subsidiary just for US citizen account holders.. It has a requirement for maintaing a $1 million minimum balance and carries a $1,000 per month service fee. Not a very practical solution for middle class US citizens, dual citizens or those married to Swiss spouses and who live in Switzerland.
I would be very careful in assuming that the IRS will give anybody a free pass on this until there is concrete evidence to substantiate it.
Has anybody out there experienced this hoped for forgivbeness from the IRS? If so, please share it with us. Thanks much.
Hi All, I have a question about something related but a bit different. Say there is a Canadian permanent resident, who has a US passport, but has lived in Canada for 40 years and was unaware of the requirement to file taxes in the US. Say this person continues to file taxes only in Canada. Next step, say this person is reported through FATCA to the IRS. Now, the IRS says that if a person doesn’t file, “the IRS will file a basic return for you. An IRS-prepared return will not include any of your additional exemptions or expenses. The IRS will compute the tax liability and send you a bill for the tax that will also include interest and penalties..” However, this person has never earned income in the US, has no assets or bank accounts in the US. How could the IRS ever file a ‘basic’ tax return on them when they have no information on their income? Anyone have any idea on how this would potentially work?
@roger: “I would be very careful in assuming that the IRS will give anybody a free pass on this until there is concrete evidence to substantiate it.”
IRS 2011 OVDI FAQ 52 is a clue to the IRS mindset here. It sets a 5% offshore penalty on “taxpayers who are foreign residents and who were unaware they were U.S. citizens.” Given the people it’s aimed at, that would very likely be 5% of their ENTIRE worldwide assets, then. When looking for words to describe this, “generous” does not spring to mind.
I also believe it is wise to take the IRS seriously when it publishes a statement like this, rather than blindly trusting, even a very competent tax professional who may not be personally aware of what has happened to innocent trusing souls who can’t believe that the IRS could be so unreasonable as to do what it says in writing that it will do.
The IRS Commissioner Doug Schulman is dedicated to fulfilling his Congressional mandate of increasing US tax revenues from persons with US citizenship who reside abroad.
@Roger, I take back what I said because I now have learned to my horror that the an expat living in the UK has been hit with several years of fines after filing online delinquent FBAR from earlier years with the DOJ’s new online filing service.
I recently filed my 2011 fbar online since Fed EX couldn’t confirm courier delivery as the tracking code they’d given me was invalid. As I had over twenty fivr accounts and thus filed a short version of the form where i just list the number of accounts, wouldn’t be surprized if they use this more efficient form of filing as an easier means to audit people.
I just wish this nightmare could go away! Thankfully my delinquent fbars were filed last summer with a letter begging a waiver if penalties under reasonable cause.
What I meant to say was that my delinquent fbars had been filed last summer by post rather than filed online.
In the case of the fbar penalties given to this expat, I wonder if they were computer-generated though. Regardless, he’ll have to hire an expensive lawyer to clear it up (if he or she can).
What amazes me though is that there has been no outcry in th British press about any of this. It almost seems as though the media is being gagged by the government.
I’m double-commenting to get this remark from yesterday over onto this thread where 8938 has been getting some discussion.
Major points – pension counts on 8938. Self-defined minnows beware. Backfiling for 2010 required with 2011.
So glad to find someone else harping on the implications of Form 8938. There will be many middling fish that are much closer to a minnow than a whale. For now true minnows will dart through the 8938 net. Others will not – especially older persons who have a pension base that pops them over the $200K limit. Oopsie!
Notice that 8938 must be backfiled for 2010 as well as 2011. (1) In a few months, all those US residents of Canada who are not Canadian citizens can take no comfort in that universal protection from FBAR penalty enforcement, because extended reporting (now pensions as well) will suddenly become a direct IRS enforcement issue. (2) That FATCA speck on the horizon will vanish for anyone who is buried in the looming shadow of spring 2011 need to comply with 8938.
More news that no one is happy to hear.
I believe that backfiling the 8938 for 2010 only is required if using March 18 or later as the start of their 2010 tax year. The vast majority will file using the calander year so won’t have to start till the 2011 tax year.
My understanding is that form 8938 is only required to be back filed for 2010, if one’s tax year began after March 18, 2010. Most people have a tax year that begins Jan 1 so would only have to start filing 8938 for 2011.
sorry for duplicating your thoughts! You must have posted while I was typing!
The form proved highly confusing after multiple reads. I think you are right. At last some good news. If so few are affected, why bother with that transitional stuff and not just have everybody start with 1 Jan 2011?
Oh, right, this is the Infernal Ripyouoff Scam. If they can find ways to induce mistakes, then they can collect those juicy penalties.
So a hypothetical scenario:
Under FATCA your bank learns by some means that you are a “US person”. The bank approaches you and demands that you sign away your privacy rights so your name (and banking information?) can be submitted to the IRS. Under protest, you do this.
My question – is the bank’s obligation now fulfilled under FATCA? They have submitted the required information to the IRS. Will you then be able to continue your financial dealings as before? Of course you may have the devil incarnate (sorry, IRS) after you for the rest of your days, but if the government of Canada, as they have stated, won’t assist in collecting FBAR fines, 8938 fines, etc. etc. , and you have no need to cross the border your banking problem at least might be solved.
Certainly not a pretty picture, but just wondering how that would work. What do people think?
Personally I would not do that. If your bank demands a privacy waiver call a Canadian lawyer immediately.
I am going have more information on CRA’s position on FATCA soon for whatever its worth. My gut feeling is the US is trying to involve CRA as little as possible in this whole thing.
Is it a given since the Government of Canada will not collect taxes for the US on Canadian citizens after the date they became a Canadian citizen, this also applies to penalties for the new IRS Form 8938 — has the Government of Canada said anything about collecting or not collecting? They do say they won’t collect FBAR penalties on behalf of the US for either dual Canadian/US citizens or US citizens resident in Canada.
@Iamquincy has it right about 8938. If your tax year starts on January 1 your first year is 2011.
@Outragec: you are describing the “Substitute For Return” procedures in case you want to Google it or read up on it in the IRM (Internal Revenue Manual). Your instinct is correct. The IRS would not file a substitute for a return under your facts. SFR only works where the IRS is getting a bunch of 1099’s or other information returns reporting payments of US source income to a US Person but no tax return is ever filed by the US Person. FATCA or no FATCA, assume Canadian banks do roll over on outing their US citizens, it is most unlikely that a Canadian bank would ever have enough information on someone which would justfy the IRS to invoke the SFR procedures. It ain’t gonna happen.
30 Year IRS Vet
@Steve Mopsick, thank you. I’ve been concentrating on my Canadian citizenship status, but I do know people who’ve lived here just as long but didn’t bother with paperwork to become Canadian. I will google the procedure so that I have the information.
“The bank approaches you and demands that you sign away your privacy rights so your name (and banking information?) can be submitted to the IRS. Under protest, you do this.”
NO. You move your money out, forthwith, I repeat for the 20th time, to a credit union.
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