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
Canada 1; USA 0
@Roger
FBAR is by far their biggest hammer in terms of monetary penalties but its handle appears to broken in Canada. Without FBAR the situation is no different from the many domestic US taxpayers who don’t file because they don’t owe any tax(even though technically they should)
I just lost a huge post I spent a long time on BECAUSE I WASN’T LOGGED IN. Grrrrreaaat!
This is why I keep saying this blog format sucks with comments. I’ve heard some people say some things are more user friendly than message boards or blogs. Go for it! Set it up!
@geeez
write your post on wordpad or word then copy and paste
The most beautiful document I’ve ever read!
I’m going to have it framed!!
Way to go, Gov of Canada!!!
@ Tim and all of the above
I second nobledreamer. Thanks for tracking that down and getting it posted. Is it too soon of me to be reminded of the 2010 Olympic final hockey game held here in Vancouver? Yeah, for the good guys!
@ALL
Finally there is a real document from a foreign gov. agency stating that FBAR fines will not be collected by them for the IRS. I suggest that we all send a copy of this letter to the tax agencies in our countries asking them what their stand point is.
Which is why I predict that the ‘son of FBAR’ FATCA form 8938 will replace FBAR as the IRS’s main bludgeon tool.
Obviously great news for those in Canada. What are the IRS baddies going to think when they see this though? Could they try and draw up a new tax treaty to force through FBAR collection penalties? I don’t mean to raise any false alarms – I’ve just become the absolute cynic when it comes to anything to do with the US government and taxes..
Reblogged this on Stop Unconstitutional Double Taxation.
The big problem now is FATCA and 8938. Although it is nice to know the CRA won’t collect FBAR fines, there are fines for “Failure to file” 8938. The only positive thing about the 8938 is that it doesn’t include accounts with just signing authority and it has a much higher threshhold, which will let some small minnows off the hook. However, although penalties are not tax, “failure to file” tax forms penalties (remember FBAR was not a tax form) might be closer to being considered tax. I would love to assume the same answer from the CRA would apply, but you can never assume
FBAR is not a tax law but part of the US anti money-laundering legislation. Congress however delegated the enforcement of the FBAR legislation to the IRS, even though it is not a tax law.
Geeeez wrote:
You can choose to stay logged into WordPress for days. The system will only boot you out (in my experience) every month or so. Or if you do not log in, then use a fake e-mail address. Also, if you lose a comment, try back back into it.
Yeah, I’ve lost long comments before on WordPress. But it is not the only web-based format that does that to you. I lost e-mails using web-based mail programs. I’ve lost documents using Word and other word processors too.
@Monalisa
I agree with you that the IRS will be focusing on “Son of FATCA”. Leaving aside the fact that it is (I believe) part of the IRC, it has no history of “lying dormant”. Also, the IRS (December 2011) FS has made an effort to publicize it. That said, it is still an “information return” and (at least in theory) the same arguments for non-enforcement (falling outside the scope of the treaty) should be made.
@all
In my mind, this triggers a much more interesting issue. Now, the IRS (at least according to the information form CRA) agrees that FBAR is not a tax issue. Now, if that’s the case, how does that factor into the form you must file when you renounce. If the FBAR is not a “tax issue” then this strengthens the argument that “tax compliance” for five years does NOT include “FBAR” (or for that matter any other kind of information return) compliance.
It has never been clear to me what is meant by “tax compliance” for the purposes of expatriation.
Finally, great to get confirmation of this – but, this is something we have always known. The problem is that this issue is now on the radar for future tax treaty discussions.
@all
Great research and persistence! Perhaps October 13 should become:
“Isaac Brock Society” day!
@All,
Another way around it, a bit convoluted, is to type your comment in Word and then cut and paste into the Comment at Isaac Brock. It will spell check for you, etc.
Wonderful news indeed! We’ve won a battle, but the war is far from over.
@Everyone
One thing to remember is in the response the CRA reiterates their position that they will NOT collect ANYTHING on behalf of the US on a Canadian Citizen. The thing they are saying with FBAR is because it is not a tax and is not covered by the tax treaty they won’t collect it on anyone Canadian citizen, permanent resident, temporary resident.
I am indeed pleased for Canadians. On the other hand, I believe the UK would be more willing to cooperate with the US, especially as they are among the five EU countries who’ve agreed to help enforce FATCA. However, I’m going to guess that the IRS will in almost all cases accept reasonable cause for past FBAR noncompliance though be very tough for failure to file 8938 when required to do so. It will also be easier to enforce a ten thousand dollar fine than one easily running into several hundred thousand if one had numerous ‘foreign’ accounts.
Since the US is blocked by this and they have to admit it, won’t it speed up the intensity of “border questions” and put us into the hands of the US? US persons in Canada certainly don’t have the same rights as those who have only the one citizenship – Canadian.
@monalisa1776, Do you have any evidence that the IRS has reversed its position that dual US citizens residing outside of the US, because they did not know they were even US citizens and thus were required to file these reports is not “reasonable cause” in the eyes of the IRS for having failed to do so?
Ignorance of the law in the US is never an acceptable excuse for failure to comply, as far as I am aware.
If so, then I am surprised there has been no effort that I have heard of on the part of the IRS to refund these $10,000 per year penalties to those who have already paid.
As has been reported on this blog paying this penalty for each of 6 past years has literally destroyed the savings more than just a few.
Ignorance of the law they are at liberty to change at their will, as we have seen.
And change it with no notice to those affected!
Renounce wrote:
Canada says it will not collect taxes on a Canadian citizen. So I would assume therefore, logically, that exit taxes takes place only after expatriation (i.e., after you renounce or relinquish your citizenship). So a Canadian who relinquishes citizenship would never have to pay an exit tax or fines for failure to file (8854) etc. because these are liabilities that the Canadian incurs only after having become a Canadian. This is relevant for me because I am reluctant, because of substantial hazard (Fifth amendment) and the fact that 8854, FATCA and FBAR are the equivalent of a general warrant (against 4th Amendment), to yield my constitutional rights and inventory my assets for the IRS. My view is if they cannot collect the fines and exit tax, then why should I yield even one inch to a country that I now hate because it has become my enemy? I wouldn’t even give that kind of information to a friend.
@Roger, I have no proof, that’s true though my accountant who deals with cases similar to mine has said that to her knowledge no quiet disclosures from expats have been clobbered with fbar fines so far, unless criminally related. I’ve also lurked on a couple of accounting forums which have said the same thing.
I realise of course that there is a long six year statute of limitations though. But as these are assumed to need a court case to enforce, I would hope they would only be applied in egregorious cases.
I am with you, Petros.