A reader sent me the following e-mail and eventually gave me the permission to publish it earlier this week. The IRS is hammering Canadian residents who they deem to be US persons. All Canadians should be aware of the hazard–that if we allow the IRS to shake down our people who happened to be “United States persons” it makes all the rest of us poorer because (1) it decreases our taxable base; (2) it reduces the total investment in the Canadian economy (destroying jobs); (3) it will increase the total tax burden on workers who have to pay the Old Age security for people impoverished by United States taxation of Canadians; (4) it is a very real threat to Canadian sovereignty because it is the exaction of tribute from Canadian taxpayers. We should all be very alarmed about United States extraterritorial taxation! We must put pressure on our politicians to nip this in the bud. Here is the story of one Canadian couple who the Godfather Douglas Shulman Barack Obama is shaking down:
Dear Mr Dunn,
Thank you for responding. This is our story. Any insight and advice you may offer us would be appreciated. I’ve been reading little bits of Isaac Brock for a while, and know a few people who contribute to it. It’s a wealth of information. Thank you for championing US citizens living everywhere.
To tell you a little about my husband and me, I came to Canada in 1968 at the age of 12 with my Canadian mother and 2 siblings. My husband was born in Canada and obtained a US citizenship card at 20 through his American father. I became a Canadian in 1996. Neither of us has ever worked in the US. I’ve voted in a US election once, regrettably to help bring in the individual whose party has brought this hell storm down upon us.
Our adventures in OVDI began last August when we read about it in the press. With only a week or so before the deadline to file for the 90-day extension, our priority was to first seek the advice of a US tax lawyer. We were told that ignorance of the law was no defense. After analogies involving boogey-men with chain saws from our well respected but exhausted lawyer, we decided to enter OVDI in order to become tax compliant at the first opportunity. Any misgivings we had were outweighed by the absolute terror of what our 51 bank accounts we had recklessly opened over the course of eight years would do to our nest egg; accounts we opened for our children, parents, businesses, mortgage providers, etc. Then there was the sale of our ridiculously overpriced house in Vancouver in 2008, netting us a capital gain and the FBAR penalty arising from it (apparently, the IRS has a claim on that nice little tax exemption gift from the CRA on the sale of a principal residence in Canada). For us, there was no consolation in knowing that the Canadian government would not collect penalties on behalf of the IRS against Canadians, we needed to be able to enter the US freely for personal reasons and do business with Americans bringing funds to Canada. Then there was FATCA. We felt it was better to be a low hanging fruit than to have them chase up the tree after us, and being angry with us for having to.
My first indication that something was rotten was when the deadline to apply for the 30-day extension was given another week because of hurricane Irene. I remember saying “there’s a storm blowing from offshore, but it’s not Irene. They’re overwhelmed and don’t want to admit it”. Other indications came just as we signed on to OVDI and were asked to turn over the names of those who helped us in our financial dealings. Also, by then I had done enough research to have an idea that something had changed, that other delinquent filers before us had maybe been given a pass. I asked our lawyer what was different. He said the OVDI’s Q & A. OVDI still looked better than $10,000 x 51. So be it.
Of course, the learning curve being the steepest since then, we began to have misgivings about our decision. We recognize the heavy handedness in how we’ve been dealt with as otherwise law-abiding citizens living in another country. The penny really dropped for us after reading Nina Olson’s report to congress. We’d been duped!
Over the course of this ordeal I’ve written appeals to politicians on both sides of the border, the US ambassador to Canada, the IRS themselves and have met with my MP John Weston. He said he was working hard on the issues facing duals in Canada and finally after many months of silence and my own theories of government media blackouts, I just today received a letter from him bringing me up to date on his efforts. In it he writes: “… The IRS at least acknowledged the unfairness of what it formally proposed to do in enforcing the FBAR…There is still uncertainty how the IRS will enforce the rules. While I am not completely happy with the aggressiveness and unfairness in the way the IRS has gone about its business towards Canadians, Canadians are at least in a better position than they were a few months ago…”
Not completely happy? His way of saying he’s disappointed. Better position? As far as I see, it’s more shifting sands coming from the IRS. There you have it, the MP who’s been designated to report directly to Minister Flaherty on issues effecting duals offering little in the way of encouragement and news of real progress for us.
We’ve been in contact with TAS. Our nice lady from the department that deals with international taxpayers said that she wasn’t able to formally open a file for us, as there hadn’t yet been a response to our submission. She did confirm, in no uncertain terms, that the IRS doesn’t consider ignorance of the law as an excuse for breaking it. Knowing a little about our situation she did give us hope, however, that we may be able to benefit from a first time penalty abatement. And there is the tax. John Weston had told us that Article XXV in Canada US tax treaty might exempt us from a capital gain in this circumstance. Our lawyer does not agree. I asked her if she would have TAS’s legal look into it. So that’s where we are right now. My question is: why is the IRS negotiating within OVDI when they said they wouldn’t?
I don’t know what direction the US is going to take on these issues. The IRS seems like it’s going to collapse under its own weight, and with all the bad policy coming out of congress things don’t look like they’ll get better any time soon. I certainly don’t think an apology is coming soon, either.
For us the whole process has been like going through the five stages of grief: denial, anger, bargaining, depression, and eventual acceptance. As difficult as that’s been, it’s not as bad as it would be if I was hiding without a voice and trying to keep one step ahead of the IRS.
Bubblebustin
@stevenjohnmopsick, I apologize if I was not clear. Our cross border activities are of a personal nature only, not business. My husband has a service company that creates a product for international companies. Monies deposited to his account are to cover the costs of production, and his fee. He’s had to illustrate to the IRS how the money is not his. He has reported all income earned in Canada to the CRA. He DOES NOT EARN INCOME IN THE US, we are not as you claim “actively engaged in business in the United States which generates income” thus had no reason to believe he had to report to the IRS. You don’t have to be living in the Yukon to not to have known this. Until last year we had no idea we as US citizens were required to report foreign income. We have never filed any US returns let alone any amended ones. As I mentioned, we have never worked in the US. The “income which was not previously reported to the IRS but that you now acknowledge should have been reported” was generated solely in Canada and paid to a Canadian company.
I never claimed to be an accidental American, as I said I moved to Canada at 12. But I did vote because I believed I had the right to. I don’t recall receiving any information with my ballot saying I had to report to the IRS. The only passport I had was old, and issued prior to 2003, or whenever it was they started notifying US citizens of their income reporting requirement on the last page. I’m sure there are thousands of US citizens who have that printed on the last page who will still plead “reasonable cause”.
Yes, we want free access to the US and anywhere else in the world to earn an income in Canada and provide jobs to Canadians. Being non compliant threatens the transfer of funds required to generate these jobs because the banking system requires them to go through the US.
@Petros: the title of your thread implies, “here comes yet another story of IRS deception and American arrogance and over reaching as seen through the eyes of a dual citizen who simply wanted to comply with the law but got bamboozled in the OVDI process.” It turns out it is the story of a taxpayer who senses she should be worried about something but is not quite sure what it is. In any event, what she is complaining about hasn’t happened yet.
Why didn’t you post a thread about how bad the tax burden is on hard working dual nationals because the US taxes it’s citizens on their world wide income.
Yet again, the Isaac Brock Society has chosen an embarrassingly bad poster child and is way off message.
30 Year IRS Vet
@stevenjohnmopsick. Correction: Instead of writing “My husband has a service company that creates a product for international companies”, I should have said “companies based internationally”.
Steven: you’re the one who is embarrassingly wrong. The United States has become the biggest overreaching tax pig in the world and doesn’t care what anyone else thinks. We are not off message and once again you are trying to defend the indefensible. I repeat the four points that I said at the head of this post:
The money that this couple has paid to the IRS belongs to the Canadian tax base, NOT the United States. It is part of our tax base up here. Your country is quantitatively the most corrupt nation in the world, using its enjoyment of a being able to print the world’s reserve currency to leech off the rest of the world. Now, it expects Canadians to pay into that corruption. That is an embarrassment. It is an embarrassment for the biggest pig in the world to be looking to enlarge its trough so it can eat up the wealth of other countries.
I adamantly refuse to acknowledge that I am “american” anything. I am a Canadian and I am ashamed of my former association with the United States.
@stevenjohnmopsick, the tax and penalties my husband and I have already paid is surely proof that what we are worried about has in fact “happened”. We at this point wish to avoid paying more because we have been mislead by the IRS, as confirmed by Nina Olson. Short of a miracle, I don’t see how this will happen without the assistance of TAS.
@Petros, thank you for your unconditional steadfastness on these issues. I still believe that our choice to look at the big picture was the best to preserve our way of life. Contrary to what others may think, it has been an extreme sacrifice for us to do so, but in the long term I hope will prove to be worthwhile. It’s easy for some to say “just don’t comply”, but when you look at the implications of that, non compliance can be the bigger sacrifice especially if it destroys your livelihood. In the meantime, I’ll continue with my efforts to end citizenship based taxation.
@bubblebustin In the end, this is not a private matter. Ok, each person is forced to decide, but eventually, Canada may have to do what Brazil did and forbid the payment of taxes to the United States. In the meantime, let’s hope that our own government officials will put their collective feet down on this shake down of US persons in Canada. I say again, the money that Canadian residents pay to the United States through this extra-territorial taxation is part of the Canadian tax base. We musn’t see this as a private issue, but a matter of national security and welfare.
@Petros, I agree with you totally.
I often come across the attitude, rampant among Americans living in the US, that the US’s taxation of all of its citizens is the sacrifice we all must make for our citizenship and the benefits of what that citizenship offers. I usually respond by first asking them what those things are. Some answers include access to consular services, emergency evacuation services (most don’t realize they will be charged for this), and as in the case of the above, unfettered access to US markets. I then ask them if I would or could be denied those things if I wasn’t taxed, as it is with all other nations excepting Eritrea. It’s a sort of elitism that many Americans believe that US citizenship should come at a premium, that it somehow must be better because the US charges for it.
@ Bubblebustin. One other reason for extraterritorial taxation I read on some blog was “protection by the US military in the foreign country.” Though born elsewhere, Canada is my country. So, that scenario doesn’t sound like protection to me. Sounds like invasion.
@ pacifica
If the United States wants tribute, we in Canada should insist that they take it the old fashion way: by invading Canada and stealing what they want as war booty and tribute. This way they have to risk the lives of their sons in order to extract tax revenue from Canada.
Why should Canada allow them to take this tribute without a fight? That’s why I gave this post the title, “How to exact tribute from a country without firing a shot” — We are making it too damn easy for the Yanks to steal from the Canadian tax base.
@pacifica777,
A US citizen is more vulnerable being kidnapped/killed/ by terrorists. The US foreign policy and the military operations are not doing a good PR job for American citizens living in foreign countries. On the contrary, US government should compensate its citizens for their own protection costs -:)
@All
It was recently said to me that ‘perhaps all Canadians should pay tax to the U.S., as they defend our common border’. You don’t want to know what my retort was – not fit to print.
@tiger…I think that actually hurt my brain.
I have a distant relative who lives in the US but is a dual citizen. She said when she travels internationally she uses her Canadian passport because she receives much better treatment from foreigners that way.
Hello,
I entered OVDI 2011 and have paid back taxes and interest. Have not heard from IRS yet. I had income in India on assets that I inherited. The taxes for these were fully paid in India and these were in non repatriable accounts which were subject to restriction on transfer to US. I had not realized the implication of this in the US.
I am considering opt out. I see comments here from others about approaching the TAS, Any advise on how one can solicit help from TAS would be appreciated. I feel it is unfair for me to pay 25% penalty on inherited assets which were tax paid in India (at roughly the same tax rate) and not easily movable to US. At no point did I move my assets to India to save taxes from US. Thanks!
@OVDIMinnow
I am probably the one you have heard most referenced about appealing to the TAS.
The TAS has taken Minnow cases, and I can’t speak specifically for criteria of when they take them, but usually it is after all normal channels of appeal have been exhausted, or when they feel a grievous harm has been done. In my case, during the OVDP, I had asked for FAQ35 relief, and it was denied, and they were kicking me out of the OVDP if I didn’t accept their Penalty or if I didn’t Opt Out on my own. At that particular time, the Opt Out seemed very tenuous at best, and there was no reported cases on how they were being handled. Also, the TAS had not yet released its report to Congress, or had they issued the TAD which Shulman has so far failed to respond to officially..
Since you haven’t yet even been contacted by your Examiner, I would doubt that they would intercede yet, until there was a real impasse. So, you may have to wait and suffer more agony yet, sad to say. That said, you can always contact them and see what they say.
I have heard of one case where they agreed to assign a case officer before the person had been contacted by the OVDI examiner and before they had Opted Out. I am not privy to the exact reasons why they took that one, but it may have had something to do with mistaken guidance the person received about entering the OVDI and the huge cost they already had in attorney fees. I do not know the outcome.
If you want to read more about the TAS appeal and the experience, I have relayed most of it on Jack’s blog…
Taxpayer Advocate Service To Smooth the Rough Edges of OVDP 2009, OVDI 2011 and Offshore Accounts Generally (8/29/11)
http://federaltaxcrimes.blogspot.co.nz/2011/08/taxpayer-advocate-service-to-smooth.html
My comments started at… AnonymousAug 29, 2011 09:27 AM
Also, I have discussed more about how I came the decision to appeal to the TAS in my case study which is posted here…
http://isaacbrocksociety.com/2012/02/04/letters-to-shulman-or-a-case-study-of-ovdp-communication-attempts-with-the-irs/
In my specific case, when I appealed, I went directly to Nina Olsons office in Washington DC,, but I don’t think that is necessary.
Hope this helps, and best of luck. I know of many other reported immigrants in your situation, and the immigrant story and impacts are even less well known or discussed than Expat ones. A grievous harm is being done by the IRS zealots. A lot are falling victim to poor practitioner advice, I feel.
btw, I would definitely read Moby’s Opt Out, if you have not done so, as he has good arguments that you could use…
http://isaacbrocksociety.com/2012/03/10/moby-opt-out-update/
Also, I would read all of this….
http://federaltaxcrimes.blogspot.co.nz/2012/03/opting-out-2-3212.html
Hope this helps
@OVDIMinnow
Welcome. My heart goes out to you. We haven’t heard back from the IRS on our submission yet. Our experience with TAS has been positive so far, as a matter of fact of the few people I’ve read about going the TAS route after entering OVDI, no one has complained about how they’ve been dealt with. That being said, I would still run everything by your lawyer as you go. The woman we spoke to seemed to be really listening to our issues. She suggested we may be able to use the first time penalty abatement on our tax penalty as we had never been delinquent in our tax filing before-as we’ve never filed US taxes! Fax them with details of your submission (they don’t have an email that I’m aware of) http://www.irs.gov/advocate/article/0,,id=148099,00.html
Our case worker called us back within a few days. Have you read Nina Olson’s report to congress on the IRS’s handling of OVDI participants? It’s worth a read:
http://www.taxpayeradvocate.irs.gov/userfiles/file/2011_ARC_MSP%2012.pdf
Just Me and bubblebustin,
Thanks for your detailed response and pointers. Appreciate it!
@petros, in introducing me to Brock, I couldn’t help but feel chastised for having made efforts to become US tax compliant. My effort to do so, you say, make “all the rest of us poorer because (1) it decreases our taxable base; (2) it reduces the total investment in the Canadian economy (destroying jobs); (3) it will increase the total tax burden on workers who have to pay the Old Age security for people impoverished by United States taxation of Canadians; (4) it is a very real threat to Canadian sovereignty because it is the exaction of tribute from Canadian taxpayers.”
It has been foremost in mind to gain the ability to renounce through compliance. Were you required to pay tribute in order renounce, and if not, would the necessity to do so kept you from relinquishing US citizenship? It has been and continues to be a painful sacrifice for us, but it has been the first necessary step in becoming free.
@ bubblebustin
I want to apologize if I made you felt chastised. I do not intend to chastise individual victims for succumbing to the beatings of the abuser. Not at all. I am suggesting that our leaders in Canada, and all Canadians, should pay attention to this problem, because it is a threat to our collective tax base. That means we pull together as a nation and stop the abuser–not that we chastise the victim. I think one of the problem that many of us face is false guilt: we too often feel guilty for what the United States has done to us, when it is not our fault. We are actually the victims of this outrage.
For years I paid a nominal fee to have my US taxes done. I never owed anything. If I’d been faced with your situation where there was a capital gain on my primary residence, I doubt very much I would have even reported it–and furthermore, there is little chance that the US could ever find out. Fortunately, I’ve never sold a house. My stock sales have always had a offsetting Canadian tax, so that there would be nothing to pay even if it had been a large amount.
Many have paid thousands of dollars to come into compliance only to renounce. I’ve spoken personally to a few. It seems a pity, to have to put out such extravagant funds to IRS (rarely) and to the tax accounts and lawyers, when all you are paying for is to get the hell out of Dodge. I think this will cause deep and long lasting resentment against the United States. It affects me deeply, even though I’ve personally paid so little, because I feel that I have a significant likelihood of living in exile.
Thank you Petros, you have had some very kind words for me and I appreciate them. I can’t help but think that had you been given the same set of circumstances, you might
have perhaps made choices similar to ours. If the goal is to renounce/relinquish US citizenship there is really only one course of action to take, the one you’ve successfully navigated, congratulations. But to encourage non-complaince, regardless of how noble the reason, is to recommend a route that will never end in the freedom from having to pay tribute to a country that hasn’t earned it. It makes me absolutely sick that we have to give them a share in the profit of out house in Canada, when we never asked anything of the US throughout our ownership of it. But when we decided to come forward, we would do so in honesty or not at all. Not disclosing the source of a significant amount of income is simply suicidal in an audit situation. And that would put us in the same league as those SOB’s who landed all the expats in this intolerable situation in the first place.
I can’t wait until this is all behind me, because it weighs so heavy on my psyche and I think I’m getting battle worn and a bit strange. Some say I have Cadillac problems, they don’t see the persecution. You may not have had to suffer a huge monetary blow, but you’re just lucky and I suspect you would have taken a hit in order to be where you are today. There may be a long period of adjustment for you, not having this dragon to slay anymore (but feel free to continue for the rest of us!) I am curious to hear about your journey into the light, if you’d care to share it. You’ll be the encouragement some of us need to plow forward.
@ bubblebustin I am around. I may not post something every single day, but I’m not going to quit. Besides, I still have to sort out the IRS. They still think that they own me.
Also, don’t be too sure that I would have paid capital gains on my house to the United States. One major reason I considered relinquishing US citizenship was that I learned that TFSAs were subject to US tax. Also, it was whenI found out about HEROES (2008) and its exit tax that I decided to relinquish. I may not be super rich, but I hate paying taxes, if there is a way out. I have no qualms about paying cash for something, if that’s what someone wants. I grew up in Alaska. Washington DC was far far away and we didn’t really consider their sovereignty over us to be very legitimate. Some people even rebelled against the federal government. The majority resented it–especially the democrats because of D2 lands.
Even in an audit, I don’t see how the US government is going to find out. I’m not doing FBAR either, so they don’t know my highest balance in my accounts, which is none of their business, and if they want to know what’s in them, they better bring an armed special agent to my door with a specific warrant.
@petros I see you are guided by your principles, as I am by mine. We are all paying a price in some way or another. For us, it includes a great deal of our resources, for you, potentially your freedom to reenter the US. Time will tell whether the US will capitulate and let you go of their “ownership” of you. Imagine the precedent that would set if you are successful! Are you willing to live in purgatory forever? Thanks again for your unwavering steadfastness, and I apologize for not immediately recognizing you’re going for a greater prize.
@ bubblebustin Purgatory? I live in one of the best places in the world to live. The only thing is that I am loathe to go to the United States. That’s not really purgatory.
@petros, now if only the Canucks would win the cup!