Barrie McKenna reports about the negotiations between Washington and Ottawa to “temper” FATCA’s requirements, through a government to government sharing arrangement. Barrie called me yesterday looking for a reaction. I hope the quote is pleasing to everyone:
“The idea that any of our financial information would be given to the IRS is an abomination,” said Mr. Dunn, 48, who is in the process of giving up his U.S. citizenship and filing back taxes to end his obligations to the IRS.
In any case, that’s the right reaction. As a sovereign country, why should we give the United States the keys to the financial wealth of our residents? Here was my reaction in the comments section:
Thanks Barrie. I am in the process of expatriation, the tax portion (filing final tax returns and the Form 8854 exit tax form). The State Department portion is already done. I received a bonafide Certificate of Loss of Nationality, which I can now show my banks so that they are no longer obligated under FATCA to divulge my account information to the United States. This seems to be the only way to protect oneself.
I think as I reflect about the situation, the problem is simply this: Does Canada want to protect her tax base? Then she should not reveal account information of a single resident of Canada, whether a US citizen or not, to any foreign power, especially her neighbor to the South. It is not the right of the United States to tax the Canadian tax base. I know of a couple in Vancouver who sold their home and filed their US taxes and their US tax liability was in the tens of thousands. Why? Because Canada doesn’t tax [capital gains on] a person’s primary dwelling–it is one of the few tax breaks that we get up here: so that we homeowners can buy a new house with the money or live out our old age in a retirement home. It is an abomination that this couple should have to pay taxes on a house sale in Canada. This is a violation of the Canadian tax base.
And if our government allows FATCA to happen, then the million or so US citizens living in Canada will have to renounce their US citizenship as that will be the only way to prevent the IRS from pillaging their wealth through fines and taxes. Perhaps I should also mention 8938 and FBAR requirements, which subjects Americans with offshore accounts to exorbitant fines of up to 300% of one’s account balances? But then the Canadian government wouldn’t want to expose residents of Canada to that kind of draconian penalty base, would it?
Join as at the Isaac Brock Society (http://isaacbrocksociety.com ) to learn more of our efforts to fight this nonsense.
The US chases US citizens abroad with taxes and fines with laws like FATCA and yet the IRS “gives away” about $5B a year in income tax refund fraud.
It’s estimated FATCA will only generate $8B in ten years vs the estimated $50B the IRS will lose in fraud over a similar period.
US Congress – please clean up the IRS’s domestic performance before going out to ex-pats.
http://edition.cnn.com/2012/05/08/us/tax-refund-fraud/index.html?hpt=us_t2
Based on what I read in the comments, it looks like IRS is not even perusing 1% of the tax refund fraud cases to catch fraudsters and punish them. This crime is growing since odds of being punished are insignificant. Even the taxpayer whose identity is stolen can get the address on the refund check or his return (filed by a fraudster). The IRS is not pursuing the criminals and refusing to help the tax-payers to file a compliant with police.
@petros, you are correct, the tax liability is in the tens of thousands as was the associated penalty.
Can you still make an edit? ” I know of a couple in Vancouver,
never worked a day in the US, …”
great post @Petros, very well said re protecting Canada’s sovereignty and “Does Canada want to protect her tax base? “.
They should know also that the US claims rights to the Canadian sited estate of anyone they decide is a ‘taxable person’ even if the assets are all produced and sited in Canada, post-Canadian tax, and earned by a person permanently resident in Canada. That coupled with their ability to make expatriation onerous and costly, and their treatment of inheritance of a ‘US person’ estate in Canada – depending on whether the inheritors are US ‘persons’ or Canadian-only makes for another grab for Canadian assets inside Canada’s borders. Basically, they believe they own us from before birth (US citizenship lurking in our parents DNA), to after death.
Crime and open bribery is rampant in developing countries like India is because they are sure, it is unlikely they would be caught. If caught there is a good chance, they will bribe some senior politician and get away with slap on the hand. I hope USA is not going in that direction. The IRS must use more criminal investigating resources for reducing such blatant crimes rather than pursuing dual-citizens, who don’t own any taxes. The IRS must provide a safer way to become compliant by filing back-taxes plus interest, if any taxes are due.
Another interesting article – US and especially foreign banks seem to be in no rush to embrace FATCA. What does this mean? FFIs will wait for the US to pull the trigger and start withholding money? if the US starts interfering with the flow of capital, then the EU, BRICs and others will have to take action.
http://www.marketwatch.com/story/us-and-global-banking-execs-say-majority-of-banks-to-miss-fatca-compliance-deadlines-kpmg-survey-2012-05-09
YOU MUST go there and paste a comment!
http://www.theglobeandmail.com/report-on-business/ottawa-us-negotiating-change-to-tax-reporting/article2426950/
@petros, added my edit as an addendum to your comment (aka Honeebadger). 🙂
Folks who saw my post on Androclus and the Lion, that was not intended for this blog, but http://actapauli.wordpress.com. Apologies.
This is alarming. In an e-mail I sent to Jim Flaherty, I told him he should tell the US “Canada doesn’t negotiate with financial terrorists.” (I took that expression from OMG with her permission).
Why in the world would Canada negotiate any agreement with the US when CRA doesn’t know who is and who isn’t a “US person” and that term has no legal status in Canada? Plus, Flaherty has been clear CRA will not collect any penalties for failure to file FBARs for any Canadian citizen or resident and will not collect any tax liability for the IRS on any Canadian citizen even if that person was also a US citizen at the same time. So, why would Canada gather and report on information not required of any other Canadians?
What gives? It’s time to contact Flaherty again.
@Blaze, that leaves all those not free yet, and those working towards their application, and also there are many other penalties to fall afoul of other than the FBARs (ex. 3520 and 3520A). We don’t know how far that promise will stretch – or what exactly is a ‘tax’ liability vs. some of those other ‘reporting’ ones.
And what would be the method if there was a dispute about who was considered a ‘Canadian’ or not? I think that at least the big bank I know best, in case of any doubt that might impact them, would probably withhold and remit first, and wait for the individual to wrestle directly with the IRS if there was any question. After all, the bank has a big dedicated legal department, the IRS has a big dedicated legal department, and they can both out-wait, out-law and out spend a mere person. Who will burden and the onus of proof and compliance fall on? The weakest link – always.
No-one has ever, ever mentioned any dispute resolution mechanism, have they? Nope, it’s grab it first, and make the account holder try to figure it out. Again, the legal and tax professionals may cost more than the amount in questions – even if the account holder prevails in the end – they’re still out any fees to prove that.
We simply cannot win under these conditions – even if innocent.
And I’m sure the banks, and the US know that. ‘Might does make right’ in this arena so far.
@Badger: Agree, but I remain dumbfounded that Canada may be negotiating a government to government agreement. That is contrary to what Flaherty has been saying all along.
I would love to know the reaction of the other parties to this. As I said, it’s time to contact Flaherty and others again (although since his first reply to me, Flaherty has done a good job of ignoring my follow up messages).
@John… Good points and thanks for the links. Just catching up…