For those waiting for further analysis on the new IRS Instructions [Published on Friday, 07 September 2012 15:59 Written by Roy A. Berg JD, LL.M. (US Tax)]
If you are a US person residing in Canada and are one of the unfortunate few who does not have a graduate degree in US tax and who is not related to a cross-border US tax professional you may have missed filing one of the myriad of tax forms that are required every year (the failure to file of which can carry dire penalties). If this is the case, the IRS may have a new streamlined procedure just for you. The bad news is that few will likely qualify and those who do not qualify face serious consequences just for applying.
The new streamlined procedure went into effect on September 1, 2012. Click here to see the full text of the streamlined procedure. The program is designed for expats with simple returns and little or no tax due. But whether by design or defect, it threatens to entrap most of its likely applicants. For those who qualify, the new program may be a breeze. But for those who do not, and we suspect most expats will not, the streamlined procedure is a lot like a lobster pot – easy to get into, hard to live in, and harder to escape
Moodys Further Analysis: Completing the Questionnaire, or Entering the Lobster Pot.
Unfortunately the IRS has not given guidance as to which of the above-listed risk factors or combination thereof, will increase the taxpayer’s compliance risk, and therefore disqualify him from the streamlined procedure. Further, the questionnaire raises a number of extremely serious issues of which every taxpayer considering this procedure should be aware.
*Penalties are exactly what you need to fear. They are (or can be) grossly disproportionate compared to the transgression, and compared to how much US tax might be owed (if any). You can find all the information you need here at IBS to go to a US consulate & request a retroactive recognition that you relinquished your US citizenship back in 1980 (33 years ago).
My wife became a Canadian in 1983 & she requested and received a Certificate of Loss of Nationality (CLN) in 2012.
With that in hand, and to avoid again falling into an ill-defined status (re: US taxes), she’ll submit an 8854 Exit tax form certifying tax compliance for past 5 years by asserting “I was not a US Citizen so I had no reporting obligations”, and she has way less than $2 million in assets.
Who knows how that’ll fly. Everybody has to inform themselves and come to their own decision as to what course of action is appropriate for them. I know many at IBS assert (totally logically) that since in 1983 she had no legal obligation to report her relinquishment to the State Department, and since she did NOT leave for tax reasons, she met 100% of the requirements to no longer be a US citizen in 1983 and so the 2008 HEART act that calls for the 8854 exit tax form should have no bearing on her. But like I said – everybody must decide what to do for themselves. She wants the clarity of a complete, clean exit from the US tax system, and hopes to get it like this.
*thank you David for sharing your informative experience. I wonder about the risk of identifying oneself in this manner. We have just under 2million in assets plus about 100K per year in pensions. All pensions and investments are Canadian. All income was earned in Canada. The spouse that took out Canadian citizenship thought it was equivalent to renouncing at the time–pledging allegiance to the Canadian flag and never residing in the US since 1970.
*my spouse never voted in the US, never payed US taxes since the early 1970s and has not held a valid US passport since the early 1970s. All assets have been earned in Canada and are comingled with those of a Canadian born spouse who has never held US citizenship. Do we still need legal advice? Should we take the risk of renouncing?
@John green,
Yes — but not for renouncing. It appears to many of us here that you have in your family a case of RELINQUISHMENT. Please read here until you are clear of the difference between renunciation and relinquishment. Start at page three of the Consulate Report link here: http://isaacbrocksociety.ca/wp-content/uploads/2013/01/Consulate-Report-Directory-2013.01.03x.pdf. You need to determine for yourself what your spouse’s level of risk is — 1) being completely, legally out of the US with a Certificate of Loss of Nationality and no tax requirements from the date that Canadian citizenship was taken; i.e. CLAIMING THE RELINQUISHMENT — if your spouse has never done anything USish snce becoming a Canadian citizen, or 2) continuing for the rest of your lives wondering if the IRS is going to come after you after your bank somehow identifying you through FATCA — or some friggin’ whistleblower turning you into the IRS. It sounds bizzare, but it is what it is — unless the Canadian Government stands up and says NO to FATCA. It’s not a pretty picture. Your spouse does have an opportunity to prove being nothing but Canadian and getting the monkey off your backss / it affects both of you. In fact your spouse is in a much better predicament than most US Persons in Canada. Please, please read, read, read here and, yes, if necessary get advice from a competent US immigration / nationality lawyer. Please also read the link I provided you earlier: http://renounceuscitizenship.wordpress.com/2013/01/15/what-a-fatca-iga-would-mean-for-non-compliant-u-s-citizens-abroad/ — that and what Petros adivsed you, I hope, is the best advice you will ever have to simplify your lives from the US IRS.
*Thank you Calgary so much for your thoughtful and thorough advice with all the links. We will peruse these and will pursue a course of action with full knowledge of all facets of the issue.
@John green,
Yes, it is all very daunting and hard to understand. But I think if you really study the issue from so much information provided at this site, you will see that your spouse’s situation is likely easily resolved without too much muss and fuss. There is also a database here that shows the numbers of relinquishments and the numbers of renunciations reported here at Isaac Brock, http://isaacbrocksociety.ca/2012/03/14/draft-pdf-compilation-of-relinquishment-and-renunciation-data-as-reported-on-isaac-brock/. By looking at this, you will see that many have successfully obtained their Certificates of Loss of Nationality — those with stories similar to your family’s story.
*John green Be certain about this. You or your spouse cannot renounce US citizenship because you/she doesn’t have it . You/she gave it up when you became Canadian. You have 2 options and 2 only. 1. Do nothing. This is a reasonable choice. 2. make an appointment at a consulate to inform them you relinquished US citizenship 30 years ago. It WAS equivalent to renouncing. This is also a reasonable choice. More time consuming but perhaps more satisfying. In either case you don’t need to deal with the IRS in any shape or form.
My spouse has just informed me that there never was a US passport. Departure from the US occurred before passports were required for travel and entry into US and at the time my spouse had never travelled internationally. Does never having a US passport make any difference to anything that has been said or advised? My spouse has only ever had a Canadian passport which was obtained 33 years ago on the receipt of Canadian citizenship.>
@John Green,
Just makes your spouse’s case for claiming relinquishment of US citizenship that much stronger. The Certificate of Loss of Nationality will be the result and finally proof, now that we are needing it.
*What about the Duke of Devon’s comment that doing nothing is a reasonable choice? He seemed to think it might be as reasonable as actively relinquishing and backdating.
*@John Green. Your spouse’s situation is virtually identical to mine. You can see my report on the Consulate Directory Report, pages 35 & 36 ( http://isaacbrocksociety.ca/wp-content/uploads/2013/01/Consulate-Report-Directory-2013.01.03x.pdf ). Basically it was a fairly painless process and has given me clarity and finality. I don’t concern myself with the IRS or my bank(s), etc. I have my proof that I am long, long gone as a USC…about the same number of years as your spouse.
@John Green,
It’s a reasonable choice if you want to have forever in the back of your mind the possible consequences of US citizenship which the US “says” your spouse has unless he/she has relinquished or renounced. They could even call ignoring it all “willful” now that your spouse knows. When there is an easy choice of claiming relinquishment and ridding yourself of any of this worry, my question is why would your spouse want to carry her ghost of the US around for the rest of retirement and a quality life without it? How freeing would be relinquishment unless there is some emotional attachment to the exceptionality of US citizenship. But, guess that’s just the way I would feel. How I wish I had done what your spouse has a clear opportunity to do.
Look at the experience of ‘Only a Canadian’ and so many others who have successfully claimed their relinquishment. It is your spouse’s right.
*It does not appear that relinquisment gets one much as far as the IRS goes. The IRS only recognizes it from the date it was granted, not the date it was backdated to by Dept of State.
What is the evidence for that observation, Woofy? If there is a relinquishment, you are claiming that you were no longer a US citizen as of the date you did the relinquishing act, in John Green’s spouse’s case, 33 years ago, taking Canadian citizenship. From that date the spouse was no longer a US citizen — we were told that decades ago. Why would that person have any IRS obligation, not being a US citizen from that date? It makes absolutely no sense! The CLN’s for relinquishment are backdated to the relinquishing act. See, http://isaacbrocksociety.ca/2012/03/14/draft-pdf-compilation-of-relinquishment-and-renunciation-data-as-reported-on-isaac-brock/ database of renunciations and relinquishments reported here.
If I relinquish, I’ll be able to take a CLN to my bank if needed, my best proof. Unfortunately, I had to renounce as I nixed my right to claim my relinquishment of 1975, with all the attendant expenses to do back taxes since 2005 and now 8938’s and 3520’s, pay $450 for my right to renounce and eventually receive my CLN which will instead be dated the date of my renunciation appointment.
@woofy. I believe hardly anyone, including the IRS agrees with you with respect to decades old relinquishments, like before 2004 or at least 1994/5. This matter has been reviewed in this thread:
http://isaacbrocksociety.ca/2012/06/19/if-your-expatriation-date-is-before-2004-the-rules-are-different/
*Yes…it’s all rather nebulous and confusing. “Policies” and “rules” and “laws” that conflict with each other not to mention plain old “common sense”. And you depend on the bureaucrat that happens to get your case having got up on the right side of the bed that morning. I still figure best for me is just to forget the whole thing, not travel to the USA anymore, and hope Flaherty’s statement about the CRA not collecting US penalties holds. Looks like it should since that was barred by the Canadian Supreme court at one point.
*I still figure best for me is just to forget the whole thing, not travel to the USA anymore, and hope Flaherty’s statement about the CRA not collecting US penalties holds. Looks like it should since that was barred by the Canadian Supreme court at one point.
THIS IS THE APPROACH MOST LIKELY TO KEEP YOU SANE.
*Calgary 411. I agree it would be better to formally relinquish and remove any risk as well as not having something forever hanging over our heads. However sadly, despite the fact that it affects both of us, my spouse steadfastly refuses to acknowledge the problem or potential risk, so will not engage in any activity to deal with it. My spouse feels that I worry needlessly about this. Hence the do nothing option is on the table. My worry is this. We travel to the US each year for a vacation for two to three months. We have nexus cards. I worry that since now it is law that we will get stopped at the border and be asked if US taxes have been paid. At that point we could claim that relinquishment had occurred but we would have no document to prove it. So it hangs heavily over my head but not my spouses. We worked hard to get our nest egg but we are at risk for penalties of up to $500,000 (27.5%) of our assets, not counting pensions. We also have relatives in the US who we visit a couple of times a year so we are back and forth across the border at least three times per year. Our financial instituons do not know that one of us was US born. My spouse just will not believe that terrible things could happen or that they have happened to others.
@John Green,
If your spouse thinks there is not a problem, there isn’t too much you can do. This has caused controversy in many marriages, one way or another, usually the fact that the other spouse’s entirely Canadian, in your case, financial business would also be subject to the US absurdity or one of the spouses belief there is no problem.
To my knowledge no one who shows a US birthplace crossing the border has yet been asked about their US tax responsibilities. It’s a crap shoot in my mind. To think that with all the technology and harmonization of US laws with other country’s laws, weakening ours, there will not one day be such questions at the border is to believe in Santa Claus. US “persons” in Canada need to realize the power of FATCA and to help in the fight against it, the fight for Canada to say NO to extra-territorial US citizenship tax law, especially with an intergovernmental agreement. We sleep and all our rights will be gone. Some, including me, have been challenged at the border. Those others that have have been stronger than me in the intimidation presented. Others have not been asked why they were not travelling into and out of the US with a US passport (yet?). If you are using the Nexus card rather than a Canadian passport, your spouse may be less visable. I would expect that route to eventually tighten as well.
If you haven’t, you may wish to view the YouTube videos, linked at http://isaacbrocksociety.ca/2012/12/24/fatca-fact-finding-forum-video-link/. There is also another compelling video with Anne Soukup of American Citizens Abroad at http://www.youtube.com/watch?v=__qgj0-0Zjk. Perhaps eventually your spouse will realize the good position he/she is in to claim relinquishment. In the meantime, I do wish you well with the choice you are left with, what Joe Smith and others have decided to do. He’s right that you have to determine the best decision to keep you sane.
One other point: it is the fault of the Canadian media that this has not been presented. For their stories, save the few we’ve seen here of people in tune / affected, the media give only regurgitations of IRS law. They paint us as tax evaders as people who need to get into compliance — and believe me it is expensive and there are not many competent professionals to really help with that job correctly. The FATCA industrial complex will be the winners. The Canadian media should absolutely be telling the story, again and again, of how to relinquish and how to renounce US citizenship –especially the fact that relinquishment is a viable option for many, many of us here in Canada, who have taken Canadian citizenship, a relinquishing act. The Canadian media also need to constantly let US Persons in Canada know of Canada’s / Finance Minister Flaherty’s promises (should they not be taken away with a Canadian US intergovernmental agreement and FATCA):
@Joe Smith and Woofy,
The approach most likely to keep many of us sane is also the US IRS winning dominantion over us, forcing us to be second-class Canadians and citizens of other countries unable to or afraid to cross the US border. All because of US extra-territorial insular citizenship-based taxation. The US is the ultimate Bully of the World and foreign financial institutions, excellent role model for all the other bullies in our day-to-day lives.
*@calgary411
We are NOT second class Canadians! The U.S. can consider us to be whatever it likes and there is probably not much we can do to change them. They do what they see fit to do and so do we – as FIRST class Canadians, not U.S. citizens, former or otherwise in their eyes.
Or, we should not be second-class Canadians. We will, however, have less “rights” in crossing the border into the US to visit families, be tourists, be snowbirds than any other Canadians. That’s the way I see it; others may not. It will be the new Berlin Wall. See the video: http://www.youtube.com/watch?v=ZItzF0ldAUo
*@calgary411
We may be second class citizens by U.S. standards, but we are first class by Canadian standards, and that’s what counts. We all have to live by the standards (however idiotic) of whatever country we happen to be in. If the U.S. refuses us entry to the U.S. then that’s their problem. And I believe it will be a problem – when they see less shopping trips, less tourism, and less money flowing in from foreign investors.
*And, hey, don’t it begin to look like Berlin back in the Day? Can’t leave the country without a permit, armed guards at the border (they aint shooting, yet, but who knows what the drones will do).
You’re right, Woofy, that will be THEIR part of the problem.