Born in Canada asked the following questions, and I offer my version of defiance afterward:
I have only just recently discovered the tax/FBAR obligations of being a USC abroad, and have spent the past few days reading as much as I can about the subject. I echo the feelings of extreme stress and frustration that so many people here have already expressed.
I was born in Canada in the 80′s to a USC (Cdn PR) parent (other was Cdn cit by birth). Fast forward to 2009, when in casual conversation with a US CBP officer into the states, I mentioned my American parentage. He stated that I was considered a US citizen, and should be entering the US on a US passport.
Wanting to comply with the rules, and not fully (or at all) researching the obligations that would come with it, I applied for and received my US passport in 2009. I also checked off the box on the passport application to receive a US social security number.
I entered the US on my US passport perhaps a dozen or so times between 2009-2011. (Shopping day trips and short tourism).
Until last week I was unaware of the specific requirements of the IRS. I had heard that Americans were supposed to file, but also believed (incorrectly) that the FEIE was the limit to file, rather than an exclusion of tax.
Suddenly, I find myself trying to figure out what the best course of action is.
I have no idea how the bureaucracy of the US works. I believe I am completely unknown to the IRS. However, the DoS issued me my passport, and has my details (including former address). I don’t know what the communication is between these departments, and if the DoS would ever furnish a list of US passport holders (particularly those recieved from consulates abroad) to the IRS for compliance checks.
None of my banking information has anything to do with my (late) American citizenship. Again however, I do not know what the full ramifications of FATCA will be. A concern I have is that the DoS gives info to the IRS, who in turns starts flooding banks for info.
I really would prefer to be compliant. I committed an expatriating act by taking a position with the federal gov’t last fall, with the intention of relinquishing my citizenship. I have not yet informed the Embassy or filed a DS 4079. This is complicated by the fact that I worked for the Federal gov’t in a different position prior to (and after) applying for my passport. I obviously cannot say I had intent to relinquish from my initial job years ago (since I didn’t even know I was a USC), but I hope that my recent job (with new letter of offer, movement to Ottawa, different security clearance, etc) could be articulated.
Finally, I note new Streamlined filing compliance procedures: I am below the threshold for the FEIE 2555 exclusion every year. I had 3 mutual funds (total value ~18K) that during the 2009-2011 tax period “made” money, around 3K a year. These were phantom gains, just recooping loses from years previous, but if I understand correctly, they would be considered income, correct? I have no idea how much tax would be owed on this income, and if it would bump me above the $1500 “low risk” threshold. Is there a way for me to discover this without committing to an accountant to file back taxes (and potentially paying thousands only to find out I’m over the streamlined?)
I am really at a loss. I do believe in compliance with law, even when I don’t agree with it. However, part of me really wants to lie low, since my place of birth is Canada, and I’ve lived and worked here all my life. My time in the US can be measured in weeks. It is the uncertainty of not knowing all the variables, or the best course of action that is causing me so much stress!
[A]nother concern which I have not seen addressed online yet.
If I relinquished and decided to take my chances on not filing a 8854 (in the hopes that a CNL alone with no previous activity and a Canadian CoB would not attract too much attention), I would be a “covered expatriate” in the eyes of the US.
Do I read the exit tax correctly that Canadian pensions (ie. Federal gov’t pensions) are taxed at 30% on their distribution? How can this be? I could work for the next 30 years, after having spent 3 knowing I was a USC, and have to pay out of my pension?
This is the main reason why the idea of being over the “low risk” threshold of streamlined compliance stresses me out… it seems like this is the alternative (since I don’t want to criminalize myself into the OVDI).
Any other thoughts on the pension aspect / exit tax?
In regards to the FBAR, I couldn’t find anything specific on my question:
How does it actually work, from a practical standpoint? I realize we are reporting our bank account numbers, and highest balance. Is that based on an honour system report, with potential penalties if something comes out contrary to the info you provided later on, or is a case of the IRS approaching a Canadian bank and saying “Hey, let me take a look at account 12345 for the 2009 tax year.”
I mean this as a separate question related to filing for back taxes, particularly with the streamlined filing compliance process, as opposed to the FATCA requirements which will have some sort of data transmisison to the IRS.
@Born in Canada, Your first mistake was mentioning that you had an American parent to a cross border guard. American cross border guards are neanderthals whose job is to harass Canadians crossing the border to try and find non-compliant “US persons”–their job is not to know the law nor your rights, but to violate your universal human rights whenever it suits the purposes of the United States.. The United States is a desperate country and it is looking across the Canadian border to its North for potential sources of revenue. Expat food: Don’t feed the beast. Never feed a border guard this kind of information–it is irrelevant. You are a Canadian born in Canada. That’s all he needs to know.
Please be careful about consulting a cross border specialist, or the obtaining a US passport will be one of may be one of the most expensive mistakes you’re likely ever to make. I am personally of the opinion that you don’t really have to do anything, except let your US passport expire and never ever mention your US citizenship to anyone ever again. You are Canadian. You drink Canadian beer and you are not an American even though some cave man on at the border decided that you are one. You can of course go to the US Consulate and tell them that you relinquished your citizenship when you took the job at for the Federal government. I would do that. But I would probably never volunteer any tax information to the IRS–not one single thread of information, and certainly nothing about your legal bank accounts in Canada, for heaven’s sake, especially mutual funds–because the cost of compliance on these funds will likely far exceed the savings that you have in them. If you told your Canadian banks that you were American, then close your accounts and open them in a new bank somewhere and fail to mention your US passport. Tell them you are Canadian–the truth. But it sounds like you didn’t tell the banks anything.
You should not be a “covered expatriate” as you have suggested (but now see this comment), because people born with a foreign citizenship and no significant attachment to the United States are not covered and they are not really required to reveal their assets to the United States–to my knowledge. This is despite owning assets over $2 million. I wouldn’t even bother with the Form 8854 or any yearly tax returns. They are irrelevant in your case. You have to understand that this exception of native born foreign nationals is born in diplomacy–the United States can hardly cause these rules to apply to persons born with another citizenship and no substantial ties to the United States and maintain good diplomatic relations with their neighbors. For the IRS to create a scene in your case would be an out and out act of war against Canada by aggressively seeking to obtain tribute from native-born Canadian citizens resident in Canada. Otherwise, the desperate beast would have insisted that there be no such exceptions.
My suggestions if you are unsure about your tax situation vis-a-vis the US is that you seek an impartial consultant and not a cross border specialist, whose job is to get you into compliance with the US and whose perspective is turned towards the needs of the beast. Find someone who knows your rights and if you can’t find anyone, I can make a suggestion or two.
Remember, you are a Canadian citizen living and working in Canada. The US does not have the right to tax you even if you made the mistake of getting one of their passports. The CRA will not collect from you and unless you have assets in the United States or sources of income from the United States, the IRS has no way of collecting from you even if they had sufficient information to assess a tax liability.
Well, this is my opinion. Be sure that you will receive many others here.