http://www.investmentexecutive.com/-/your-american-clients-and-the-irs?redirect=%2Fsearch
While canadian financial services institutions scramble to prepare for the new U.S. law that requires them to report on accounts held by their American customers, those clients may need a helping hand now.
The new regime starts next summer. For the estimated one million Americans in Canada, this new law means it will be almost impossible to remain off the radar of the U.S. Internal Revenue Service (IRS) any longer. As a result, your American clients may be panicking and in need of advice and reassurance.
That’s also partly because many such clients have been in denial for some time. But that denial is now a recipe for trouble. “For people who aren’t filing [their U.S. tax returns and] thinking, ‘I’m a small fish; they’re never going to get me’,” says Christine Perry, a lawyer with Keel Cottrelle LLP in Toronto who specializes in cross-border tax law, “I think that’s just a naive way of looking at it. Their accounts will be reportable accounts, and banks will turn over all that information to the [IRS].”
The U.S. Foreign Account Tax Compliance Act (FATCA), passed in 2010, is meant to prevent Americans from using accounts held at financial services institutions outside the U.S. from evading their tax obligations. FATCA requires global financial services firms, including those in Canada, to provide the U.S. government with the names and account numbers of clients who are American citizens, starting on July 1, 2014. Global banks that choose not to provide this information will be assessed a 30% withholding tax on all U.S.-source payments.
Andrea Taylor, director with the Toronto-based Investment Industry Association of Canada, advises that financial services firms and financial advisors must play a crucial role in educating their American clients and providing them with support.
“There are few things that are more terrifying to clients,” says Taylor, “than finding out that they are U.S. persons [for tax purposes] and that they are delinquent with the IRS, when they may not have even been aware of their U.S. citizenship or tax status or the requirements that go along with that. Advisors and firms need to have a strategy for the clients who are U.S. persons to ease their fears and let them know that the IRS has programs in place to waive penalties for persons who are low-risk.”
So are they offering their services for free for these people they are so concerned about. The compliance industry certainly has a way of spinning this so that some people feel forced to use their services. Vampires.
“Advisors and firms”.. yeah and I’m sure all the expats barely getting by and living check to check can easily fork out for “Advisors and firms”. Sigh..
@Atticus and pukekonz
I was told when I first found out about FATCA by a toronto prestigious tax firm that it would cost at least $1000 or more for filing one tax year. and when I was talking on phone the tax consultant said phone consultations are usually $950 an hour. Nice people….
Being I relinquished in 1993 and now I am waiting for CLN I have not filed anything…I was complying up o and including the year I became citizen. Will the rules change now?
Yes, they have had quite the field day playing up fear to get $$$ with this situation. Exploitive and it’s own reason their advice is not very good since they are doing what is in their best interests, not yours.
@Tim
You may recall the Investment Funds Institute of Canada’s pre-2012 budget submission:
“The United States, in an effort to combat tax evasion by their citizens have enacted the Foreign Account Tax Compliance Act (FATCA) and have also ruled that Canadian mutual funds are Passive Foreign Investment Corporations (PFIC). IFIC is asking that the Canadian government actively engage their U.S. counterparts to come to an agreement on FATCA that strikes a better balance between preventing tax
fraud in the U.S. and imposing additional costs and administrative burdens on Canadian investors and financial institutions. A PFIC agreement is also needed to ensure that U.S. investors maintain their access to the Canadian mutual fund market. This will help ensure that Canadian companies have the easy access to affordable capital that will in turn enhance economic growth and recovery. FATCA imposes costly implementation and administrative burdens on Canadian financial institutions that will end up being passed on to Canadian consumers. This will decrease the productivity of the financial sector and direct resources away from critical product and technology development that are the foundation of job creation. The current FATCA draft legislation also impinges on Canadian privacy rights. Canadian financial institutions will be required to close the accounts of Canadian residents, who are also U.S. persons, if they do not sign a privacy waiver allowing the financial institution to send their personal information to the Internal Revenue Service. Under FATCA, Canadian residents who have no nexus to the United States may incur additional U.S. withholding tax because they do not wish to certify their non-U.S. person status. By designating Canadian mutual funds as PFICs, the U.S. has effectively closed off an important avenue for Canadian companies to raise capital. Under the PFIC rules, any income a U.S. tax payer receives from a Canadian mutual fund is taxed at the highest nominal rate under United States tax law – providing a powerful incentive to remove their capital from the Canadian market. On both FATCA and the ruling that Canadian mutual funds are PFICs, it is critical that the Canadian government work with the U.S. to protect our investors and the ability of Canadian companies to raise capital.”
http://www.parl.gc.ca/Content/HOC/Committee/411/FINA/WebDoc/WD5709773/411_FINA_PBC2012_Briefs/InvestmentFundsInstituteofCanadaE.pdf
From the article:
“The IRS is not really trying to nail regular people,” says Altro, adding that in many situations, potential penalties can be waived due to reasonable cause.
“They’re trying to nail people,” Altro says, “who have done things to avoid their fair share of taxes.”
What fantasy world does this Altro guy live on? In its effort to nail people who have done things to avoid their fair share of taxes, the US Government IS nailing regular people, like me. The IRS is not your friend; the IRS exists to collect revenue.
And the IRS will do everything it can to squeeze any and every cent out of you!!!
I wonder if these jackholes have even read an FBAR and understand the information the IRS wants me to give them; f**king pinheads!!!
As they always say, and everyone should know by now, when it comes to investment advisers, it is a “Buyer beware world”. Their vested interest is always different than yours. The main goal is to separate you from your money, not unlike the IRS.
Free tax filing and free tax advice should, at the very least, be a benefit of being a US citizen. Not only that, but Americans living abroad should get free help from the US to do their local tax returns, with the US helping them to save taxes by finding loopholes! This needs to be written into the American constitution. The IRS needs to have postage drop off locations in each village in each nation of the world, loaded with forms and envelopes, so that Americans living abroad can file without having to spend a penny on ink or postage, when not e-filing free of charge.
@swisspinoy
Free tax filing and free tax advice?! How much have you been drinking tonight, man?!? 😛
How about the US Government starts by allowing us expatriates to elect a Congressman and Senator so that we can have taxation with representation?
*Looks out window waiting for the pig to fly by*
What will happen if and when a Canada FATCA IGA is implemented?
FIs will rely on existing information with some additional data. Assuming proof of place of birth is not requited, then self certification may be asked. The individual will then have to decide how to answer any questions asked about being a U. S. person. The individual may not realize they are considered to be a U. S.person, or they may decide that their Canadian citizenship trumps any claim by the Americans.
There have been questions raised as to how knowledgeable FI staff will be on determining who or who is not a U.S. person. As we know, this is not always an easy question to answer, especially regarding children both outside of the U. S. to an American citizen parent. Will FIs have to have an immigration lawyer on call 24/7 to provide an opinion?
Some undoubtedly will be classified as U. S. persons. In that case their financial data will be sent to the IRS. If financial holdings and income are relatively small, will the IRS even bother doing anything more? The sheer volume of information that will be generated will be a great challenge to the IRS.
Having spoken to a number of financial advisors, the attitude I’m picking up is that they don’t want to lose their clients. Each one has told me that that their diligence will be the minimum required. However, at this point, even some of the largest brokerage firms, serving high net worth clients, have yet to provide any training or even memos on FATCA.
As we don’t yet know the final shape of a Canada FATCA IGA, it’s difficult to know how things will play out once implemented. If and when an agreement is signed, we’ll have to continue our efforts to educate potentially affected individuals. And our elected representatives will have to be told over and over again how we feel as the legislative process for enactment takes place.
@Hazy…
As SIFMA has said recently in the supplemental comment letter sent to Treasury during the shut down, and probably never read…
“especially by account on-boarding personnel who lack legal and tax training” and the ability to mind read. Maybe all banking customers should be subjected to a lie detector test.
@ Just Me
Thanks for the link. One of the many items that stood out is that FIs, to be on the safe side, may withhold where there is any doubt as to the status of a customer. As a result, there may be unnecessary withholding (and lots of unhappy customers).
If the situation vis a vis individuals is not clear, what about entities? Entities can be a real hornet’s nest.
As the UK FATCA IGA is now live as of September 1, I wonder if anyone in the UK can tell us how things are working out. It may possibly be too soon to tell.
Drumming up business… That is what they do…
Advisors Turning in Clients With Offshore Accounts; A New Trend?
The Numbers Tell a Story or not….
Since 2009, U.S. officials have cracked down on undeclared offshore accounts.
U.S. taxpayers criminally charged: 86
Firms or advisers criminally charged: 35
Guilty pleas: 64
Guilty verdicts: 10
Average account balance at its peak: $6.8 million*
Participants in IRS offshore limited-amnesty program: More than 38,000 IRS collections from limited-amnesty program: $5.5 billion, with $5 billion more to come
Take Action Now
For those with hidden accounts, complacency is not the order of the day!
Let’s remember too that in Canadian, dealing with the CRA is not at all like dealing with the IRS. These folks could be assuming that the IRS is a responsible, reasonable arm of the govt that simply wants what is due and doesn’t also exist to collect whatever it can in draconian fines and penalties. But I certainly would like to know who is feeding them the bs about the IRS having programs for “low-risk” USP’s. To the IRS, such a person really is a unicorn.
As we go forward, I expect that much more of this type of fairy tale drum beating for clients will continue and financial advisers are going to wind up just as shell-shocked as the clients they are misinforming.
Once an advisor starts whistling there will not be any distinction made between whale and krill by the IRS. All USP’s will undergo investigation, therefore will not be able to enter any of the available amnesty programs. These advisors are making mattresses look better and better.
@yoga girl
What’s worse is that advisors may in fact know fully well what we already know, but are downplaying it for fear of investment withdrawal. Next we’ll be hearing that withdrawal is futile as the IRS is ‘incentivizing’ advisors to reveal their past clients with US personhood.
@bubblebustin
You think FA in investment firms will advise IRS on past customers. Crap,
Before my husband died we went to a highly reputable investment firm. He put my husband’s railroad buyout money in what I found out later highest commission mutual fund RRSPS all international. He died in 2001.
A year after my husband died I left his firm and got out of those when they matured and put them in straight GICS.
I have no us stock RRSPS. I was aware of the coming credit, motgage and bank failure crashes a few years before they happened just through reading alot from various sources. I do not trust banks.
just who can I trust ? I trust you guys and my friends.
@northernstar
When it comes to guarding your money, you can’t be too paranoid. I have trust here too, as I know that we seek the truth and it will set us free (even if the IRS won’t).
@Hazy
I live in the UK and have received nothing from any of my banks or brokers and I had used a US passport as ID to open a number of accounts. To my knowledge, there is no evidence of any bank refusing to service any US citizen customers when it comes to basic current accounts or savings accounts. Investment accounts are, however, an entirely different matter.
In June I searched the customer terms and conditions for key words like “US person”, “U.S. person”, “USA”, “U.S.A.”, “citizen” and “national”. Of the top 30 or so providers of brokerage accounts, 10 had blanket bans on UK citizens/residents with US connections. I checked the terms and conditions again today and since the time of my original analysis, Stocktrade has now also implemented a ban on US persons having an investment account. The clause in their terms and conditions says:
“219. Unless otherwise agreed in writing with you, we will not provide you with our services if you are, or become, a US person. ‘US person’ means any citizen or resident of the USA including the estate of any such person, or any corporation, partnership or other body created in or organised under the laws of the US, or any political subdivision of that country, or any estate or trust whose income regardless of its source, is subject to US federal income tax. We reserve the right to ask further questions or to ask for evidence at any time that you are not a US person. If we become aware that you are or have
become a US person we will terminate our relationship with you under clause 232.”
Given that there is a long lag time to changing T&Cs and that it costs a lot of money to notify customers of such changes, I don’t think that the current reality is where things will end up. I would expect that more and more UK brokers will implement similar clauses as the FATCA deadline approaches. Of the 20 or so brokers that currently allow US citizens to have an investment account, only Barclays has T&Cs that reflect reality in a FATCA world with references to W-9s and recalcitrant holders.
@bubblebustin
not paranoid but I have a great deal of cynicism for banks and governments these days.
@YogaGirl
The program for “low-risk” US taxpayers to become compliant is Streamline. Basically, the IRS says, “file three years of returns and six years of FBAR’s, and we will consider you up to date, PROVIDED that your total tax bill is $1500 or less.”
However, there is a 20 point questionnaire one must submit as part of the program. The first four questions determine eligibility; the next sixteen are for the IRS to feel out your financial position.
The questionnaire is littered with traps.
Question 12: Did you know you had a Report of Foreign Bank and Financial Accounts (FBAR) filing requirement when you failed to file an FBAR?
Want to venture a guess what happens if you answer yes? MAXIMUM PENALTY!!!
@ Edelweiss
Thanks for your response to my comment. I was sorry to hear that already some UK FIs are already banning U.S. persons and more will likely follow.
Canadian FIs have been privately saying that there will not be any account closings in Canada. Differences between the laws and regulations of Canada and the UK may explain this.
Time (and lawsuits) will tell.
SwissPinoy –
Free tax filing and free tax advice should, at the very least, be a benefit of being a US citizen.
Three or four decades ago (late Carter, early Reagan) I was taking my self-prepared US tax return into US consulates in Canada so their seasonal circuit rider could look over the forms (before I sent them to the IRS) and tell me if I had missed anything. The first time, a catch-up on lapsed filing, the circuit rider used my Canadian forms to fill out the US backfilings that I needed. Times have changed.
Further to Hazy’s comment, I don’t have evidence of accounts being closed. The principal impact is in the provision of new accounts for those who read T&Cs (which not many do). I haven’t received anything from any FFI and I had used a US passport to open some accounts. Time will tell, how thorough a review of the electronic records will be. It’s quite possible that the photocopy of my US passport isn’t in the electronic records.
Recognising that account T&Cs were not the be all and end all, I decided to do a little more research by reviewing the account opening forms (where I could) for those brokers who do not ban US citizens from having accounts explicitly in their account T&Cs.
Of the top 30 brokers, approximately 20 do not ban US citizens as customers in their T&Cs. Of those 20, 3 ask for country of birth on the account opening form and 1 asks for place of birth but it’s a write-in as opposed to a drop-down so you could enter city but not country. For the other 16, it might still exist but would require me to fill in personal info and bank details which I’m not willing to do. I might try to open an account by phone just for the fun of it but they are almost all closed today.
For the fun of it, I selected country of birth –> USA from the drop-down without entering any other info for the three that requested it. Nothing happened when I did this at Beaufort Sharedealing. When I did this at Interactive Investor (iii.co.uk), I was automatically taken out of the account opening process and to a new page that told me “You have entered details which would classify you as a US Person. Unfortunately, our service does not extend to US Persons. We regret that we are unable to accept your application.” When I did this at Saxo Bank, I get a red notification under the input line that “You have chosen an invalid value” which I found amusing. In both cases, the account T&Cs make no mention of US persons but it’s clear that you can’t have an account. I suspect there are more such cases.
So, it looks like the proportion of the top 30 brokers not offering investment accounts to US citizens is not 1/3 but 50% (11 through T&Cs, 3 by requesting country of birth, possibly another by requesting place of birth) with a number of account opening processes not fully tested.
The examples of Interactive Investor and Saxo Bank are particularly interesting because they think it is inconceivable to have been born in the US and not be a US person. Hopefully this is just a lack of sophistication on the part of their systems. If they were smarter, they would ask if you can prove that you are not a US person, which, if answered in the affirmative, would allow you to continue with account application. In the meantime, even those born in the US but with CLNs can’t have an account with Interactive Investor or Saxo Bank. That’s just idiotic.