IRS CompliantForever has entered an excellent post at Maple Sandbox. I am again cross-posting from there: Can Cross-Border Tax Professionals Prepare U.S. Tax Filing Return For Impoverished Canadian Brad Smith For Only $300?
IMPORTANT UPDATE, February 3, 2014:
WhiteKat, a close friend of Brad’s, is helping him contact Brain. Here is WhiteKat’s comment on behalf of Brad (Brad’s comment seemed to be blocked at TaxConnections.com for some reason) — and my reply: http://taxconnections.com/taxblog/cbc-distorts-fatca-facts/#comment-1027
WhiteKat
February 3, 2014 at 9:27 am
Mr. Mahany, Brad Smith asked me to post this because he seems to be blocked from your site. Can you help him please!Changed by the TaxConnections.com Administrator to: “Mr. Mahany, The gentlemen you spoke with earlier asked me to post this. Can you help him please!:“Brian, I called the two tax firms you recommended, but both quoted me three-four times your estimated $300 filing cost. I have practically no income and just a bit of savings. I’m getting seriously scared. I want to pay my fair share and even though I live in Canada I fear that IRS will arrest me and put me in jail.
These companies tell me that it will cost me a LOT of money to file past returns even though I owe no tax! Something is really wrong here. No way I’m a tax crook. I have hardly any money which is not my fault. What can I do? Brain, PLEASE HELP!”:
“Brian, I called the two tax firms you recommended, but both quoted me three-four times your estimated $300 filing cost. I have practically no income and just a bit of savings. I’m getting seriously scared. I want to pay my fair share and even though I live in Canada I fear that IRS will arrest me and put me in jail.
These companies tell me that it will cost me a LOT of money to file past returns even though I owe no tax! Something is really wrong here. No way I’m a tax crook. I have hardly any money which is not my fault. What can I do? Brain, PLEASE HELP!”
Reply
calgary411
February 3, 2014 at 9:39 amAlthough many will not relate to Brad’s situation, there will, in fact, be countless so affected.
As McGill law professor, Allison Christians, points out in blog post “Citizenship-Based Taxation and Taxpayer Rights Don’t Mix”:
“It is another to say to other countries–and much less individuals in other countries–if people who live in your country have US status AS WE DEFINE IT, you are harboring potential criminals and you must help us find them and enforce our claim over them even if your government also claims them and even if our claim conflicts with your government’s own law.” … which is more “entitled USA” hogwash and US collateral damage to Brad and so many others, in the process destroying individuals and families.
*************************************
Recently, Mr. Brian Mahany on a TaxConnections Worldwide Tax Blog discussed costs of filing U.S. tax returns for duals living abroad and took issue with some statements on tax preparation fees made by Allison Christians in a CBC article.
Here is the CBC “Myth,” according to Mr. Mahany, followed by the Mahany “Fact”:
CBC “MYTH”: The annual cost of filing U.S. taxes can be “astronomical,” tax expert Allison Christians notes. Accounting firms estimate the cost of filing personal U.S. taxes can be anywhere from $500 to several thousand dollars.”
Mahany “FACT”: “I suppose if I were Bill Gates or Warren Buffet, the cost to prepare my tax return might be in the thousands. There are many very qualified CPA firms and expat tax services that prepare returns for dual nationals, including FBAR filings, for about $300. [We don’t prepare returns but can certainly send you to folks who do.]”
http://taxconnections.com/taxblog/cbc-distorts-fatca-facts/#.Uu6BlD1dWE4
I was also intrigued with Mr. Mahany’s statement that the U.S. has special rules on “trusts” such as RESP, RRSPs, and TFSAs, implying that these should be easy to deal with.
Several commenters took issue with Mahany, with one saying:
“Please, show me a competent accountant that will do a US tax return for $300 when RESPs. TFSAs, and Canadian mutual funds (outside of a RRSP) are involved. There is no such animal.”
I decided to pursue this question and asked Mr. Brad Smith, who might or might not be a composite character, to follow up with Mahany on this inexpensive $300 tax service. Brad is a 27 year old single Canadian resident and Canadian citizen living in Toronto who just discovered that he is a U.S citizen. Mr. Smith insists on entering into IRS tax compliance in order to pay, as he says, his “fair share”. He is unwilling to file returns on his own and refuses to renounce his new-found U.S. citizenship.
I selected Brad as he has a very simple tax situation: very low self-employment income ($19,000 annual), a single share of a Canadian mutual company (value $100), and $200 in a Canadian tax free savings account (TFSA).
—Brad corresponds with Mr. Mahany:
On the Tax blog, Brad asked Brian Mahany:
“Hi Brain [sic],
I just found out that I am a US person. You say that you can find a qualified CPA firm that will prepare my tax return for only $300 (including FBARS). This sounds pretty good to me.
What is the name of this CPA firm?
Thank you for your help. I will sleep a lot better tonight knowing that I can become IRS compliant at low cost.”
Mr. Mahany then sent Brad a private email disclosing the names of two tax professional companies that will be called below “Yellow Jacket” and “Boll Weevil.”
Brad then responded in a comment on the blog with lots of thanks, but Mr. Mahany removed from the response the personal details of Brad’s income and savings (TFSA, mutual fund) mentioned above. Brad’s response of thanks to Mr. Mahany:
‘Wow! Many thanks for getting back to me so quickly with the names of two companies, I will call both CPA companies on Monday and get quotes for preparing my tax return. You mentioned that the price depends on the situation, but my tax situation is simple [PERSONAL DETAILS DELETED BY TAX BLOG ADMINISTRATOR].
I will let everyone know on this post what I am quoted by the two companies. I really thought that the cost would be so much higher and thank you for helping me out.
I don’t ever want to be accused of being a tax cheat. I left the U.S. when I was two years old and have never returned but I am happy to pay my fair share.”
See:
https://taxconnections.com/taxblog/cbc-distorts-fatca-facts/#comment-976
—Brad discovers the true filing costs of IRS compliance:
Mr. Smith phoned both tax companies and obtained quotes over the phone. Yellow Jacket also has some costs listed on-line. You can imagine Brad’s disappointment when he discovered that costs for yearly U.S. citizenship compliance, given Brad’s very simple financial situation, were much higher than Mahany’s $300 estimate.The costs from the two companies were similar and are shown below:
Yearly compliance cost——————Yellow Jacket Boll Weevil
Basic cost IRS 1040 ———————–$357—————————– app. $400
TFSA (2 trust forms)———————–$357—————————– app. $400
Mutual fund (PFIC form)——————$149—————————– app. $250
FBAR——————————————–$67—————————– app. $100TOTAL—————————————-$930/year———————- app. $1150/year
Mr. Smith also insisted on entering into one of the IRS “disclosure” programs. Both firms suggested that a “Quiet” IRS disclosure approach might be the way to go, but the cost was the same for “Quiet” and “Streamline” disclosures.
[Note, IRS helpfully advises: “Those taxpayers making “quiet” disclosures should be aware of the risk of being examined and potentially criminally prosecuted for all applicable years.”]
The costs for the disclosure were:
Yellow Jacket: basic return three years ($915), FBAR 6 years ($402), TFSA ($357 X 3 = $1071), Mutual Fund ($149 x 3 = $447) for a total of $2835 U.S.
Boll Weevil: basic return three years ($1200), FBAR 6 years ($600), TFSA ($1200), Mutual Fund ($750) for a total of $3750 U.S.
The costs of five years IRS compliance to exit the IRS system as an expatriate will be higher but this is not relevant for Brad.
—What are Brad’s options given the cost of IRS tax filings?
This is not a random sampling of tax firms but it does prove that using the companies Mr. Mahany has selected, and a Canadian-U.S dual who all must admit has a simple (impoverished) tax situation, US tax returns for people like Brad cannot be done cheaply.What is striking is the high penalty (confiscation of savings) that must be paid by Brad for owning the tiniest of two harmless Canadian (i.e. “foreign”) retirement vehicles for which, in Brad’s case, the cost of compliance is actually more than the value of the TFSA and mutual fund FOR EVERY YEAR OF COMPLIANCE.
[But could any of us ever be comfortable in suggesting to Brad that he should give away his small retirement savings just because IRS deems it to be toxic—or in helping Brad become IRS compliant?]
Brad wants to be IRS compliant, but with his meager income knows that he will never be able to afford these costs, yet he refuses to part with his toxic Canadian mutual fund and TFSA because these were given to him by his family to help him in his retirement.
Brad is also unwilling to take a stab at filling out the IRS forms himself because he does not want to make a mistake. Even if Mr. Smith wanted to renounce U.S. citizenship (he tells me that he will never renounce) and exit the IRS system legally, he would never be able to afford the costs of five years IRS compliance.
Given Brad’s financial situation, IRS compliance costs, and his wishes, what are Mr. Smith’s options?
kermitizi,
The can’t collect a $10,000 fine here for anything tax-related for a Canadian CITIZEN from the time that person became a citizen of Canada. If you’re referring to my daughter, born in Canada — but worked in the US for seven years before returning to Canada after a bad car accident, getting the $10,000 notice of penalty fine on a past US tax return (not connected with her returns leading up the her renunciation), she AS SO MANY OTHERS, had no idea of any “promise” of Finance Minister James Flaherty or terms of the US Canada Tax Treaty. It was before that was in the media in 2011. It was / is all smoke and mirrors and putting fear into people. My daughter would have been covered under the Finance Minister’s statement (and the Tax Treaty). No accounting firm, H&R Block or the one she hired to represent her and get the IRS penalty cancelled, told her about any US – Canada Tax Treaty terms or what Finance Minister Flaherty has now reiterated. I hope that “promise” is kept with any IGA that Canada may sign with the US, that the terms of that will not supersede the terms of the present Tax Treaty.
H&R weekend course to be able to do US tax returns — I would believe that.
Re: “Both firms suggested that an ill-defined “Quiet” (no tricky “Streamlined” questions to be answered) IRS disclosure approach”, I’m curious as to both firms’ reasoning for this advice particularly given Brad’s relatively simple financial situation.
Also, are 3 years of returns and 6 years of FBARS enough for a ‘quiet’ disclosure outside the Streamlined program? I thought I read that 5 years were required, but not sure where I saw this.
@Stressed,
The customer service people at the main branch of the bank (where the account was originally opened many decades ago) agreed to printout what I needed for free when I told them why I needed it – whereas the smaller local one was adamant about charging me – regardless of the cost. A branch manager might agree to waive the fees if it is a onetime request – given the unique circumstances. You could try making an appointment with the manager?
You could also try advising them that given the ongoing costs for records you might have to find a financial institution with lower charges for the statements you’ll continue to need in the future (if you’re not going to renounce asap).
I would have thought that the banks – all those CBA members so very anxiously working to get a FATCA IGA in place would want to generate some goodwill by helping to facilitate accountholders who are getting/being IRS compliant – and also have helpfully (and unavoidably) flagged themselves as USpersons in the process.
I’m surprised that the CBA doesn’t find it a good PR move to provide this in the circumstances. For example; for TD to make complying with FATCA a “comfortable” experience, it might make sense to waive the initial record fees for those trying to comply.
Otherwise, in some circumstances one could in protest move as much of your assets, etc. elsewhere in retaliation for the bank refusing to help at all in this situation.
The CBA wants to have it all ways at layer upon layer of our expense: get Harper to sign a FATCA IGA in order to reduce bank liability and let them get on with making money, get ALL Canadian taxpayers and ALL accountholders pay for the initial and ongoing implementation (forever and ever) costs, AND have their current accountholders pay for the expensive costs for obtaining the back years of statements that coming into/maintaining compliance requires – and thus not being/remaining a ‘recalcitrant’ accountholder.
No compelling reason then to continue to do any business with a BANK or one of their investment offspring/cousins unless absolutely necessary – since they want both their cake and ours too.
Excellent post IRSCompliantForever! This case study is brilliant.
@whitekat,
It’s 3 years for streamline and 5 years if you want to renounce I avoid being a “covered expat”.
@Stressed, what if Brad earned $10,004 in January for playing at a flugelhorn festival? Then he would have to file FBAR.
Thank you, once again, badger. True, true, true:
@Stressed, Brad does not want to renounce therefore the 5 years required to avoid being a covered expatriate is not relevant. I am just questioning whether or not 3 years is enough for a ‘quiet’ disclosure.
@badger, the problem is I am no longer a client with NBC so I don’t have any leverage. I will have to meet with them in person once I officially require the Info and maybe they an cut me a deal. I hope that TD (my current bank) will have no problem getting my info. And you’re right, I have no problem leaving them if they don’t help me including our mortgage. I am also currently with investors group, and he has no problem getting me any info I need.
@whitekat, yup if you have over 10,000$ at any point through a year, you need to file FBARs for every single financial account u have. U would need to record each one at its highest for the year including the account number and financial institution info (eg adress)
@Badger, our government (like the banks) is also throwing us under the bus. I think the Canadian government should give us a 100% write-off on our Canadian tax returns for the cost of becoming ‘compliant’.
@whitekat,
3 years should b fine and I’m sure they will let him know if not. Given his simple taxes and based on what I’ve learned, i think that the “streamline” process would b best. Both accountants I’ve spoke to said that none of their clients have been penalized this way. But I’m no expert!
@WhiteKAT
You mean we pay no Canadian tax. It cost me 30 bucks to file Turbo tax.
I always pay more on my pension income and get a refund each year.
@Northernstar, Sorry, what I meant was Canadians who are railroaded into becoming ‘US TAX compliant’ should be entitled to a 100% write-off on their Canadian taxes for the cost of back filing their US tax returns and fbars. To be fair, lets make it a one-time deal. After getting into the IRS system, if you decide to remain there, you pay the annual filing costs going forward. Canada should do something to help out Canadians who have been totally traumatized by this whole fiasco. If it has no balls to tell USA to go pound sand, at least it can offload the costs of compliance from those it threw under the bus.
“Thrown under the bus” is so true. We’re damned if we do and damned if we don’t. And I feel like no one is on my side. Canada can’t help me bc I’m so called “american”. My MP office had no idea what to say except that they can’t really help me bc FATCA is US and I’m “US”. And my husband is sick of listening to me and thinks I’ve gone mad. My friends don’t believe me that I’m still American and that I should b paying taxes.
@Stressed, you live in Canada, and are Canadian. Don’t let anyone else convince you otherwise just because it is easier for THEM if you believe it.
I agree WhiteKat. Canada is already helping to offload the costs of keeping Canadian bankers and their cousins happy by even considering signing a FATCA IGA: we’ve already paid via our Canadian taxes for all the negotiating and whatever consulting has been done to date – out of ‘existing revenues’ according to the non-answers Flaherty and crew offered up in ‘answer’ to the questions posed by MPs Hsu and Brison http://isaacbrocksociety.ca/2014/01/28/urgent-q121-ted-hsu-questions-to-parliament-has-insufficient-answers-cross-post-from-maple-sandbox/ . Canadian taxpayers and accountholders will be paying the initial plus the forever-and-ever ‘compliance’ costs to implement FATCA – and whatever it may morph into in the future. A onetime initial compliance cost for individuals should be 100% Canadian tax deductible – representing some direct and incontrovertible evidence that this is already a drain on Canadian assets and the Canadian fisc. Currently, we cannot deduct those US costs on our Canadian tax return.
@Stressed
Going mad is a completely normal reaction to what’s been imposed on us by a country gone mad. The situation we find ourselves is nothing less than a crisis, with no resolution in sight – only intentions meant to make the situation worse, with no real help in sight. We can only hope that these various efforts being made will work collectively to take us off this course we’re on.
2013’s renunciation numbers are 3 days past due.
@badger,
i wrote Flaherty recently to suggest this. I also suggested he work with IRS to develop a much less restrictive ‘amnesty’ program to allow ALL Canadian ‘US persons’ living in Canada to have the opportunity to come into compliance with ZERO RISK OF PENALTY regardless of taxes owing.
A risk-free, zero cost path to compliance (exception being US taxes owed which would be a bitch for someone who sold their house recently, and realized more than 250K capital gains – but there is no 100% sure-fire way out of this mess) would likely result in 0 Canadian ‘US persons’ left in Canada for which our government would surely be relieved.
In his most recent Forbes article, Wood says, “It is now clear that FATCA is a bigger success than anyone could have imagined”.
http://www.forbes.com/sites/robertwood/2014/02/02/fatca-fuels-irs-amnesty-but-advocate-calls-it-harsh/
Stressed, you are not crazy – no matter what others say. We relate. We’ve all gone through this. My spouse remained sceptical about the jeopardy and pitfalls of all I told him until attending one of the IBS sessions himself, and then he praised the obvious competence,rationality and knowledge of those at the session. Even so, he’s sick of hearing about it – especially the complexities. Other Canadians mostly just look at me like I’m making it all up. Or shrug as if to say : “that’s what you get for being born an American, not my problem”.
Your MP is just passing the buck. Ask if they’d let any other country claim you on Canada soil if it wasn’t the US. Would they let a country who is NOT the US do this? You are in Canada – Canadian citizenship and legal residency status should take precedence over a foreign country’s claims and actions.
The IRS changes its rules like the wind on an inland lake. You never know from one year to the next how many years of what is going to be needed to get yourself free. You never have any idea how high the penalties will be. You never know if they are going to dream up a new form and expect you to know they have done this. You never even know where exactly to mail what and you certainly never know if what you’ve sent them has met with their approval. They just say give us your forms and we’ll get back to you in months or even years as to how much its going to cost you. Ridiculous! Believe it or not, 20 years ago at a tax seminar held at the US consulate in Calgary the tax “expert” told a room full of green faced Americans in their OMG I have to file US taxes moment, that they would have to back file for 13 years! And there I sat, thinking oh those poor people, I’m so glad I’m not American. Stupid, stupid me. Anyway we were just there to try to figure out if my husband was filling in the blanks correctly on the 1040. The tax “expert” never even got past explanations of the first few lines on the 1040, all of which we had already figured out. The whole seminar dissolved into a sea of panic as people tried to figure out how the heck to do 13 years of filing. No mention was made of FBARs that I recall. FBARs were something we found by accident flipping through the overseas package that the IRS used to send each year.
BTW, wish us luck. We are about to drive 200 km on snow covered roads and spend 2 nights in a big city motel, so my husband can get his relinquishment appointment behind him and thus enter the next nightmare of those final tax and exit paper filings. However, first we have to shovel ourselves out of the driveway. 🙁
@Em
Safe travels, and best of luck to Mr Em at the consulate.
Em, it’s snowing here too. Drive carefully! If you want to meet for coffee, would love to.
And, yes, best in all of this to that good Mr. Em!