Liberty and justice for all United States persons abroad

The Isaac Brock Society

Posted on by Posted in Issues regarding US persons abroad 71 Comments

I just came across a rather disturbing bit of information that destroys any sense of security we’ve derived from the statements that “CRA will not collect taxes from anyone who was a Canadian at the time the tax was incurred.”

The author claims that Canadian Financial Institutions are not signed on to the Tax Treaty and that the IRS can take the information received from the CRA, contact the bank directly and ask the bank to collect penalties (not taxes and interest?) from the account holder and remit to IRS.

This doesn’t sound correct to me as the IGA may allow the banks to give info to CRA but I’m not aware that the IGA nullifies PIPEDA, which would still stand. If the argument is made that the “Treaty” trumps domestic law, and they can get away with applying that, we are in serious trouble. Allison’s arguments become very important and the government should have listened.

This position seems to depend upon a relationship between a Canadian bank that has branches in the US:

“IRS will go with a demand to collect penalties from the account holder’s information they have received from CRA to Canadian Banks operating in the USA, namely RBC, TD, HSBC etc. Once the USA branch of Canadian Banks gets the demand letter from IRS, they will forward it to respective Canadian Branch where the account holder has account with the banks. As far as bank operation goes, they will either collect and remit the penalties on behalf of IRS or freeze the account until the penalties are paid.

If Canadian banks don’t comply with IRS demand, any payment coming to them from the U.S. will be subject to 30% withholding tax on gross income. They will be also forced out of doing business in U.S. capital markets and markets that conclude contracts in U.S. dollars, 1.e. the commodity or petroleum market.

U.S. persons now must comply with USA tax laws, or risk the discovery by the CRA and IRS which can make their life miserable and wealth diminished.”

If this is truly the case, why haven’t the compliance community/politicians pointed this out? Is this a willful omission on their part? This information comes from a company in Vancouver “Cross Border Tax Service.”

Those of you in the legal community, please weigh in on whether a subsidiary branch of a Canadian bank in the US can force the Canadian parent company to collect/withhold. It sounds rather tenuous to me yet as we have seen in the last few days, they seem to be able to do whatever they want.

Here is the article.

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71 thoughts on “FATCA and USA Citizens in Canada: You are Screwed!”

  1. Does anyone know when Jim Bopp is supposed to file his case with the Supreme Court against FATCA? If he succeeds, will all information gathered prior to the Supreme Court ruling be in admissible in court? It seems to me “we” should all be getting behind his efforts.

  5. If the US starts collecting money in such an underhanded way, the demand for change will grow louder and louder. The US is going to overuse sanctions as a tool someday to their regret.

  6. They resort to this type of ‘hostage taking’ all the time for all kinds of purposes. The BNP fine for $9 Billion is a recent example.

  7. @bubblebustin

    As far as I understand, this is exactly how they did it. But then, I do not know if Swiss law and their Treaty with the US is precisely the same as ours. I am hoping it was/is not.
    It also runs in my mind that the whole thing started when one of the Swiss officers was in the US, was arrested for aiding in tax evasion, etc. I’ve no idea how or if that may affect things as well. :-\

  9. I think our Canadian pols need to realize if penalties such as this impact low income persons, the elderly, students etc that the blow back on Canadian society will be enormous. Perhaps some sort of pauper support will be available in Canadian social programs? They’ll need to get ready for people to lose their homes, their ability to pay bills here and their savings so get ready Canadian pols to make plans to have to take care of us or see us in the street with donation cups. Never thought I might see the return of the squigee kids in the form of squigee elders.

    I did realize though that the U.S. always intended to have FATCA be just a toe in the door. It’s a fluid document. They can do with Canadians as they please now that this government caved to them. That was one of the huge dangers and they totally ignored that language in the original legislation. The U.S. CAN and WILL demand more and more and more.

  10. Wow…thanks for posting this. I have no legal background. But from becoming familiar with how the IRS and US government operate, I think this is probably true. The IRS will most likely try to collect account holder penalties from FFI’s like RBC, TD, HSBC, BMO, Scotia Bank. These banks operate in the USA as well as Canada so they will cooperate with US/IRS.

    We have to take precautions on all fronts. For me this means banking at credit unions, becoming a non US person, and supporting the ADCS lawsuit.

  11. Maybe Joe Arvay can find out if this is true, as this would happen outside the IGA, and therefore the lawsuit becomes irrelevant in stopping FATCA in Canada, doesn’t it?

    If it’s not true, then this compliance condor is the worst kind.

  12. A relevant court case from 1989 involving TD has been mentioned at IBS a number of times, including just recently. Perhaps someone can find the comment, or the person who posted the reference to the 1989 case can repost it here.

  14. Let’s look at it from the bank’s point of view as well. Banks are all about trust. Even if you believe you’re not a US person why would you want to take the risk using a bank with US branches? Safer to bank in a bank that doesn’t have any.

    Then we’ll have two types of Canadian banks. It could potentially tarnish a bank’s reputation and make it more difficult for them to get retail money or even corporate. Presumingly the IRS could do this for business accounts as well controlled by US persons.

    If the IRS is allowed to run rampant and collect money this way perhaps the US may find foreign banks starting to pull out of the US market and hopefully costing Americans jobs.

  15. Bubblebustin: I agree. We need more information about this. Who *is* this guy anyway? He doesn’t even post his name as far as I can see. His article is loaded with grammatical errors, etc. If I received an email as badly written as this I’d assume it was spam and delete it immediately. That being said we owe it to ourselves to learn more about the scenario he portrays.

  16. One more very large nail in the coffin of the feasibility of dual Canadian-US (or anything else-US) citizenship, for those residing in Canada or any other country outside the US. One more reason to get a CLN as soon as you can, if you don’t already have one. However and whatever it takes. IMO anyway.

  18. This is of course nonsense . Consider the source- ‘Cross Border Tax Services”

    Eric- it’s easy- go to the ADCS link and follow the donate now instructions. A cheque in the mail works well.

  21. I cannot find the link that Hazy refers to but the short version is an American court ordered an American branch of a Canadian bank to seized funds from the Canadian account to satisfy a US tax liability. The Canadian supreme court said not so fast and forced the bank to give the money back. The net result is the bank paid the tax to avoid the penalties for not complying with the court order.

  22. This does not look like the blog of a legitimate tax professional. What is being stated as a fact is really more like speculation as to what might be done. I’ve made similar posts here, but am careful to state when I’m speculating.

    The situation he is describing is one that has always been available to the US, long before FATCA. In the UBS matter, they had evidence handed to them by a whistle-blower proving criminal actions on US soil by UBS employees actively promoting and facilitating significant tax evasion among US residents. Such flagrant abuse by UBS prompted a commensurately draconian response by the USG by holding the UBS(USA) hostage, so to speak. I’m not sure exactly which provisions the USG invoked against UBS(USA), but there are so many financial regulations that I’m sure the USG could legitimately identify many which had been broken.

    I would say it’s extremely unlikely that the US would take such action against a bank who unwittingly maintained an account for a Canadian who turned out to be a US person. I specifically disagree with the blogger that Canadian banks have entered into a contract with the IRS allowing them to collect taxes or penalties. In Canada, tax at 30% can be withheld only against nonparticipating FFIs. The US has been targeting money launderers, dictators and sanctioned countries by freezing assets in the US branches of FFIs for many years. I suspect that in time this could become a reality for ‘tax evaders’ if these international taxation programs (GATCA) keep gathering momentum, but it will be authorised by regulations that have yet to be added.

    In the meantime I suspect the USA will not resort to a UBS style seizure unless they identify a case of such criminal magnitude that few would argue against it; but then the precedent will have been set.

    Those who are concerned by this eventuality might consider using only financial institutions without a US presence.

  23. After my post above, I went to the original article. The author either isn’t fully informed or isn’t playing cards with a full deck. He states that a US person is anyone born in the US or with a US birth certificate. Nowhere in the article can I find reference to the FACT that in US law anyone born in the US or with a US birth certificate can lose their US nationality and any of seven ways listed in the US Code, can have issued to them by the State Department a Certificate of Loss of Nationality which certifies this, and that under all the IGAs I’ve seen, accounts held in Canadian (or other non-USA banks) by persons who show the bank a CLN, are not deemed reportable to the CRA or IRS.

    Moreover, if you google the US tax code and read how it defines US persons, you find that it says “US citizens.” It says nothing about US birthplace or birth certificates. If you have a CLN, you are NOT a US citizen. That’s what the document means. And hence under the US tax code you are NOT a “US person.”
    http://www.irs.gov/Individuals/International-Taxpayers/Classification-of-Taxpayers-for-U.S.-Tax-Purposes
    Please note the above link was updated by IRS in May 2014. READ IT.

    I have trouble taking seriously or worrying about that article, given this fundamental ignorance or willful failure to mention the above in the article. I’ll refrain from making a potentially libellous statement about what I think of the character of the author; use your own imagination in drawing a characterization that you think fits him.

  24. Some posters are relying that credit unions will be *safe* from all this Fatca nonsense. I would not go under that assumption because any means we can save or invest will be attacked… because we are *hiding* our funds. The only way we can stop the US is to slam the door in their face with the lawsuit that has been filed. So please don’t assume u are safe… we have to stop them with this lawsuit… so donate… http://www.adcs-adsc.ca/

    This witch hunt will grow and our gov’t will help them. How do we know that a canadian who is not tainted won’t have their info sent to the US… Aunt Mary in the US send checks as a gift to U… Bank decides u must be a US person… then sends all your info out… how do u fix this? You can’t… So please donate to stop this legal theft of our resources and invasion of a foreign gov’t on our soil

  25. His website is wonky but I do recognize his twitter handle.

    All of the conjecture as to his credibility aside, I would really like to hear someone with a legal background address the issue of what can/cannot be done between a bank with branches in both countries.

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