FATCA Discussion Thread (Ask your questions) Part Two
Please ask your questions here about FATCA.
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NB: This discussion is a continuation of an older discussion that became too large for our software to handle well. See FATCA Discussion Thread (Ask your questions) for earlier discussion.
@libertad,
Here is the link to the FBAR mitigation guidelines. Scroll down to the spreadsheets.
http://www.irs.gov/irm/part4/irm_04-026-016.html
@ libertad
You are probably overloaded with advice right now so I won’t give you any. For myself I’m trying to keep it simple. Do I ever want to go the the USA again? Answer: NO! Will the CRA collect for the IRS? Answer: NO! Will I comply with the IRS? Answer: NO! Will I have doubts and worries about this forever? Answer: YES! I am a Canadian, living in Canada, who had a tenuous tie to the USA which is now tenuous AND ambiguous, thanks to the wording of the CND/USA IGA.
@ Just Me
It was a long struggle for you but your ability to deal with complexity pulled you through … eventually. I still think they should return what they stole from you though. Because you stay part of the year in the USA you really had no other option than to put yourself through that meat grinder. It was a miracle you emerged, not only whole, but with the desire and energy to warn and help others. Anyone else would have been too tired and traumatized to do anything but keep limping along, after taking their IRS whacks, and trying to stay focused on surviving their annual timorous trips through the IRS mine fields.
@noone
In the last spreadsheet:
A “violation” is each year not filed? the account was opened in late 2011. Our case is Non-willful and the acct was always less than $50,000, so the $500 penalty would apply, right?
If I do “going forward” (big if) I’d only check “yes” on the tax return box, file FBAR and pay tax over the interest of that account?
@all
Does the irs monitor this site?
@ libertad
Does the irs monitor this site?
Yep, we’re pretty sure they do. We hope they are learning something about their own destructive and irrational ways but that’s a long shot.
@no one, I assume that would be correct. The worst case scenario is per account per year, with a 6 years statute of limitation. That’s if you’re audited and can’t argue reasonable cause.
Look at section 4.26.16.4.4 (07-01-2008)
The penalty should NOT be imposed if:
A. The violation was due to reasonable cause, and
B. The balance in the account was properly reported on an FBAR. This means that the examiner must receive the delinquent FBARs from the nonfiler in order to avoid application of the non-willfulness penalty.
Hence my comment about filing them at the time of audit if you’re audited.
Of course, it is up to them to determine if you have reasonable cause. So, in the WORST case scenario, you’d be looking at $2500 for FBAR penalties, after you file for the current year, in addition to the unpaid taxed and penalties and interest. Compare all that to the cost of lawyers and OVDI.
You said “If I do “going forward” (big if) I’d only check “yes” on the tax return box, file FBAR and pay tax over the interest of that account?”
That’s correct.
And yes, Phil Hodgen had reported that the IRS is aware of this site.
Don’t enter OVDI if you think you’ll get a quick resolution to your compliance issues – we entered OVDI about 27 months ago and had not heard ONE WORD BACK from the IRS.
@all-
Thank you again for all the advice and links to very valuable information you have provided. We met with one of Jack T’s recommended lawyers yesterday, and he mentioned the “comply going forward” route, but expressed concern as my fiancee wants to become a citizen, and not fixing the past could affect the acceptance of his application, and according to him, it could even escalate to deportation. In the application for citizenship there are two questions related to taxes: “Since becoming a lawful permanent resident, have you ever failed to file a required federal, State, or local tax return?”, “Do you owe any Federal, State, or local taxes that are overdue?.” Obviously going forward could pose a risk. The lawyer also said the penalty for each non-willful violation was $10000, which doesn’t match the $500 amount stated on the FBAR mitigation guidelines. He said QD was probably our best option, and said we could submit the letter explaining why he hadn’t disclosed before, but I know that’s not possible because the FBARs are submitted online. Maybe I’m not getting the gist of this yet… or maybe this lawyer is not up to speed on things? he did tell us he was going to be way too expensive for us to afford (no less than $10000), and gave us the contact info for a CPA. We want to comply, and since OVDI is not for us, I don’t see another way than a VQD. We don’t want to wait until we get caught (and we believe it will eventually happen); all the lawyers have told us our only advantage here is we have not received any notice from the irs. What are the steps, forms, etc for a QD? is that something we can do on our own or with a CPA at the most? Do you know if most QD cases get audited?
I feel for you libertad. You want to move forward and do what you feel is the right thing but threats of draconian penalties actually prevent you from settling these things. It’s a catch -22 that exists because the US won’t allow itself to show any signs of weakness by having a true amnesty that allows people to come into compliance relatively pain free. That non-wilful penalty is a huge deterrent to a lot of people.
As far as the declaration on the citizenship applications go – FBAR is not a tax return, but the overdue tax question is a tough one to answer. Your fiancé almost needs to plead the 5th there 🙁
Subject: IGA and accounts under $50,000
I just noticed this in the IGA, Annex 1, II.,A.:
“Accounts Not Required to Be Reviewed, Identified, or Reported .
Unless the Reporting Canadian Financial Institution elects otherwise, either with respect to all Preexisting Individual Accounts or, separately, with respect to any clearly identified group of such accounts, where the implementing rules in Canada provide for such an election, the following Preexisting Individual Accounts are not required to be reviewed, identified, or reported as U.S. Reportable Accounts:
1. Subject to subparagraph E(2) of this section, a Preexisting Individual Account with a balance or value that does not exceed $50,000 as of June 30, 2014….”
To me, this seems to indicate that a bank cannot get overzealous and go after smaller account unless CRA allows them to do so in its implementing rules. Should we be pushing for clarification?
> What are the steps, forms, etc for a QD? is that something we can do on our own or with a CPA at the most?
QD just means you have to amend the taxes for the past 3 years where you did not declare the small interest from the foreign account, and check the appropriate foreign account box on the 1040X (amended 1040X). And electronically file the FBAR for the past 6 years. That’s it.
It should not be difficult to do, especially if you used products like turbotax to file them initially. TurboTax lets you easily amend returns and file them.
> Do you know if most QD cases get audited?
The only thing we know is that the IRS said they will scrutinize those returns. Now, they have limited resources, and they probably have a threshold they use to make sure it’s worth auditing someone.
Now, you may subject yourself to the FBAR penalties. The $10,000 penalty according to the IRM is the worst case scenario for accounts greater than $250,000. The IRM is the IRS’ bible. We have heard that they follow it well for people who opted out of OVDI.
Now, just a comment regarding the immigration issue.
– You have not failed to file a tax return. FBAR is not a tax return.
– After the 3 year statute of limitation, you do not owe the IRS anything anymore. Now, if you wanted to apply for citizenship prior to that, then yes, you would want to do a QD.
Latest from Allison Christians:
Feb 18, 2014 McGill Law podcast interview with Professor Allison Christians re FATCA:
Law & Society
‘FATCA Incoming’ (featuring Professor Allison Christians)
http://podcasts.mcgill.ca/law-society/fatca-incoming-featuring-professor-allison-christians/
Also this one which I haven’t seen yet:
@libertad, one more thing. If you choose QD, please post back when/if you hear from the IRS, and let us know in the http://isaacbrocksociety.ca/2012/01/28/the-ovdi-drudgery-for-minnows/ thread what the outcome is.
We haven’t heard of anyone who got audited after a forward compliance of quiet disclosure and would appreciate learning more about how the IRS treats minnows they audit after trying to get compliant this way.
Thanks!
@ badger
That’s a good interview isn’t it? I used that as a suggested teaching tool in the e-mails I sent to all opposition leaders yesterday. I did not imply the leaders were not up to speed on FATCA (even though I really think JT is not up to speed), just politely suggested that they may have party members who need to be better acquainted with FATCA in order to present the strong counter arguments that I expect from them. I firmly stated that my vote would go to the party which presented the best opposition to FATCA. This is the link I used …
http://directory.libsyn.com/episode/index/show/mljpodcast/id/2687838
@Petit
Further to your quote From Annex I, II(A), have a look at the immediately preceding Annex I, I(C):
I think the “relevant U.S. Treasury Regulations” might be the original FATCA regulations. If this is the case, a Canadian FI could choose to use those rules instead of the negotiated Canadian IGA???
I don’t think we’ll know until the CRA publishes their guidance document, hopefully by the end of Feb.
The UK guidance document is 142 pages long. BTW, this UK document mentions the 98% rule (and several other rules) regarding non-reporting FIs that we discussed recently. There are many interesting things and examples in the UK document, but I think I’ll wait and read the Canadian guidance document before I get excited or worried about any details.
http://www.hmrc.gov.uk/fatca/130814-guidance.pdf
@WhatAmI
What I find frustrating is all those “mays” and “not requireds” and “may elects” IF “Canada permits” or IF “Canada’s implementing rules permit”. You’re right, the rules will mean the difference between a lot of people having to worry a lot or not very much.
As it is “not required to report” is about as reassuring as “not required to kill your grandmother so you can come into your inheritance early”. That would really reassure Grandma!
@Petit
Agreed!
Look at this from the UK guidance document. As people have been speculating on IBS for quite some time, won’t most FFIs simply ignore the thresholds and report everything?
I have sent my ranting old lady letter out to every big newspaper (US and Canadian), TV station, Finance Canada and legislators in both countries I could get addys for. (Over at Phil Hodgen’s blog he stated wait till they start going after grannies pension there is going to be a sh*t storm). Well I hope to be part of that storm but I fear he was just being hopeful. No one in power seems to be listening, grrrrrrr. I do have a question for all of you. How is it that I am such an idiot that I never knew about FATCA and FBAR till a week ago? Where in my life was I suppose to have bumped into this information? I am culpable for the situation I find myself in and feeling quite down (hysterical actually). I owe the IRS $300,000 plus in penalties, YIKES I watch the news every night, read the newspaper, even the financial sections regarding retirement issues. I rather thought of myself as informed, boy was I mistaken. I sure missed this one. If the IRS is reading this may I suggest you start using your drones to drop IRS “new rules” flyers over Canada.
Below are the comments I sent in to the Department of Finance on the FATCA legislative proposals and explanatory notes. Please note that I have concentrated on the category of persons that concerns me most ( old and very old relinquishers), but I feel that much of what I pointed out could be useful for other categories. Also, you will notice that I mention how problematic obtaining a CLN could be for the elderly, but I in no way wish to discourage or denigrate those who have chosen to apply for one. I may also send this as a direct communication to the Ministers of Finance, National Revenu and Seniors, as well as the respective opposition critics. If the administrators find these comments useful, I don’t mind having them posted on the home page or elsewhere, and anyone is welcome to cut and paste.
…………………………
As a retired Canadian citizen, I have some comments about the recent intergovernmental agreement (IGA) between Canada and the US concerning the Canada Revenu Agency’s implementation of the US Foreign Account Tax Compliance Act (FATCA) in Canada. Considering the number of people involved, and the vulnerability of this segment of the population, I believe that certain questions should be asked when preparing the enabling legislation and the implementation rules that CRA will communicate to financial institutions:
1. Will the American Internal Revenue Service be able to harass Canada’s elderly?
Under the proposed FATCA intergovernmental agreement, tens of thousands, possibly hundreds of thousands, of elderly Canadian citizens may be at risk of finding themselves reported to the American Internal Revenue Service and of receiving notices of assessment and fines. This is a distinct possibility unless Canadian financial institutions receive clear directives and clarifications from the Canada Revenue Agency on how to handle their situation. And if the CRA does not make a concerted effort to inform these citizens of their rights, they may fall prey to so-called tax experts whose advice and fees, combined with US penalties, could cost them many thousands of dollars.
I am referring to those Canadians born in the US and who took Canadian citizenship as adults before 1986 and to those Canadians who were born to Canadian parents in the US, were registered as Canadians, reached adulthood in Canada before 1978 and did not go to the US Consulate to swear allegiance to the US.
They were told in no uncertain terms by US Consulates that they would automatically lose their US citizenship, but were rarely given a Certificate of Loss of Nationality. Now they may need to have such a certificate to prove they are not US persons under FATCA. They could obtain one through a US consulate after a complicated bureaucratic process. Not only is this time-consuming and stressful, but often requires travel that would be a hardship for many. But worst of all, there is a very big catch even if they should obtain a CLN. The certificate will indicate that they lost their citizenship way back when before 1986, but the IRS, referring to a 2004 law, says they may owe taxes for the five years previous to the day they request the certificate. And the consulate sends a copy of the certificate to the IRS. This led to an article in the International tax journal entitled “The malevolent time machine,” which you may access here:
http://www.robertsandholland.com/siteFiles/News/03-05-13_Expats%20Live%20in%20Fear_MJM.pdf
Some interpret the 2004 law as not applying to those who relinquished before 1986, but the IRS has not accepted this interpretation. Can you picture an 85-year-old resident of a retirement home contesting this law in a Washington, D.C. court?
Canada Revenue Agency seems to mention this problem in its new FAQ on the FATCA intergovernmental agreement:
http://www.cra-arc.gc.ca/tx/nnrsdnts/nhncdrprtng/fq-eng.html#q2-3
This is the pertinent question on the site:
“17. Does the Agreement require Canadian financial institutions to report to the CRA on any individuals who were told that they relinquished their U.S. citizenship when they became Canadian citizens?
The Agreement does not require Canadian financial institutions to report on any individuals who have relinquished their U.S. citizenship and are not residents of the U.S.
Individuals who have relinquished their U.S. citizenship may be asked by their financial institution for documentation to this effect.”
The IGA itself also refers to a situation where an institution may accept “a reasonable explanation of the reason the Account Holder does not have such a certificate despite relinquishing U.S. citizenship.”
The trouble is, the answer is not clear. Will the institutions be asking for a Certificate of Loss of Nationality from the US Department of State, or will they be instructed by CRA to accept Canadian documentation, such as a citizenship certificate showing that the person became a Canadian before 1986 at a time when he or she automatically lost their US citizenship? That should be accepted as a reasonable explanation.
2. Will there be protection against witch hunts by overzealous banks?
Another vulnerability for these citizens is the lack of clarity caused by the frequent use of “not required” both in the IGA and the FAQ, when referring to the institutions’ search for possible US persons among their account holders. For instance, under the section “Accounts not required to be reviewed, identified, or reported”, in the IGA, which refers to accounts under $50,000, this text appears:
“Accounts Not Required to Be Reviewed, Identified, or Reported. Unless the Reporting Canadian Financial Institution elects otherwise, either with respect to all Preexisting Individual Accounts or, separately, with respect to any clearly identified group of such accounts, where the implementing rules in Canada provide for such an election.”
And again, in the CRA’s FAQ, the following question:
“6. Will my financial institution be asking me if I was born in the U.S.?
A financial institution complying with the Agreement will not be required to ask its account holders about their place of birth. ”
Since “not required” is not the same as “should not”, it is obvious that the implementing rules and directives that the CRA sends to financial institutions will be crucial to protect elderly “suspected US persons” from institutions that might find it easier to inquire after the place of birth of all their account holders.
3. Will CRA be more proactive in informing Canadian citizens that CRA will not collect for IRS?
Another essential step to protect these elderly citizens is to actively inform them of their rights. The FAQ on the Department of Finance website, as well as occasional articles in newspapers and a letter sent to various correspondents by Minister Flaherty confirm that CRA will not collect for IRS from Canadian citizens on liabilitities incurred while they are residents of Canada. However, this information is conspicuously missing from the FAQ on the CRA’s website which is the first place most Canadians would look for information.
CRA is the only agency capable of communicating with practically every Canadian citizen. They should publish this information not only on their website, but on the forms for income tax filing, both printed and electronic, as well as on their electronic filing site.
All very good points Petit Suisse,
And I’ve been very curious about why the Conservatives think that they can afford to alienate seniors, and those with any savings at all. I would think that that was an important part of their constituency. Seniors vote. Those with means vote.
And the Conservatives have been given a PR nightmare of an effective date for FATCA: ON CANADA DAY!! Easy to remember and hammer home – the Harper and Flaherty Conservatives betrayed Canadian taxpayers, voters, citizens and legal residents – and gave away Canadian family savings – ON CANADA’s BIRTHDAY!
Those affected by their IGA with the US allowing FATCA in Canada will find it hard to vote for the Conservatives.
So, what makes the Harper Flaherty Conservatives think that this is something that won’t be held against them forever? This certainly crosses party lines – FATCA is no respecter of Canadian political party membership. The FATCA IGA will net Conservatives just as well as others. Conservatives and their natural supporters will not be exempt. And what of those with means that might have contributed to the Conservative election fund? I’d be pretty pissed if it were me and I was a party stalwart.
Harper signing the FATCA IGA is like telling us that the Canadian government is in favour of assisting the US in punishing us for having INVESTED IN CANADA.
@ badger
Yep, the USA managed to “F” up (FATCA up) Canada Day that’s for sure. It will be hard for some of us to ever celebrate on July 1st without the grim reminder that it was on that day in 2014 when Harper and his Harperites surrendered Canada’s sovereignty to the USA.
@Charl,
You are definitely not an idiot! I wouldn’t have known anything about FATCA either if a friend of mine who knew where I was born hadn’t seen an article in the financial section of the Globe and Mail back in 2011. In my submission to the Finance Department I suggested to them that they simply must spend the time and the money to send a notice about FATCA to every home in this country so that all Canadians can be advised in advance of what is about to take place. The banks certainly aren’t telling anybody. Have you seen any notices about FATCA in your bank? I haven’t. Are some hapless folks going to hear about this for the first time when they walk into their bank and get handed a W-8? No, you are not an idiot! The lack of publicity about this assault on the rights of Canadians is just stunning.
I’ve just been reading through some of the latest posts and now I am confused again. A number of people have been discussing “non-wilful penalties”. I thought that penalties could generally be avoided (through, for example, the streamlined process) for people with limited assets and who have a reasonable cause for not knowing about filing “obligations” and FBARs (such as having lived most or all of their life in Canada). What is this about fines for non-willing non-compliance?
Nick…
Let me see if I can clarify…
A nonwillful penalty, is one that is asserted by a government for your failure to comply with some law (this case requirement to fill out a form) without regard to your actual guilt. They don’t have to prove you guilty, as is the normal judicial process. They declare you guilty (you failed to file it) and then leave it up to you to prove your innocence or present a mitigating factor for your failure.
A nonwillful penalty is classically referred to as ‘shifting the burden of proof’. It is epidemic in statutes these days, where non willful penalties are the penalty of choice to impose sanctions on a person or an entity. Every new statute passed by Congress is full of them.
The ‘prove your innocence’ process takes the form of the “reasonable cause” letter or statement where by the Government sets the criteria for what they consider to be “reasonable” and if your argument or plea doesn’t meet their standards they still can apply the penalty in full or in some mitigated manner.
So, if you don’t want the penalty applied automatically, you have to do something to plead your case as to why your failure had a reasonable cause, and if you get the right examiner, or sympathetic overlord to agree with your plea, then you are released from the obligation to pay the penalty. It is a perversion of the legal protection process of ‘innocent until proven guilty’.
A ‘willful penalty’ still requires the burden of proof by the government before the penalty is assigned. They have to get a judgement in a court of law.
A nonwillful penalty, no court process necessary. They just send you the assessment and you pay it.
@ Just Me
Is your first “nonwillful” actually “willful”? The description seems like a deemed “willful” to me (there’s that “deemed” thing again). Just wondering.
@Nick
You are correct in that Streamlined should waive all penalties (leaving just taxes owed and interest, if any). Indeed, I believe there have been no reports of anyone in Streamlined receiving penalties.
AFAICT, willful and non-willful seem to come up mostly with OVDP/I, which all good expats should avoid like the plague.