Media and Blog Articles – Part 1 of 11 (to 26 May 2015)

3,971 thoughts on “Media and Blog Articles – Part 1 of 11 (to 26 May 2015)”

1. ****Problems with new IRS procedures for Canadian retirement plans****
   Published on October 14, 2014 at 10:08, by Roy A Berg JD, LLM

   On October 7, 2014 the IRS released Revenue Procedure 2014-55, which purports to make US tax filing easier for US citizens or residents who own Canadian Registered Retirement Savings Plans (“RRSPs”) or Registered Retirement Income Funds (“RRIFs”). Almost immediately, journalists and commentators breathlessly heralded the development as a softened and practical solution for individuals that own these Canadian retirement plans.
   You can’t blame the commentators for their ebullience: the prior procedures for electing tax deferral were complex, expensive, and produced uncertain results. Further, even the IRS’s press release hinted at merciful relief: IRS Simplifies Procedures for Favorable Tax Treatment on Canadian Retirement Plans and Annual Reporting Requirements. Close examination of the new procedures, however, reveals a mixed offering of good, bad, and outright confusion.
   Background on electing tax deferral for RRSPs and RRIFs the harsh “Old Rules”
   Article XVIII(7) of the United States – Canada Income Tax Convention (the “Treaty”) provides that an individual may defer taxation on income accumulated in RRSPs and RRIFs, however, the individual must make an affirmative annual election in order to avail himself of the tax-deferred accumulation. Starting in 2004, the election to defer income in these Canadian retirement plans was made annually on the US form 8891 and included with a timely filed US income tax return.
   If the individual had not timely filed US returns, or if he has missed a few years, he could not remedy this problem by simply filing the delinquent forms 8891. The only solution to the problem of unfiled (or late-filed) forms 8891 was to apply to the IRS for permission to make a late election to defer income.
   Treasury Regulation 301.9100-1(c) gives the IRS the discretion to grant a taxpayer a reasonable extension of time to make a regulatory election (such as the election to defer income tax on the form 8891) provided:
   1. The taxpayer acted reasonably and in good faith; and
   2. Granting the extension will not prejudice the interests of the US Government.
   These requirements are deceptively difficult to satisfy and do not guarantee that the IRS will grant the taxpayer the ability to make the late election.
   The process of making the application was complex and expensive. Further, the individual requesting the ability to make the late election was required to pay a user fee simply to request such relief. The user fee has varied greatly over the years. In 2010, the user fee was $4,000; in 2013 it was $10,000; and for 2014 it is $6,900. The combination of professional fees and the user fee could easily exceed the tax savings to make the election.
   New Procedures to elect tax deferral for “Eligible Individuals”… the good news for some
   The good news provided in the Revenue Procedure is that “Eligible Individuals” are no longer required to file form 8891 to ensure that, for US purposes, the income in an RRSP or RRIF grows tax-deferred. The even better news is that (again for Eligible Individuals) the individual does not need to apply for a ruling in order to make a late election to defer income these Canadian retirement plans.
   In order to defer the income in an RRSP or RRIF the Eligible Individual need only make an election when there is a distribution from one of these types of plans. The Revenue Procedure does not provide the details as to how this election will be made, presumably that will follow at a later date.
   Who is an “Eligible Individual?”… the bad news for many Canadians
   Clearly, Eligible Individuals will benefit from the procedures set forth in Revenue Procedure 2014-55, however, close examination shows that many Canadians will not qualify.
   According to Section 4.01 an Eligible Individual is a beneficiary of a Canadian RRSP or RRIF who, inter alia:
   Has satisfied any requirement for filing a US Federal income tax return for each taxable year during which the individual was a US citizen or resident.
   I’ve added emphasis to the two critical terms in the definition. First, in order to be classified as an Eligible Individual, the taxpayer must have satisfied any filing requirements. Note the operative term is “any” and not “all.” This is a taxpayer-friendly term because it does not require the individual seeking Eligible Individual status to have filed each and every of the multiple forms and returns typically required of US citizens living abroad. The individual must demonstrate only that he made some attempt at compliance.
   Second, in order to be classified as an Eligible Individual, the taxpayer must have made some attempt at compliance for each taxable year. This second term is problematic for many US citizens living in Canada because many (and in my practice, I would say “most”) have missed tax filing and reporting for one or more years. As a result, these US citizens residing in Canada will not be classified as Eligible Individuals and therefore will not be entitled to the simplified procedures outlined in the Revenue Procedure.
   Consequences of not being an “Eligible Individual”… welcome back to the harsh ‘Old Rules’
   Section 4.04 of the Revenue Procedure provides that those individuals who have not satisfied any US tax filing obligation for each year must seek the consent of the IRS in order to elect deferral of the income generated by RRSPs and RRIFs. How does one obtain the consent of the IRS in order to make this election? By following the old rules found in Treasury Regulation 301.9100-1(c) discussed above.
   “Eligible Individuals” now face failure to file penalties, where none existed before
   Before the new rules set forth under the Revenue Procedure, beneficiaries of Canadian RRSPs and RRIFs were required to file the form 8891 annually in order to defer the income generated by these plans. From 2004 through 2012 there was no additional penalty for failing to file the form 8891, the taxpayer was simply not allowed to defer the income generated by the plan in that year (unless he requested a ruling, see above). Starting in 2012, however, and pursuant to section 6038D of the Internal Revenue Code, beneficial interests in RRSPs and RRIFs were required to be reported on the form 8938 unless the form 8891 was filed. 1.6038-7T(a)(1).
   Now that beneficiaries of these Canadian retirement plans may no longer use the form 8891, they must report their ownership on the form 8938. Unfortunately, the form 8938 contains a $10,000 failure to file penalty. While the Revenue Procedure makes this result clear in Sections 2, 5.01, and 5.02, it doesn’t address the enhanced penalty structure that may apply.
   The enhanced penalty structure is even more onerous than the failure to file penalty. If the IRS notices that the form 8938 was not filed properly, it will send a notification to the taxpayer. If the taxpayer does not respond to the IRS’s inquiry within 90 days, Section 6038D(d)(2) imposes an additional $10,000 penalty for each 30 day period that elapses following the notice. Fortunately, these enhanced penalties are capped at $50,000 per year. Worse still, the willful failure to file form 8938 may result in criminal penalties per Treasury Regulation 1.3038D-8T(f)(2).
   Revenue Procedure 2014-55 causes confusion and requires clarification
   There is little question that the IRS intended the Revenue Procedure to be taxpayer favorable – one need look no further than the title of the press release for evidence of this. However, there are certain omissions and inconsistencies that require clarification.
   Conflicting direction regarding taxability of distributions from RRSPs and RRIFs
   Sections 6 and 4.02 provide that accrued income on RRSPs and RRIFs must be reported by the individual for US tax purposes. Further, Section 6 provides that the accrued income must be reported consistent with §72 of the Code. In other words, only the income from RRSPs is taxable in the U.S. when it is distributed.
   This result is directly contrary to the example in Section 7, which provides that the entire amount of the distribution is subject to taxation in the U.S. This result makes sense if the contribution to the RRSP is deductible for U.S. purposes but makes no sense if the contribution is not deductible.
   The Revenue Procedure needs to be clarified to make clear that:
   1. If contributions to the RRSP or RRIF are deductible for U.S. purposes (Article XVIII:8 of the Treaty) then the entire amount of distributions from the RRSP will be includable in income for U.S. purposes, which is consistent with Section 7 and the taxation of US retirement plans such as Individual Retirement Plans, 401K plans, etc.;
   2. Only if the contribution to the RRSP is nondeductible for US purposes should the income be subject to U.S. tax. This would be consistent with Sections 6 and 4.02.
   Admittedly, Section 4.01 makes clear that the Revenue Procedure addresses only income accrual and not the deductibility of such contributions for US purposes. However, as noted above the manner in which it addresses the US taxability of such distributions is inconsistent and requires this clarification.
   The effect of the Revenue Procedure on other IRS voluntary disclosures programs
   The Offshore Voluntary Disclosure Program (“OVDP”), Streamlined Domestic Offshore Procedures, and Streamlined Foreign Offshore Procedures provide taxpayers a clear protocol for becoming compliant with tax and filing obligations when there have been prior-period omissions. All three of these voluntary disclosure protocols afford the participant the ability to make late elections regarding RRSPs and RRIFs by following certain rules.
   What is unclear, however, is the manner in which these protocols will work with Revenue Procedure 2014-55, if at all. If the Revenue Procedure supplants the procedures found in the voluntary disclosure programs, many Canadians will be left in the unenviable position of having to request a ruling in order to defer the income generated by these common Canadian retirement plans, which will add cost, complexity, and uncertainty to their participation.

   Conclusion
   In simple terms the new US procedures for electing US tax deferral for Canadian RRSPs and RRIFs do not live up to their billing. While the rules under Revenue Procedure 2014-55 do afford a better option for Eligible Individuals, many Canadian residents will not qualify because they have not filed any returns for one or more tax years. As such, these individuals will be left with little choice but to seek leave to file a late election pursuant the complex, expensive, and uncertain ruling procedure

2. @ IRSNEWSFORCANADIANS
   A link would have been sufficient, perhaps with a short excerpt. Posting the entire article isn’t necessary.

3. Global cost of FATCA revealed:
   #FATCA: A Taxing Law Made by a Bunch of Zeroes
   http://bit.ly/1yHS09P

4. “I am advising clients to stay away from the streamlined program and just do a quite compliance filing of back returns and FBAR’s. I think it is a much safer way to go.”

   http://taxconnections.com/taxblog/problems-with-the-streamlined-program/#.VEE5RWK9KSM

5. HERE’S ANOTHER ARTICLE THAT ACCEPTS COMMENTS

   http://www.ftadviser.com/2014/10/17/regulation/regulators/us-law-could-ensnare-family-trusts-in-uk-sFFjO5DuyJ9JQBrinkSyGL/article.html

6. From what I understand a quiet disclosure means that if the IRS has an issue with your tax returns, they have to use due diligence and the rule of law to pursue you. If you enter a so-called “amnesty” program you are essentially admitting to being a criminal and therefore subject to whatever penalties they deem to be applicable with little recourse.

7. @GwEvil

   **If you enter a so-called “amnesty” program you are essentially admitting to being a criminal and therefore subject to whatever penalties they deem to be applicable with little recourse**

   I deem it as handing them the knife to kill u & the master key to everything u own to help themselves… we are not criminals…. we are people who didn’t know the rules because it made no sense… we all know not to kill people… its a basic rule… I had no clue about any of this… cause it don’t make sense… funds never touched US soil yet they say its their due? Explain that to me… Basically making anyone who has a taint of the US a tax slave…

8. Double Jeopardy—Global Psychopaths at the #IRS
   http://bancdelasteroideb612.wordpress.com/2014/10/17/double-jeopardy-global-psychopaths-at-the-irs/
   http://bit.ly/1wQRBNU

9. I disagree. Streamlined requires no admittance of guilt of any sort. In fact, for Streamlined 2 (offshore), you must certify “that the failure to file tax returns, report all income, pay all tax, and submit all required information returns, including FBARs, resulted from non-willful conduct.” I.e., you are certifying that you are not a criminal.

   Additionally, there have been absolutely no reports of *anyone* going thru Streamlined (offshore) and being hit with penalties. Worst case scenario is paying back taxes and interest.

   Again, to date there is no evidence that I am aware of of Streamlined (offshore) being anything other than what it’s supposed to be: the official mechanism for non-compliant offshore individuals to become compliant by filing returns and FBARs, and paying back taxes and interest.

   Note that I’m not talking about Streamlined domestic. I think it’s incredibly wrong to inflict a 5% FBAR penalty on non-wilful conduct as is done in Streamlined domestic.

10. @tdott – you sure about that? You have to certify that you were “non-willful” which you pretty much cannot do under the circumstances. Now that the whole world knows about the requirement to file US taxes if you are deemed a “US person” how can you really certify that you weren’t willful?

    http://www.deblislaw.com/overcoming-the-pitfalls-of-certifying-non-willfulness-when-applying-to-the-streamlined-compliance-program.html

11. @US_Foreign_Person – agreed!

12. @tdott

    ** I think it’s incredibly wrong to inflict a 5% FBAR penalty on non-wilful conduct as is done in Streamlined domestic**

    Not everyone knows the rules even in the US… majority of the people in the streamline domestic were immigrants… who had lives before they went to the US & when they were in the US… GC holders can’t vote & have no voice or help in this. I know immigrants who sent after tax money back to the home country or had money they never brought into the US… we never brought all our funds to the US… this is every dime I ever saved since I was a child… for every single occasion in my life that I rec’d money as a gift… I saved it… barely touched any of it cause that was my emergency fund.. now I could lose a chunk of it cause of this… Why is the US entitled to something that had nothing to do with them… Also… some on this mb seem to think residence in the US are the true tax evaders… if u look at the info… majority of them are/were immigrants… that is whom they are punishing… my family has money put away… that was all they had left when they ran out of their country… elders in my family do not trust any gov’t… we use to tease them about it… now we are sorry we didn’t listen to them… they are totally right… no gov’t… including my home country… Canada… can be trusted to do what they are suppose to… protect their citizens from foreign gov’ts… Elders in my family aren’t worry about this.. their theme is… screw any gov’t… we survived the war… we will survive this. I warn every single immigrant I know or meet.. stay the heck away from the US… its a trap

13. @Tdott

    The IRS’s lack of leniency for domestic filers is extreme, as it will be for snowbirds under the new Streamlined revisions when meeting the substantial presence test, at least according to information in this article by Laura Saunders in the WSJ. Hapless snowbirds who neglect to file a peace of paper, the “closer connection” form will be subjected to 5% penalties regardless of whether they know about the law or not. The IRS, while seeming to be cutting a lot more slack for non-residents, are tightening up on the resident end. I would not go so far as to say that it’s a shift toward residency based taxation, but it is acknowledgment that one size does not fit all when it come to taxpayers, when only a few years ago there was none.

    http://blogs.wsj.com/totalreturn/2014/10/11/irs-revises-a-limited-amnesty-program-for-offshore-accounts/tab/comments/

14. @GwEvil

    Well, most anyone who is entering Streamlined in 2014 is doing so because they found out in 2014 or perhaps latter part of 2013, that they needed to file. So they are indeed non-wilful for 2013, 2012, etc tax filings.

    Heck, we seem to be getting new people in IBS on a semi-regular basis who have only just had their OMG moment. So if these people only found out in 2014 that they had to file, then they are non-wilful w.r.t. 2013, etc filings.

15. This could be an IBS feature. Submitted by le President amateur: Banc de l’asteroide B612

    http://bancdelasteroideb612.wordpress.com/2014/10/17/double-jeopardy-global-psychopaths-at-the-irs/

16. The above article has two eye catching titles:

    Double Jeopardy—Global Psychopaths at the #IRS

    How to screw a Finn with a hotdog stand in Finland

17. OK, in the middle of all this, I have a thought…..perhaps it belongs on a different thread.

    Obviously, The Obama administration is HUGELY EMBARRASSED by the huge number of renunciations occurring under his watch (and rightfully so!). We need look no further than the “new” consular renunciation fees.

    Is there some way that we at Brock could put out a survey to the world asking any FATCA victim/US TAINTED person, if they would renounce their “US Personhood” if asked a question something like:

    “As tax enforcement rules have recently changed, do you wish to remain a US citizen from this date forward with all it’s “benefits and responsibilities”, or renounce your USA citizenship immediately with no further benefits and responsibilities payable to you or by you, and all past “indiscretions with regards to taxes owed to the USA” shall be immediately forgiven.”

    OK, there are many out there with a better grasp of the English language who could better write this hypothetical question, and please do. Also, I’m not the guy with the internet wherewithal to make this happen, but just imagine the media attention such an endeavour might attract…further embarrassing Obama….right at election time.

    Perhaps this could help humble them, at least in to realizing that their “oh so coveted” citizenship isn’t what they thought it was.

    An early thought…….

18. @PierreD,

    I hear you, but NOBAMA gives a shit.

19. @PierreD,

    …meet you at the unveiling. We will be the smiling ones dressed in red and white, cheering for Canada.

20. Some amnesty makes sense as the US has not really tried over the years to inform of tax obligations. In fact they have obfuscated compliance and tax with their wording in tax treaties that these help prevent double taxation when in fact they only reduce double taxation and guarantee that there will be double taxation.

21. Subversive Sonnets: FATCA, the War of 2014
    By Suki

    http://fbariswrong.wordpress.com/2014/10/18/subversive-sonnets-fatca-the-war-of-2014/

    Nativity’s place generates much woe
    Geography, too, can cause its own curse
    Nationality, their offspring, can sow
    Seeds of duality, which is much worse
    For the citizens of Eritrea
    And the slippery slaver, USA……….

22. @ tdott GwEvil

    Very possible that people will be blindsided when the reporting starts. I had my OMG moment earlier this year. It is not hard to miss the articles in the newspapers, most are not front page news. FATCA articles were talking about offshore accounts, people with ordinary banking and investing activities in their resident countries do not think of their accounts as being “offshore”. If you are not aware that you have US citizenship, most headlines would not catch your attention. I have spent countless hours reading and trying to understand this situation. I have younger siblings caught up in this as well. We left the US in the mid 1960s as young children, we understood that we lost our US citizenship and could claim it as adults which we did not. I will always regret trusting a foreign government and not going to the Consulate after my 25th birthday to check my status. My situation is very similar to yours, GwEvil. I thank you and Ginny for your bravery.

    A few years ago, due to a shortage of hospital beds in Alberta, much was made of the fact that women were being sent elsewhere to give birth. One Calgary woman gave birth to quadruplets in Montana, I wonder if she is aware that her children are US citizens?

    @ JC I agree, some amnesty, not tax compliance programs, should be offered. They have been suggested to the US government over the years. Given the large number of people in the same situation one would expect a more reasonable response, instead more punishment in the form of higher fees to renounce. Obama continues to label us as tax cheaters on the news, I refuse to watch him. Many of us are victims of changes in the laws that we could not possibly have known about. Others carrying US passports were known to the US and could have been informed yet were not.

23. @heartsick – I am not for one minute suggesting that any of us “should” have known about any of these filing obligations (ostensible “obligations” which I don’t agree ARE obligations at all!).

    What I am saying, is that these so-called “amnesty” programs are anything but. I meant that tdott, (or any of us!) should not assume that entering the streamlined program and entering a plea of non-willfulness will guarantee that the IRS will see it that way at all. In fact it would be safer to assume they won’t, and do a quiet disclosure instead because in that case the IRS MUST pursue you under the rule of law, where you are guaranteed protections. If you enter into any of their programs, including streamlined, you must essentially tick a box giving up all your rights under the law and are at their mercy, or lack therof. Don’t trust those bastards for one second!

24. Don’t tax him—Don’t tax me—Tax the man behind the tree. A number of additional questionable issues also come up when running search terms related to FATCA.

    The spending is strictly domestic infrastructure
    Yet the revenue is international–from US citizens overseas

    FATCA is a huge burden upon foreign banks—–who will be deputized IRS agents.
    The Administration has a Motive–It’s own favorite personal banks

    An amendment to fund Barack Obama’s Corrupt Partner was denied

    http://bancdelasteroideb612.wordpress.com/2014/10/18/fatcas-shady-sides-a-growing-list/?preview=true&preview_id=492&preview_nonce=8cbd92fc97

25. @ GwEvil
    None of your comments suggest to me that anyone should have known about these “obligations”, my point is that there are still people that do not know and should not be termed “willfull”. I was just responding to your comment “now the whole world knows”. Whether or not the IRS will acknowlege this remains to be seen, I don’t know if there is much chance to argue “willfullness” in these programs. I certainly understand your point and appreciate the problem with letting the IRS decide. As tdott has stated we have not heard of any people being denied their claim of “non willfullness” yet. Some claim “back door” or quiet filing may be seen as trying to hide willfullness. There is a risk in everything we try to do, there is no clear path. The IRS has further muddied the waters with its announcement of a change in the reporting of RRSPs, not explaining how it will be handled in the streamlined program. Entering their tax system in any way feels like a game of Russian Roulette. No guarantees.
    Many of us just want to get rid of this citizenship, we did not ask for it and do not want it. A true amnesty program would let us out, not that “amnesty” is the right word, we have done nothing wrong. At least the Canadian lawsuit and others will bring the problems into the light and maybe the US will be forced to rethink CBT which is the real problem here. The Republicans are saying they will get rid of it but are not saying just how they would do it. We would like to see past “obligations” eliminated but that might not happen.

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