YET ANOTHER TWIST: It is requested by this BC adoption agency that word be spread to any Canadians who have adopted a child from the US: http://www.sunriseadoption.com/node/938
All children born in the USA and adopted by Canadians over the past number of years (of which there are several hundred) are US citizens. This, of course, brings a number of rights and responsibilities. For example, they would be subject to a military draft.
The USA is the only country in the world that requires its citizens to report on their world-wide income, file a tax return, and pay US taxes, no matter where they live and irrespective of what other citizenship they hold.
Now the USA has introduced a new and complicated law, which will affect every US adopted child in Canada. The name of the legislation is “The Foreign Account Tax Compliance Act” (FATCA).
Although the original intent of FATCA is to track down Americans who put money in tax havens off-shore, it applies to every US citizen anywhere. It applies to Canada even though it is not a tax haven.
All US citizens living in Canada must now do the following:
1. US citizens, residents and green-card holders who own financial accounts outside the US that exceed $10,000 in total at any time of the year must disclose them in the US Department of Treasury Form TD F90-22.1, Report of Foreign Bank and Financial Accounts, commonly called FBARs (this is in addition to filing an annual US Income Tax Return).
2 .A “foreign financial account” means Canadian bank accounts, checking and savings accounts, investments, securities and brokerage accounts, RRSPs, RESPs, TFSAs, insurance and annuity policies with a cash surrender value, commodity futures or options account, shares in a mutual fund, etc.
3. All Canadian financial institutions will be required to advise the IRS of any account holders who are US citizens.
Needless to say, these requirements have been controversial in Canada. Margaret Wente of the Globe and Mail has written an article outlining these controversies, and the Globe and Mail Web Page also links to several other articles outlining the concerns of the Canadian government, Canadian banks, and financial institutions, as well as those of US citizens living in Canada. While these rules apply to all US citizens living in Canada, the purpose of this article is to focus on adopted children.
Some children are not old enough to have bank accounts yet, while other children will have bank accounts in their names (and perhaps other financial instruments which may have been gifts from grandparents etc). Until the child reaches the age of majority the parent is required to file the forms on the child’s behalf on all qualifying accounts back to and including 2005.
Adopting parents face difficult decisions in the years ahead. The reasons for this are complex, but families basically have three options:
A. Parents and their adopted children can comply with the US legislation. This seems like the prudent approach, as explained further below.
B. Have the child renounce his or her US citizenship. Of course this is not a decision that should be taken lightly. The catch is that you cannot renounce your US citizenship unless all your tax returns are filed, all the financial asset disclosure statements (FBARs) have been filed, and all US taxes and penalties are paid to the IRS.
C. Parents and the adopted child could simply not comply. As the Globe and Mail articles point out, many US citizens living in Canada are confused as to what to do, and some have stated that they do not intend to comply because of the exposure to high rates of taxes and penalties. This reason does not make sense for an adopted child. The chances of them having complex or large assets at this stage in their life are small. It does not make sense for adopted children to choose this route.
Whether your child lives in Canada as an American citizen, or unless and until they eventually renounce their American citizenship, they must file tax returns every year (if they have income), and if they have any qualifying financial accounts must file FBARs every year.
As a result, I recommend that all parents of children adopted from the USA become familiar with these rules and, if applicable, file the necessary documents with the IRS every year.
For more information Google search for FATCA, and that will bring you to links to the IRS web page (which has a FAQ page), as well as many other articles and opinions on this new law.
Please disseminate this information widely to anyone you know who has adopted a child from the USA or intends to do so in the future.
Natasha Chalke Executive Director Sunrise Family Services Society Vancouver, BC www.sunriseadoption.com
I am just waiting for some poor adopted baby to receive an FBAR fine. That would become our cause celebre. Come on Douglas Shulman, I dare you. I double dare you.
This is becoming more and more Bizarre!! This is totally Ridiculous!! Makes me so mad!!
Well good, channel that anger. But if the child is not an adult, I think that folks can safely ignore this message. But it certainly adds to the hysteria and the plays into our hand.
The article from the adoption agency focuses on the issues that arise once the child has been adopted. As bad is this is, it is not the real problem.
The real problem is that: FBAR and FATCA have made it so that non-U.S. “potential parents” will NOT consider U.S. born children for adoption. Would you want the IRS obligations if an alternative (non-U.S. born child) existed?
http://renounceuscitizenship.wordpress.com/2011/12/31/fatca-and-fbar-make-u-s-born-children-virtually-unadoptable-for-non-u-s-parents/
You’re right — that is the real problem!! Best for potential parents to be forewarned of this complication and come to terms whether or not they can deal with what it all means. US citizen information should be in their ‘adoption information package’. Who with all that adopting a child entails would think of this aspect?
And, for the parents who have recently (or not so recently) been successful in adopting a child from the US, planning around what US citizenship means for their child in Canada (or another country)is better done sooner rather than later.
Welcome to Canada, little ones. This will be a really good country for you to grow up in.
One issue is obvious here to me; for strong healthy babies there is never any lack of parents who wish to adopt. The mentally or physically disadvantaged, crack babies or others who might be less than “perfect” may be available for Canadian parents who have a burden to love and take of a child with special needs. Except now, the US government is going after the rich with a vengeance, without concern of how it places burdens and stumbling blocks in front of the young, the innocent and the law abiding. The Mitchell Law.
Petros, the US is essentially going after everyone – who has American ties, but lives overseas – with a vengence. There’s no way in this world that there could be so many rich Americans hiding money illegally to justify a law like this that is so expensive and makes so little money.
“this is not a decision that should be taken lightly” – umm.. ok.. the mere fact that the US tries to have leverage over you and control you overseas, even though you never derive any benefit from there is enough to justify renouncement.
The current Obama administration has cast this FBAR net broadly, this is for sure. But I think this is the case of Mitchell’s Law — “Bad Government Policy Begets More Bad Government Policy” — they are going after tax cheats (tuna) and catch innocent overseas people (dolphins). But now that the evil of the policy has been pointed out to them, why doesn’t the administration back off a little and give a pass to non-residents of the United States? Because they are themselves are incompetent and evil, unable to feel the pain of thousands of innocent dolphins. But I have to say, this government is unbelievably incompetent or unbelievably stupid: The tuna industry would be closed down if it started catching 1000 dolphins very every tuna. As you say, it is not bringing any signficant revenue into Washington, catching all these dolphins.
This is due to the prevailing mentality that a law that “means well” cannot be wrong.. What they will do is brag loudly and often about the big fish they did catch and ignore the pain they caused to people who number in orders of magnitude greater than the willful tax cheats. We’re just by-catch.
Here are some links that have picked up on the adoption of US citizen children and IRS issues:
http://www.familyhelper.net/heart/drc/120126ustax.html
http://www.sunriseadoption.com/adoptive_parents/news/important_information_canadians_who_have_adopted_a_child_from_usa
@Brock
The information on what I posted back then is from Sunrise Adoption. I think it is important info.
@Petros: If you are correct that many of those adopted by Canadian families have physical or mental disabilities, then responsible Canadian adoptive parents would likely want to establish RDSPs for them. We only have to look at Calgary411’s nightmare to know where that leads.
Today’s NY Times discusses the Russian ban on US adoptions of Russian children in an article “Russian Parliament Sends Adoption Ban to Putin”. One of the “NYT Picks” comments describes the difficulties that Canadian adoptive parents of US children are faced with due to the fact that the child is US citizen, subject to the US’ unique citizenship-based taxation. Perhaps one of the Canadian Brockers would like to add to this comment:
http://www.nytimes.com/2012/12/27/world/europe/russian-parliament-sends-adoption-ban-to-putin.html#commentsContainer
Meanwhile, the US State Department criticizes the Russian law as “misguided”:
http://www.nytimes.com/aponline/2012/12/26/us/politics/ap-us-russia-adoptions.html?ref=aponline