30-year IRS vet writes, as a veteran litigator for the IRS who is now in private practice, about the IRS and about the rationale behind FATCA.
Dear friends from the Great Country to the North:
There have been a lot of thoughtful comments in the past few days and it is a privilege to participate in this discussion group.
A word to clarify who I am. After 30 years with the IRS I retired from the government and entered the private practice of law focusing solely on representing people before the IRS. I most definitely do not work for the IRS but I know a whole lot about it and how it works. Any person currently working for the IRS who published the things I have on the internet would be fired the very same day. The IRS speaks through its public relations office in Washington or through notices, announcements, regulations, revenue rulings and other approved avenues. All IRS employees have to have any public comments cleared first by someone above them. Even the Commissioner of Internal Revenue coordinates his significant comments to the press through the Treasury Department since the Commissioner of the IRS is also an Assistant Secretary of the Treasury Department.
As a private citizen I can say whatever I want to say about the law, our government, and the IRS. I am free to comment about things people say which are wrong or inaccurate and in my practice I find that my clients appreciate me because I often get them money back from the IRS when I can prove the IRS wrong. I also tell my clients up front when they take on the IRS in an audit or in court if the law is against them or if they have not properly understood the law or if they have little chance of succeeding.
I had a number of interesting jobs with the IRS as an attorney. I was a litigator for the IRS representing the organization in the United States Tax Court. I was also an assistant to a man who became the Acting Chief Counsel of the IRS responsible for managing all the IRS attorneys in the country. That was very interesting because I got to see up close and personal, how tax laws are enacted, how the IRS fits in the Washington scene vis a vis the Congress, the U.S. Treasury Department (where tax policy is formulated in cooperation with the White House), and the Department of Justice which represents the IRS in all US courts except the United States Tax Court.
Please trust me on this: the IRS does not make tax policy. Tax policy is determined by the Treasury Department and the White House who then fight it out with Congress who accepts what the Treasury Department wants, rejects it, or compromises on it.
When an idea for legislation in the Executive branch of government gets some traction, it is true that tax attorneys from the IRS work closely with the Treasury Department to craft the actual language. If a tax proposal continues to be viable, the Treasury Department takes it across town to Capitol Hill where people from the tax writing committees (in the House—Ways and Means, in the Senate, Senate Finance).
Often times the attorneys from the IRS who worked with their counterparts at Treasury on a proposed bill will then work with attorneys from the Congressional Tax writing committees who in turn work with the staffs of whoever in the Senate and the House is willing to introduce the bill in their respective houses. Sometimes lawyers from the IRS are still involved at this stage, often times not.
The reason I am so “defensive” about the people who work for the IRS is because I know from my 30 years’ experience that they are normal people like you and me. I have also learned that people who work for the IRS are over represented in our population amongst people who work with kids, do volunteer work, are involved in church activities and everything else Canadians and Americans think of in terms of what is good and right for society. They are not scheming in their offices on ways to deceive, cheat, or oppress people.
FATCA was conceived because our system of voluntarily self-reporting income and deductions was not working. The theory is, in a democratic society, the government has no right or reason to know what assets we hold or the extent of our personal wealth. The theory is that with an enlightened and educated citizenry, we are on our honor to honestly report our gains and losses on our tax returns. Unfortunately, the government concluded that that was not happening and many Americans were using off shore bank accounts and other foreign investments to cheat their fellow Americans by not paying their fair share.
FATCA was designed to target Americans who were cheating on their taxes through the use of offshore accounts. FATCA is a sad commentary on the fact that in some instances, our honor system was not working. No one in the US government was thinking of Canadian citizens who had little or no connection to the United States when FATCA was enacted.
Nevertheless, the statute which came out of Congress (not the IRS) literally applies to some dual nationals who were minding their own business and not looking for trouble, not cheating the American fisc or the US government and who couldn’t care less what the Americans were doing to administer their own tax system.
So we have a problem and the question is how to fix it. In my next installment I will address what can be done about it from Voluntary Disclosures (which are not for everyone), to organizing a writing campaign to make sure the detailed rules cover Canadian problems, doing nothing and simply blowing it off!
30-year IRS Veteran
“Bad laws are the worst sort of tyranny. ”
– Edmund Burke
For US Tax purposes a foreign subsidiary of a US company lets say like McDonalds Canada is considered foreign/Canadian so no FATCA doesn’t apply to them. Now if you are a US incorporated company such as Tim Horton’s was prior to 2009 yes you are a corporate “US Person.” However Tim Horton’s seeing what way the wind was blowing and given the fact the were physically headquarterd in Ontario change their corporate charter from Delaware to a Federal Canadian one under the Canada Business Corporations Act. Interestingly Tim Horton’s did not have to pay “exit tax” as the US has exempted corporations from this where it can be judged the company is in effect already “foreign” something that doesn’t apply to people.
Flaherty and Harper actually participated in a press conference at Tim Horton’s HQ they day this was finalized.
Today we went to go get ice cream today (it’s VERY hot here). Suddenly, I saw my wife take off running and she ended up talking to a man in a small pickup truck. He is the owner of the establishment (and MANY others $$$). She went to go ask him if his country house, which is said to be very “spectacular” is available for rent during Carnival. This guy is LOADED and he only works because he likes it.
The problem with the current US law is that I can’t achieve the same things that this guy has achieved. I can’t open businesses and do things freely unless I pay a full-time accountant in America to process tax information for America. Why is that so? Because I was born in America. I resent the US hampering my life. The same also applies to Lucas since I am his father. This isn’t right!
They can’t keep the slaves on the plantation if they let people move abroad and start their own businesses.
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