Petros responds to Steven J. Mopsick, 30-year IRS veteran latest comment, that some Canadians have probably found that the Overseas Voluntary Disclosure Initiative penalty of 27.5% is actually quite a good deal, since these Canadians are tax cheats and frauds. UPDATE: Steven J. Mopsick responds with a Jack and Jill scenario of a wealthy montréalais couple with a Swiss Bank account.
Are you planning to buy that condo in Florida? Don’t. If you have one already, sell it, even if you have to take a loss.
Are you planning on taking that company transfer to the United States? Politely tell your boss, thanks, but no thanks.
Steven J. Mopsick explains to us why certain Canadians would gladly hand 27.5% of their wealth, including real estate, over to the IRS, who obviously needs the money more than us filthy rich Canadian tax cheats:
To all. I would respectfully ask that you read my post today on the 2% Payroll Tax and what I wrote about the IRS Manual and penalty administration particularly, the duty the IRS has to administer the FBAR penalties in a reasonable manner.
@Petros: may I suggest a change of perspective. You don’t know every Canadian who may have entered into one of the OVDI programs. In fact for some of them, and some Canadians who may be signing up to make one right now, would be embarrassed to talk to you about it because FOR THEM IT WAS A GOOD DEAL! THEY HAD BEEN FILING FALSE TAX RETURNS. In some cases, they would have done jail time had the IRS come to them first. Again, OVDI is not for everyone. Sadly, some people receivd bad advice about OVDI and did not properly weigh their options. I guess some tried to do it themselves. That said,
It’s one thing to be listed in a computer data base. It’s quite another for a government program to hunt for your name and spit it out for special abuse.
If you haven’t had any reason to think of the IRS for a period of the recent ten or twenty past years, you probably don’t have anything to worry about..
Respectfully submitted,
30 Year IRS Vet
If the IRS thinks it is ok to raid the RRSPs of Canadians, the War of 2012 really has begun. I think these two paragraphs tell us more about what is going on inside of the heads of the IRS than anything I’ve ever read; it reveals the mentality of Mordor.
Our Canadian friend, IJ, who made the mistake of moving to the states a few years ago, asks for clarification:
@Steven,
“FOR THEM IT WAS A GOOD DEAL! THEY HAD BEEN FILING FALSE TAX RETURNS. In some cases, they would have done jail time had the IRS come to them first.”Can you be more specific what facts would lead to jail time ?
Filing incorrect return with incorrect perception is not filing false return which IRS has to prove 1. affirmative act, 2. tax due, 3. acting willfully.
Did Tim Geithner file false return ? And so did Charles Rangel ?
IJ, is a Canadian in the 2011 OVDI, and he doesn’t think its a good deal at all. He is a minnow.
Unfortunately, there may be some other Canadians who live in the United States that have taken US citizenship there, but who find the OVDI a good deal. That I may grant. But they live in the jurisdiction of the United States. I just don’t know anyone like that. I don’t frequent the same country clubs.
As for those of us who are actually living in Canada, I can’t think of anyone who would see it as a good deal. I hate the extra-territorial tax reach of the United States. I believe its is evil and wrong. I believe any Canadian resident who pays an FBAR fine is inadvertently weakening the Canadian economy, and that it is a casus belli (Steven, casus belli is Latin for, “a reason to go to war”). Last I checked, Canada was a much needed ally of the United States: so why the hell are you raiding our retirement accounts? That is not the act of a friend but of an enemy.
I have much more to say to Steven, but I am absolutely tongue-tied, because the fury that I feel is keeping me from thinking straight. So I am going to take this to the Isaac Brock readership. Does anyone out there know of any Canadian residents and/or Canadian citizens, who think that the OVDI is actually a good deal because they are tax cheats and they have been filing fraudulent returns?
Originally published 7:33 am February 20, 2012
@arrow, as I recall back in the “olden” days if you had a green card but left the US to live somewhere else and were absent from the US for, as I recall, a full year, then it was automatically recinded. But I am going by memory, so better check it out with somebody that knows.
Maybe it is like losing your US citizenship. In the “olden” days you lost it if you did any one of several different things like voting in a foreign election, serving in a foreign military force, acceptiong employment with a foreign government without prior authorization from the US government, becoming a naturalized citizen of a foreign country, etc. But then the Supreme Court annuled all of these “lost” US citizenships retroactively by ruling that it was unconstitutional to be deprived of your US citizenship unless you formally renounced it.
So I have no idea what the status is of green cards issued to children who left the US never to return to live 40 years ago.
The border guard is doing his job, under US law, in requiring that US citizens, if they still are US citizens, use US passports to enter (and leave, if they check this) the US. This does not always happen but you have to be prepared just in case. And now that the border patrol and the IRS talk to each other per mandate of Congress, the next questions for US citizens living abroad may well be about compliance with US tax laws.
@Petros
I agree travel to the US is one of biggest complications in all of this. The whole situation is a huge mess. I think one of the biggest issues is there appears to be a huge backlog of CLN processing that seems to have no end in sight.
@Roger
One thing with green card holders is that if live in a tax treaty partner country of the US as a non citizen you are protected to some degree by your country’s applicable tax treaty. This is an even bigger grey area though as is the whole “sailing permit” issue regarding US resident aliens returning to their home countries as is whether Canadian truck drivers and other similar types of workers who cross the border as part of their Canadian employment for example have to file FBAR’s.
@tim, all depends on the language of the tax treaty. There are significant differences between the different tax treaties signed by the US. Some countries negoitated much better deals for than their citizens than did others. But one thing they all provide is that the other country acknowledges the right of the US to collect taxes from US citizens who reside in the other country.
@Roger
Yes, Roger but others here have received letters at least from Canadian Finance Minister Flaherty that Canada at least won’t collect from Canadian Citizens even if that Canadian citizen was a US Citizen also or a green card holder.
The part of tax treaty I was referring too was the so called “residency tie breaker” something that doesn’t apply to US citizens due to the savings clause but would apply to a foreign citizen green card holder in theory.
@tim,
I believe there are special provisions with respect to US taxation that apply to foreign citizen truck drivers, airline crew members, ship crew members that dock in US ports, etc. Offhand I don’t know what they are, but I suspect they are not subject to US taxation on the income they earn during these short stays in the US. But don’t take this for the Gospel truth.
There may be international agreements.
My daughter is a US citizen airline flight attendant who flies regularly to Brazil. Brazilian visas are required of US citizens in order to enter Brazil, but as an working airline crewmember she is admitted without a visa. So I suspect there may be similar arrangements with respect to taxes.
I don’t know how it is now, but a few years back when I used travel there regularly, persons entering Venezuela on business (but not tourists) were required to pay Venezulan income tax on their earnings paid back home by their foreign employer for the wagest earned while in that country on business and you were not allowed to board a flight back home without the official receipt for having paid the tax. But it did not affect airline crew members even though they might stay overnight before their return flight left the next day.
Being aware of this I always entered as a tourist. Once one of my Canadian co-workers from Montreal met me in Venezuela. I told him to be sure and enter as a tourist, but when we got to the Caracas airport on a Saturday morning and he handed his passport to the airline check in attendendant she asked for his tax clearance, which he did not have. He was not able to leave until the following Tuesday because the tax office was closed until Monday and the flights to Canada only left early in the morning. He was not a happy traveler. Not realizing the tax implications he had ignored my advice and gotten a business visas “because he was carrying in a slide projector to make a presentation.”
What the Canadian Finance Minister has stated is perfecty normal. Tax treaties to not require that the foreign country collect taxes from the US citizen resident in that country. They only confirm that the US has the right to tax citizens who reside there. They usually contain a clause indicating that each country will “assist” the other in collecting taxes, but there is no obligation to do the actual collecting.
@Roger
Yes, I agree with your interpretation. I suspect we are causing the Canadian Department of Finance lawyers are lot a difficulty in determing for example as to what what the true definition of “assist” is.
In terms of your point about air crew and truck driver taxation I believe foreign air crews and seaman are more protected from any issues regarding taxation due to international treaty. Truck drivers though I have heard are more vunerable in this regard. The problem is the FBAR is not part of the tax code but instead is an administrative requirement imposed on US Persons and anyone doing “business” in the US whatever that means. I do know for example that Florida was able to sucessfully impose a state tax on sales of jet fuel to foreign airlines despite treaties the US ratified prohibiting tax on jet fuel used in international air commerce. Another example I can think of is Air Canada is required to register as “foreign” corporation with the Florida Secretary of State’s office in Tallahassee if they want to do “business” in Florida despite their operations being governed by international agreement. I suspect the real issue might for these people might not be federal taxation but state taxation requirement.
We do have an unresolved problem in the US with states not honoring international treaties signed by the US. In a recent case a Mexican citizens convicted of murder in Texas sought a reversal because Texas authorities failed to tell him he had a right, under international treaties, to contact Mexican consular officials. The Supreme Court upheld his conviction becase there is no Federal law obligating the states to respect international treaty obligations accepted by the US Government. So he was executed. Congress has still not taken action to correct this legal oversight. I guess they are too busy with legislation directing the IRS to hunt down American citizens living abroad.
@arrow: “So the question now is — do I need to formally relinquish the green card?”
Here the US employs a legal concept known as “having your cake and eating it”. From
http://www.irs.gov/instructions/i1040nre/ch01.html#d0e252
“Until you have proof your letter was received, you remain a resident for tax purposes even if the USCIS would not recognize the validity of your green card because it is more than ten years old or because you have been absent from the United States for a period of time. ”
So you can be “resident for tax purposes” but with no right of, you know, actual residency in the US. Surprising? This is questionable to say the least, both constitutionally and in terms of customary international law.
In practice, if this were me I’d just forget about it. Especially after 40 odd years. But strictly you’re supposed to affirmatively surrender a green card. Form I-407. Remember, this is the LAW we’re talking about here. (As distinct from, say, JUSTICE.)
Watcher:
Thanks for that. At this point I’m going to stay off the radar screen. What’s that old saying about sleeping dogs?
@Arrow, I would say you are both prrudent and wise. There is no doubt that the tourist industry in the US is going to say “What happened to all those Canadian toruists? There are far fewer this year.”
Answer, Answer: They are being priudent and wise, lest they get nailed by immigration at the border and turned over to the IRS becase they discover they descended from an America citizen and therefore have got to pay a huge ransom in penaties to the IRS for failing to file US tax returns.
A lot more Canadians will be traveling to Cuba and enjoing the beautiful sandy beaches at Veradero rather than risk being taken to the cleaners if they drive across the border into the US. So thanks to the US Congress, Canadian tourism in Cuba will surge while it declines in the US.
Could it be that Cuba is secretly contriuting funds to US Congressional camapgns given the tremendous favors some have been doing through these tax actions which are driving Canadians with US roots to spend their vacations in Cuba rather than in the US.
Maybe this merits a investigation by the FBI and the Justice Department.
Just a couple of slightly off-topic comments prompted by reading this thread
1) The recently released draft regulations do not obligate the Financial Institution to insist on knowing your place of birth, just if they happen to find it in the documentation you provide they must get a CLN or reasonable explanation why you didn’t take up your citizenship (their vague words)
2) Reciprocal agreements with other governments are all very well, but since US is NOT a tax haven, and no other state around the world taxes on citizenship, the information that US banks can offer is pretty useless to other tax authorities. Why would any other country waste it’s own moeny setting up reporting infrastructure for no return?
@P33t, But in one sense the US is a tax haven because interest earned by deposits in accounts owned by non-resident foreign citizens is not taxed by the IRS. There are several trillion dollars of such funds in Florida banks, much of it from depositors who live in Latin America with the earnings therefrom likely not being reported by most of their owners to the tax authorities of the countries where they live. Why do you suppose that every member of the Florida Congressional Delegation, both Democrats and Republicans, signed a letter to President Obama and Treasury Secretary Geithner loudly protesting the IRS proposal that banks provide this information so that it could be forwarded to those governments? I recall having read that the Mexican Government has requested this information from the US Government in the past, but this request has been denied because, among other things, the IRS does not have it.
Bear in mind that it is a violation of US law for foreign bankers to encourage US citizens or foreign green card permanent US residents to “hide” funds and income abroad, and more than a few Swiss bankers, and Swiss banks have paid huge fines when they were caught. But there is no US law that prohibits US bankers from soliciting funds from non-resident foreign citizens to be hidden in tax free accounts in US banks.
Some might even be so bold as to say that this constitutes a double standard. What is a crime for Swiss banks to do in soliciting funds from Americans for their banks to hold is not a crime for US banks to do when they solicit funds from non-resident foreigners for their banks.
With a real threat that these accounts might be reported to foreign authorities this would likely lead to such massive withdrawals than more than just a few Florida Banks would collapse financially. I suspect, however, that the prime reason the IRS is pressing so hard to obtain this information is so that offer it to foreign governments in hope that this action will mitigate the objections of foreign governments in urging their banks to provide the same information on accounts held by US persons as they are required to do by FATCA.
@roger I am bold. It is a double standard.
@petros. Indeed you are bold. How could the US ever be accused of such a thing? If other nations were to adopt the US standard then no US banker would ever be able to travel abroad since he would be subject to arrest by the authorities of every foreign country immediately upon deplaining. Presumably foreign immigration authorities receive passenger lists electronically before incoming flights even land, so they would be able to have their immigration officers ready with handcuffs in hand. That is pretty much the way it works today with US immigration.
In Vance v. Terrazas, 444 U.S. 252 (1980), the U.S. Supreme Court held that “Congress does not have any general power to take away an American citizen’s citizenship without his ‘assent,’ which means an intent to relinquish citizenship whether the intent is expressed in … words or is found as a fair inference from his conduct.” The Court held that an expatriating act such as taking out citizenship in a foreign country cannot be treated as conclusive evidence of the indispensable voluntary assent of the citizen. The Court held further, “The trier of fact must in the end conclude that the citizen not only voluntarily committed the expatiating act prescribed in the statute, but also intended to relinquish his citizenship.”
TomOn:
And that’s why doing things like obtaining a US passport, or voting in US elections, tends to destroy any argument that you did indeed intend to relinquish — as Calgary411 found out to her sorrow. Your only option with that as a track record is to renounce.
I also thought the operative date for this “switch” in the US approach was 1973, not 1980. Before 1973 it was a slam dunk that your US citizenship was gone once you took out citizenship in another country. Now it’s a matter for the State Department to decide. Fortunately — the form you have to fill out was designed at a time when the goal of the state department was to rip that citizenship away from you at the slightest provocation. That makes it a lot easier for someone whose intention it is to get rid of the US citizenship albatross — the questions inexorably lead you in that direction.
Roger said: “Some might even be so bold as to say that this constitutes a double standard.”
Thanks for my laugh of the day.
@Arrow, I think the 1980s date is probably right, as I seem to recall that is when I first learned about it. You are so correct, howeveer, that before that US citizens living abroad were scared to even look crosseyed because the guillotine of citizenship loss was suspended by only a fragile thread.
My old US passport issued in March 1981 contains this “IMPORTANT INFORMATION” statement:
LOSS OF NATIONALITY: You may loose your US nationality by being naturalized in, or by taking an oath or making a declaration of allegiance to, a foreign state; or by serving in the armed forces or accepting employment under the government of a foreign state. For detailed information consult the nearest American consulate.
It uses the word “may” rather than “will,” but the threat is crystal clear. Don’t do any of these things or else.
@Roger and others: There was no “may” about it when I, Tiger and others became citizens of Canada in 1970s. The Consulate was very clear, firm and direct-we were definitely losing our US citizenship by becoming Canadian. Unfortunately, Schubert was the only one fortunate enough to get a CLN–because he wrote to Henry Kissinger. The rest of us had no idea there even was such a thing!
Based on what we were told, we made the step with the very clear intent and understanding that we were no longer US citizens. It never occurred to us that decades later we might be considered “US persons” instead.
Perhaps clarity changed when a certain US President asked what the meaning of the word is is.
@Blaze, I totally agree with you. But confusion goes back even further than when the former president pretended that a certain word didn’t really mean what it said.
The US Constitution states that the US President must be a “natural born” US citizen, but nowhere does it define what “natural born” means. When I was growing up this was always interpreted as meaning that he/she was born in the United States, but few today “think” that is what it means. Most accept that it means ” a US citizen by birth,” which would include persons born outside of the US to a US citizen parent. Others insist that it means that both parents were born in the United States while even others insists that it means born naturally through a vaginal delivery as proposed to a Ceserian section. Others insist that it means a person who is not a dual citizen of any other country. Some day the Supreme Court may be called upon to rule what Natural Born really means in the Constitutional context, but so far this has not happened.
As an addendum to what Blaze says above, when I took my oath of Canadian citizenship in October, 1972, in addition to the oath of allegiance to the Queen and her heirs etc., I also had to swear the following Renunciation Oath “I hereby renounce all allegiance and fidelity to any foreign sovereign or state of whom or which I may at this time be a subject or citizen”. Now I was brought up to believe that swearing on a bible before God was sacred and I see no reason why that is no longer the case!
@tiger, I presume your Renunciation Oath, as quoted in your post, was also to the Queen and her heirs, correct? If so, even if sworn on a stack of Bibles, the US does not recognize this oath. The onlly “valid” Oath of Renunciation recognized by the US Government is the oath made before and in the presence of a US consular or Embassy official located outside of the United States.
I’ve never done it since I was born a US citizen, but foreign nationals are required to make a similar oath when they become naturalized citizens of the United States. But generally the foreign governments of the countries from which such new US citizens came from likewise do not recognize that a renunciation oath made to a “foreign” government (the US) has any legal effect as far as that foreign government is concerned. There may be some exceptions which deprive you of citizenship with the slightest hint that you have or intend to become a citizen of another country. There is no world-wide uniformity.
If you are a citizen of Argentina, for example, the Renunciation Oath must be made before the specifically-designated Argentine official in Buenos Aires. Argentina does not recognize a renunciation oath made anywhere else. And it is only relatively recently that Argentina had any provisons for renuncing Argentine citizenship. It used to be that if you were an Argentine citizen you could never lose your Argentine citizenship until dead and buried.
@ Blaze Feb 22 2:24pm
Just to make the record crystal clear — Schubert didn’t know about CLNs back then either; until mine arrived in the mail, I’d never heard of such a thing. I vaguely recall thinking “oh isn’t this cute, the US bureaucracy issues me a certificate to attest that I actually did what I told Kissinger in my letter that I’d done. So what? One for the eventual grandkids, I guess” and tossed in a folder where I completely forgot about it for nearly 35 years, until I stumbled over it last Fall when I was searching for something else. It made no impression on me at the time I got it, though of course now it does (it’s in my safe deposit box and I have several copies elsewhere including one now permanently travelling with my Canadian passport).
I don’t think anyone in Canada knew anything about CLNs until quite recently, never mind in the 1960s and 1970s, or of any need to notify the US government about relinquishing. If anyone did know, I’ve yet to meet, correspond with, or even hear about him/her. The only reason I know about Section 349 (which sets out the expatriating acts in US law) is because my CLN has a printed reference to it, and I looked it up on the internet after I re-discovered the CLN.
@ Roger Conklin
The US may not recognize the renunciation oath some Canadians took before April 1973, but I’d say a copy of that oath with a signature on it is prima facie legal evidence of intent to relinquish US citizenship at the time. I’d love to hear a US lawyer try to spin his/her way out of that interpretation … And how could any person who swore that oath be reasonably expected to know the US didn’t recognize it, and how can anyone claim that person is still a US citizen if that person has done absolutely nothing to assert or exercise US citizenship since then, never mind claim they owe “delinquent” tax returns? The whole thing utterly defies logic, and if US law says it’s a legal interpretation, then I’d say that’s just one more example of the truth of the old saying “the law is a ass, a idiot.”