Snowbirds may become an extinct species, at least within the borders of the United States. Few outsiders know this but Canadians live in igloos year round. Snowbirds are Canadians who seek warmer climate, especially during their retirement years. They have been a significant boon to the real estate markets in Southern states, especially Florida, but one should not forget places like my Dad’s trailer park in San Benito where numerous Winter Texans can play year-round golf and outdoor tennis. Mostly, they spend their enormous retirement wealth that it took many years working in Canada to earn. Expect the snowbirds to start flying further south, to places like Cayman Islands, Mexico, or Costa Rica, anywhere outside the reach of the IRS taxman.
It is no exaggeration to say that United States border guards now have had tax enforcement added to their list of duties. A few months back at the Expat Forum, Omater wrote a little anectdote (now apparently censored), still unverified:
I just got back from my local CGA who is doing our business tax return. He bought a house in the US at about the same time I did. I told him about my trip next week and he advised that I take copies of my last 6 tax returns, which I had already decided to do.
He said that last October a good friend of his who is a dual citizen as well as a CPA and CGA was headed to the US to visit family. They scanned his passport and told him that he could not board his plane for failure to file tax returns. The thing about this guy is that he had always filed his returns in a timely manner, every year since he had landed in Canada. He had to get his office staff to find 6 years of tax returns and fax them to wherever he was at the airport. By the time that happened he had missed his plane.
This is the only verifiable account I have heard of somebody being refused entrance to a plane headed for the states.
Numerous commenters considered the above story to be an urban myth. But Omater now offers a couple more stories of Canadians–not US citizens–who are planning to sell their US condos as a result of the recent crackdown and the hassles that they are receiving from border guards (emphasis mine):
The stories I am hearing first hand are not about United States Citizens, but about Canadians. I had taken a water aerobic class and was sitting in the hot tub afterwords when one woman talking to another woman got louder and louder about being stopped at the border on the way to Palm Springs and were told that they had to file a US tax return. She was very angry and said they would give the place away before they filed a tax return to the IRS when it was none of their business, taxes or no taxes.
A few weeks ago I took my dog to the vet and she asked where in the south I was from. She then told me she had done her residency in Memphis, my home town. I asked her if she had used a green card and she said no and, “Thank God”. She started telling me about her uncle who had a place in Arizona where he and his wife spent 6 months per year, mostly because of his allergies. This year they were headed down and were stopped at the border and told that they had been flagged as being required to file a tax return on their worldly income. When her uncle told them they never spend more than the 6 month allotted time, they were told that they could visit 6 months but would have to file a tax return based on a formula that would basically only allow them a few months per year otherwise. I once read that it worked out to around 120 days. (I am sure you know what I am talking about here.) However, the formula that these people were told about only allowed them a few months per year over a three-year period. Everybody is pretty livid that they will be required to pay tax and to expect no benefit in return. I asked the vet how the IRS knew about her uncle and she didn’t know.
People are talking about selling as soon as the economy allows them to. We just bought a place last April, before I heard of FATCA and FBAR and thankfully we bought cheap. I hate it but we will have to sell. We had hoped to have 6 months a year in our little villa for retirement. I am not sure what we will do now, but it will not be in the states. I can tell you, we spent a lot of money down there. It will be a loss to a depressed little community whose people are always grateful for our business.
I talked to several Real Estate brokers and agents there and I wonder why they are not flying off the handle about this! If they think things are bad now, just wait until the last Canadian leaves Florida, California and Arizona!
Thanks for all you do!
The words, “they had been flagged” provides further proof that this is a systematic usage of border guards to enforce taxes. I would like to track down when the border guards started doing the IRS’ dirty work. Which POTUS approved this crack down? Was it Obama, Bush, or did it start earlier than these two?
Hold on. Did I understand this article correctly? You’re saying that if a Canadian (or any other nationality presumably) purchases US real estate and/or stays there under the six months residency requirement that they become “US persons”, subject to worldwide taxation, FBARs for Canadian bank accounts and FATCA?
I would find it reasonable to have to pay property taxes on the real estate purchased. Nothing else, period. Nonsense like this has overtime convinced me that if I get get some sort of summer home it won’t be outside of the EU! I hope that all of the Canadians affected are able to sell swiftly and move onto friendlier locales.
I would just caution that second hand anecdotal stories as compelling as they may seem, do not a case make. I think you know that, and so I am just repeating for those that might need that reminder.
It is the same with the Opt Out experiences we hear about. The results seem positive, but then they are still anecdotal, (there is no data base you can search or any IRS reporting requirements of results) and as such, you always have to be careful about the conclusions you draw based upon the stories we hear.
It would be good, if one could ever find a real immigration officer or two who would be willing to be interviewed without attribution about what types of screens they are looking at, and if there is any systemic requirement from higher ups to inquire about tax filing status of Expats. Is that information even available to them to see online at those monitors they peer into?
This would take some hard journalist investigative work to uncover evidence that one could substantiate. Does anyone know of any who might want to undertake that mission?
@ Just Me: There is caution about anecdotal evidence, to be sure. But I’d caution likewise that, while reserving judgment, we should not simply dismiss the above stories. They are plausible in the current environment of fear and intimidation. Several people I know, including Calgary, have been intimidated into getting a US passport. Two legal writers have suggested that the only reason that the US is doing this is to trap more people into the tax net. There seems to be a belief in DC that enlarging the tax net will result in greater revenue, instead of looking at the unintended consequences of their actions: (1) Renunciations; (2) anti-Americanism on the part of former citizens; (3) Canadians selling their condos at a loss to avoid the IRS tax net; (4) investors selling their assets rather than allowing their investment accounts to become subject to FATCA.
Stories like these, when framed against the background of our times, are plausible, and eventually will become part of the history of our times. Only the person lacking curiosity can deny it.
@Petros…
I understand those points. Plausible, yes, but gosh I would like to see or read some first hand reports and have some hard evidence to take to the bank, as that would be something we could really use. Where is that journalist that wants a challenge… 🙂
@Petros, This morning’s Miami Herald includes a story about the Canadian media Mogul Conrad Black having been released from a US prison after serving 3 years for defraduing investors. He is back home in Toronto now, but the real question is after having “lived” in the US while in prison, is he now subject to US income tax on the income he earned back in Canada and elsewhere during this time of involuntary residence in the US, and forever or now that he is back home?
That is a funny one Roger. I think we could make a good Onion story out of that!
@Don: “…stays there under the six months residency requirement that they become “US persons”…”.
Depending on how long under the six months, sadly, yes. The “substantial presence test” sums up time spent over three years, with older years counting less than recent ones:
http://www.irs.gov/businesses/small/international/article/0,,id=96352,00.html
So… spend 123 days in the US in each of three years, and on the third you’re a “US person” (123 + 123/3 + 123/6 > 183). That’s even though you’ve never spent more than a couple of days more than four months in the US in any one single year.
@Petros The laws for being considered US tax resident on each year are clear and transparent for anyone who wants to read Pub 519. Actually, Canada and most European countries have similar laws considering a person a tax resident if the spend a certain amount of time or meet other “tax domicile” criteria:) So not a big deal. In this case I think the laws are “relatively” fair!!
@ Roger Well, I am among those who believe that Black was wrongfully imprisoned, and as Canadian, I’d wish the narrrative in the press here would change to one of the overreach of the United States. Why is Jon Corzine still a free man. Which one of the banksters went to jail. The justice system in the United States goes after people like Black in order to justify their pay cheques but they seldom go after the real criminals. Fact is that your main criminals are in office defrauding the people of their Social Security, spending it in the biggest Ponzi scheme on planet earth. But no, they put Conrad Black in jail to show to public that they are going after corruption in Wall Street. Give me a break.
This was a case of Patrick Fitzgerald, who also went after Scooter Libby. Black was a exonerated for most of the charges, and only two of the original 13 crimes Fitzgerald accused him stuck to him. But a successful prosecutor only has to get one or two charges to stick: the defendant must win against every single charge or go to prison. I am sure that the IRS believes that he should pay his taxes in the US, and even before his prison sentence, had given a bill for millions saying he was resident in the US. This becomes a pain in the rearend for Revenue Canada, to whom he likely paid taxes as a bonafide resident of Canada at the time.
Black renounced his Canadian citizenship a few years ago in a pissing match with Jean Chretien. Now, having faced the US justice system, he has no more stomach for these kinds of games and he hopes to regain his citizenship in Canada. When I learned that immigration Canada had granted a one-year visa to Black, I nearly cried tears of joy for him and his Canadian wife.
@ Alex The US has a residency that basically makes it wise not to spend more than 180 days in one year or more than 120 days in three consequetive years. This leads to a problem. If the person spends 150 days in the United States for three consecutive years and 215 days per year in Canada, then the person is considered bonafide resident by both countries. This leads to a tax absurdity and frankly, is not fair at all but favors the United States. It is also likely a violation of the Tax treaty.
@alex – what you forget is in Europe you can work in another EU country and elect to be a tax resident of another for quite a period of time. The tax authorities show some flexibility in this respect. For example, you could work in Belgium for a year or two and pay your taxes to the UK. But of course you would have to claim unemployment benefit from the UK not Belgium in that event.
The EU states better defined rules between them than the US or Canada. At the end of the day, the US wants it all its way and always be the minimum taxation rate for “US persons.” This is the concept that pisses most people off. They won’t let go. Trapping people in taxation rarely works as a good long-term strategy.
So, is there some big plan by the US gov’t that I’m not seeing? They’re forcing US citizens that don’t live in the country to renounce. They’re forcing people who spend their vacation money there to go elsewhere. They’re forcing non-US people who invest in property in the US to sell and leave. They’re forcing people to give up any investments in the US. Are they battening down the hatches in preparation for something? I just don’t get it!
@ outraged Many political leaders don’t understand the law of unintended consequences. Hazlett’s book, Economics in one lesson, is a good place to start. But here is a good explanation too: http://www.econlib.org/library/Enc/UnintendedConsequences.html
@outragedcanadian, when the blind lead the blind they both fall in the ditch. That exactly describes what is currently happening in the US today. The “plan” is to ignore the likely consequences of legislation before it is introduced and enacted. “Don’t confuse me with facts, my mind is already made up” is the prevalent attitude both on Capitol Hill, on both sides of the aisle, and the White House today.
It reminds me very much of the ad campaign on US TV today urging people to acquire flood insurance. One very stupid guy is shown standing knee deep in water and being asked “What is your plan?” His reply: I don’t have a plan.” That describes those writing and enacting our tax legislation since 1962 when the Tax Act of that year was, at the request of the Administration, enacted and signed into law by president Kennedy subjecting US citizens resident abroad to US taxation on their world wide income. The camel’s nose was under the tent and since then the tent has been torn into shreds.
http://www.accountingtoday.com/ato_issues/26_5/tax-amnesty-IRS-state-federal-FBAR-62474-1.html?pg=1
Here’s an article from Accounting Today, about ‘voluntary disclosures’ – but it is skewed towards those INSIDE the US – even in the discussion about federal taxes (vs. the state tax portion of the article). Those quoted keep saying that offering any ‘amnesties’ at all, – particularly at the federal level – is a bad idea. Still no awareness of the impact or even existence of those duals, or living outside the US permanently, or those who are ‘snowbirds’ and others who are not US citizen residents. @StevenMopsick – this is indicative of the lack of any context and understanding of the situation we face as ‘internationals’ – it illustrates the level of professional ignorance inside the US as to how this is playing out.
See:
“It’s always better for a taxpayer to come forward voluntarily when they are in violation of a tax rule or regulation. In addition to the greater flexibility the Internal Revenue Service gives to examiners when dealing with voluntary disclosures, the IRS and the states have had a number of formal programs encouraging taxpayers to come forward in exchange for greatly reduced penalties, and a reduction in the amount of interest owed.”
“While the programs do produce immediate revenue, some oppose the idea of amnesty because it seems to reward bad behavior. “It’s better to have people in the system than out,” said Saul Brenner, tax partner at Berdon LLP. “But there are people doing their civic duty, paying taxes all these years, and now you’re giving a pardon to those who failed to do this – so what’s the point of being compliant? It’s rewarding bad behavior, which is one reason why a general amnesty hasn’t occurred at the federal level.”
“States like amnesty programs for the simple reason that it brings in money and helps them with the cash crunch du jour,” said Robert Kerr, senior director of government relations at the National Association of Enrolled Agents. “But from the tax administrative standpoint, amnesty is a bad idea because it undermines a belief in the justness of the system. It’s even worse when there are recurring amnesties. It works better when they say, ‘This is the only one, and we’re not kidding. We’re not doing another one for X years.””
@petros I wasn’t aware of that nuance between US and canada.Seems like a bilateral tax treat issue Canada and USA . But , in any case, the US side is at least clear with respect to number of days so Caveat Emptor:)
@john so the UE system is same as system within different states in USA. But if live outside of EU and spend time in EU, then each EU country has specific criteria about treating you as tax domiciled there and those criteria are very similar to USA criteria.
@outragedcanadian
Remember that the USA is still the most attractive place in the world for importing capital. If the USA opens the immigration doors , even a little, there are an inexhaustible number of WEALTHY Asians and South Americans, for example, who would just love to come here and become residents and pay their taxes to USA.
That advantage puts the USA in a different league than other countries.
@ alex I am afraid you are mistaken. The United States is far from a class on its own. Financial advisers around the world are warning their clients to stay away from the United States. Soon the US dollar will be worth less than toilet paper, which has intrinsic value, unused as per indicated, and used as composte. I agree caveat emptor. That means keeping your money out of the United States. That was the mistake that Conrad Black made. The other mistake is that he thought he could clear his name in a fair and just court system–he learned the hard way that it is neither fair nor just. That is the unintended message of the Conrad Black case. You can do something that is perfectly legal here in Canada, and then go to jail for it in the United States. Best to keep your investment capital out of the United States. As an investor, I actively short the United States dollar. I expect a huge drop in value due to inflation.
@alex – you’re buying into the “myth” about so many rich people wanting to move to the US. There are ALREADY investor programs, which have been around for many years. There’s no blocking wealthy people from moving to the US. There are no flood gates. There is even a program where if you buy an expensive house, you can get a green card.
A recommended viewing is this — http://www.youtube.com/watch?v=w2XYsgUosEI
Sorry about the quality. The guy was shaking when he was recording this. It’s funny nonetheless.
Actually, I saw some reports last week that said that there really ARE more illegals leaving the US than going in. Who ever thought that would happen!!
@geez
hi. Do you have any concrete information about that program existing for foreign investors to purchase real estate? as far as i know it is a bill which was proposed in congress but never passed!!! I am told that it is not easy at all for wealthy foreigners to get green cards unless they actually move here and are willing to invest in a new business and employ at least 10 people. It is called EB-5 visa. That is the only program!!! if you have other information please let me know.
The illegals leaving are the ones at the low end of the economic scale so doesn’t really say anything about wealthy people wanting to get green cards. I believe wealthy Russians, Chinese and Brazilians, among others, would immediately enter the real estate market if it led to green card. that is what the realtors are saying:)
@Petros
I am not sure about the future of the USD but from what i see the US stock and bond markets are the investment vehicle of choice now that Europe has gotten hit so hard.
The PIGS countries have gotten mauled in last 12 months.US has its problems but markets seem to feel it is still safe haven compared to europe.
I wish I had crystal ball for the future:)
maybe physical gold?? or asia??
i wish i knew:)
There are many Brazilians who are coming as tourists to purchase vacation condos and homes in Miami, but not with resident visas.
I am aware of one Brazilian businessman I met a few years ago from Sao Paulo who bought an auto dealership just a couple of miles away. I do not know the details of how much money he broght with him, but his entire family moved here. He still had investments in a manufacturing company in Brazil He told me he knew nothing about automobiles, but that he was learning fast..
He subsequently sold the dealership and I have no idea what happened to him or where he is today. If he were to come today and still had properties and investments back in Brazil his income there woulld of course be subject to US tax and very likely he could have a problem, with FATCA, or maintaing bank and other financial accounts in Brazil. Brazilian banks do not appear to be ready to embrace FATCA because there are several requirements it places upon them which would require them to violate Brazilian law and even Brazil’s constitution. More information will likely come out during the IRS hearing on FATCA on May 15 in Washington.
@alex
The U.S. is certainly not the only country attracting the wealthy from Asia and other countries. Come to Vancouver for a visit – the streets, the schools, the neighborhoods are filled with wealthy people from Korea, Hong Kong, mainland China etc. I have been told it is quite similar in Toronto. I recently stood on a busy street corner in Vancouver’s Westend with my sister, who was visiting from Washington, DC. She pointed out to me that we were the only two people speaking English.
@Alex : investing in currencies and sovereign debt is bad everywhere. Read Zerohedge: there is no good place to put your money: only bad and worse. As a result of my inflationary view, I think the Canadian resource sector is better than most bad places, particular in down swings like at present. The Chinese think the same. That’s why they use their US dollars to buy Canadian oil & gas companies, like Daylight Energy which Sinopec recent purchased at the double the market price. But even what makes sense according to macro-trends does not always do well in the short term because there is massive deleveraging going on in many different markets. In Toronto we have a Chinatown (at Spadina), and new Chinatown North, Markham, which is more recent Chinese money. So yes, we are getting massive influx of Chinese money–they don’t like the high taxes of Canada, but they do like our resources, our wide open spaces and the freedom of Canadian culture.
@justme I understand completely where you are coming from, but the “second hand anecdotal stories” you mentioned were actually stories told to me first hand by the people I mentioned in the stories. I have heard second hand stories too, but unless I can talk to the people involved I don’t write about them. Like you, I feel I must be able to back up what I repeat in order to stay credible because frankly, most people find the truth hard to believe.
A client (Canadian) was in town last week from Toronto and we took him to dinner. This man is an executive in a very large global company. In talking about a few of his American counterparts I brought up the tax issues. He asked why it had not been reported on CBC, etc and I told him it actually had some play there in the past as well as having been reported in major newspapers. He found it hard to believe and asked me to send him links. His reaction was the same that I get from many Americans and Canadians alike: disbelief!