Moodys Tax Advisors proposes legislation to allow Canadians to deduct professional fees paid in IRS’s voluntary disclosure programs

11 thoughts on “Moodys Tax Advisors proposes legislation to allow Canadians to deduct professional fees paid in IRS’s voluntary disclosure programs”

1. Although Moodys is to be commended for this initiative it is a bad idea. Under no circumstances should Canada allow a tax deduction for professional fees paid for OVDI. My reasons are:

   – Canadian taxpayers are not allowed a tax deduction for tax preparation fees in Canada. Why should be allowed a deduction for tax prep fees for the US?

   – To allow this deduction will legitimize this as an expense and will therefore be an acceptance at best and an endorsement at worst of the US assault on Canadian taxpayers

   – To allow this deduction will be a direct attack on funds that, if they belong to any government, belong to the Government of Canada

   – To allow this deduction would make the Government of Canada a servant of the IRS

   If the Government of Canada wants to get involved in this whole issue, it should pass legislation prohibiting the Canadian banks from participating in FATCA.

   In summary: very bad idea and very dangerous precedent!

2. @renounceuscitizenship- I agree with you wholeheartedly. Its a bad idea. The Canadian taxpayer shouldn’t have to shoulder the burden of giving a deduction for the costs that are incurred by a U.S. person to file U.S. taxes on any world wide income that has been earned and taxed under Canadian law.

    

3. Posted  elsewhere  on IBS but without any follow up comments. Not exactly the same as what Roy Berg is talking about.

   Something to consider– if a person relinquishes and in the unlikely, but not yet certain event, that the IRS decides for their purposes that the relinquishment date is the date one appears at the consulate, rather than the date on the CLN, it may be possible to claim legal fees  in Canada for appealing the IRS decision. Here’s a reference from the Canada Revenue Agency:

   Under paragraph 60(o), all taxpayers, including those
   persons who report income from sources other than business or property (such as salary or capital gains), may deduct fees or expenses incurred and paid for
   advice or assistance in preparing, instituting or prosecuting an objection or
   appeal in respect of 

                   (c)           an assessment of income tax, interest
   or penalties levied by a foreign government or political subdivision thereof,
   if the tax is eligible for a foreign tax credit, 

   A taxpayer may deduct amounts expended in connection with
   legal and accounting fees incurred for advice and assistance in making
   representations after having been informed that the taxpayer’s income or tax
   for a taxation year is to be reviewed, whether or not a formal notice of objection
   or appeal is subsequently filed.

4. One further point:

   As OVDI is primarily related to FBAR, it would not be covered by 60(o)(c) as FBAR penalties are not eligible for a foreign tax credit.

    

5. This suggestion is simply outrageous in one sense:  Moodys is only thinking about how they may help their clients and not how they can help Canada as a country.  It does no good for Canada for its residents to get a tax break for US extortion.  It would only encourage more such activity.

   Perhaps it would have been better if Moodys hadn’t led so many clients into the OVDI like so many sheep to the slaughter.  But in fairness, hindsight is 20/20.  Yet still, there seems to be a tendency of people, and their advisers, to submit to the extortionate demands of the US government is the problem.  One can voluntarily waive every single Constitutional right before government, and this is what the participants in OVDI did.  But should their lawyer advise them that it is a good idea to waive voluntarily their 4th, 5th, and 8th amendment rights?  I’d rather have a lawyer that helped me to avoid such a path.

6. Here are the earlier comments on this:

   badger
   October 17, 2012 at 1:28 pm

   http://www.moodystax.com/moodystax-blog/21-us-taxation-services/206-moodys-tax-advisors-proposes-legislation-to-allow-canadians-to-deduct-professional-fees-paid-in-irss-voluntary-disclosure-programs.html

   …….”Our firm, Moodys Tax Advisors, has proactively proposed legislation
   in Canada that will allow a deduction against Canadian tax for the vast
   amount of professional fees paid to participate in the Internal Revenue
   Service’s (“IRS’s”) 2011 Offshore Voluntary Disclosure Initiative
   (“OVDI”), the 2012 Offshore Voluntary Disclosure Program (“OVDP”), or
   the (traditional) Voluntary Disclosure procedure. For most Canadian
   taxpayers these fees are not deductible in Canada and we understand the
   Canada Revenue Agency (“CRA”) has denied these deductions. Recently our
   firm submitted a proposal, and accompanying legislation, to the
   Department of Finance to amend the Canadian Income Tax Act to allow for such deductibility (you can read our submission here).

   The Department of Finance has been very supportive of the plight of
   these individuals and their need to become compliant under US tax law in
   order to avoid potentially ruinous US penalties. In particular,
   Minister Flaherty has been very vocal of his support. We are hopeful
   that our proposal will result in additional relief for those unfortunate
   taxpayers who have been affected.”…….

   ………..

   ……”Most of these participants paid tens of thousands of dollars in
   professional and accounting fees to participate, even though they were
   fully compliant with their tax and reporting obligations in Canada and
   owed little or no additional US tax. For most taxpayers the professional
   fees incurred are deductible against US income tax, however they are
   generally not deductible against Canadian income taxes.”…….

   I am confused about how those who did qualify to deduct the fees (what proportion?) from their US returns would manage to use this credit – unless there was a large sum of US tax owed to apply the credit against. If an individual had very little taxable income and didn’t owe any US tax, I presume the ‘credit’ wouldn’t do them any good whatsoever – unless it could be carried forward? So, for those ‘minnows’ or those of modest income and means who got panicked and got caught up in the OVD and VD programs, deducting the fees (in the thousands or tens of thousands) from their US tax owed wouldn’t have any effect? Or, for the years 2009 and 2010, if it resulted in a refund, as it stands now (because of US stimulus funding), the ‘streamlined compliance’ questionnaire asks if the taxpayer is requesting a refund – presumably to disqualify anyone who is.

   And would this apply to people not in the VD/OVD programs, who filed under the terms of the December 2011 factsheet? Many may have paid substantial fees to prepare 6 years of returns (plus forms like 3520/A, 5471, etc.) + 6 FBARs – but weren’t enrolled in the VD processes.

   I can’t see Canada and the CRA agreeing to allow an offset to Canadian taxes assessed, in recognition of fees that subsidize US extraterritorial taxation imposed on duals and other Canadian residents. Much as that might help some inside Canada, wouldn’t that work to lower Canadian tax revenue assessed and collected? Unless, the very existence of the Canada-US tax treaty, and it’s recognition of US taxation of US ‘persons’ in Canada means that Canada has an obligation to assist duals and others inside it’s borders, whom the treaty affects? Would there be an argument that the ‘compliance burden’ constitutes a kind of double taxation that the treaty was meant to prevent? Particularly for the costs of the purely reporting forms like the FBAR? Which isn’t a ‘tax’ per se, but which functions like one in that it can generate revenues for the IRS through penalty structures. Or the FATCA form, which is also information reporting, but seems designed to get around the limitations of the FBAR?

   Any thoughts?

   badger
   October 17, 2012 at 1:45 pm

   I liked the portion of the submission that notes that the US ‘taxable person’ citizens in Canada are not on an equal footing with their non-US citizen brethren, since one has an additional burden that the other is not heir to.

   In addition, Canada and Minister Flaherty knows full well that we can’t get rid of the burden of US citizenship-based taxation and reporting without getting rid of US citizenship – and they also know by now that we can’t rid ourselves of unwanted US status without the 5 years IRS compliance (and whatever additional barriers and chains the US, Congress, Treasury and IRS have planned to continue to enslave us in future). So, unless it is made easier and less costly and less fraught with life-altering pitfalls, Canada is then full of many many duals who cannot renounce or relinquish, and thus is stuck with the IRS and US continuing to assert and enforce claims to Canadian earned, generated and held assets – sucking those assets out of Canada to the benefit of the US. Particularly if FATCA comes in.

   And if FATCA is enacted in Canada, does the CRA want to issue credits for the huge fees that will be spent to settle the inevitable disputes over errors in applying FATCA provisions – including 30% witholdings, or damages from errors?

   calgary411
   October 17, 2012 at 8:34 pm

   Good try to recoup some of the fees on our behalf. Thanks Moodys LLP.

   If this were to fly, could Canada some way be reimbursed by the US for such CRA tax credits?

   Surely, neither US Persons in Canada nor the IRS would be popular with other Canadians who pay taxes with this as a cost to Canada coming from their pockets (similar to the costs of FATCA to every Canadian, not just US Persons here).

   Could any resultant controversy put on the front page of Canadian media the subject of FATCA, with the cost to all Canadian financial institutions to be borne by all Canadians, and the cost of compliance to the IRS of US Persons in Canada to be reimbursed by CRA / all Canadian taxpayer dollars? If it were me and if I were “just a Canadian,” I probably wouldn’t want my Canadian tax dollars so spent.

   Would that make Canadians sit up and take notice of all we are discussing here? Would that make Canada more forceful in their FATCA discussions with the US in trying to protect Canada’s US Person citizens and residents?

7. Better yet, why doesn’t everyone who entered OVDI because they  were innocently unaware of FBAR and US filing requirements, send their profession bills to the Finance Department or equivalent in their respective country. The Finance department would total up the bills and send one large bill to the US Treasury. If the US doesn’t pay, then issue a garnishee order against the US or freeze bank accounts. If the US does pay, then Finance would refund the fees to the individuals.

   While we’re at it, might as well send the US a bill for all the costs incurred by financial institutions to comply with FATCA. After all, FATCA is a US project, so the US should foot the bill.

8. *Did that! I sent my receipts with a breakdown of accounting
   and legal fees to the PM Office, Foreign Affairs, Finance and my MP. I
   specifically asked for a tax credit since the FBAR penalty I paid, not that
   big, was based on Canadian income where tax had already been paid. No response,
   as I had suspected. Now that I have my CLN it seems less critical to me. After filing
   my 2012 requirements with the IRS it will be a memory I will try to push into
   the deep recesses of my brain.

9. @ itacaf

   Way to go!! Too bad everyone else doesn’t follow your example.

10. It’s sickening that any government should have to pick up the slack for this arrogant nation.

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