Born in Canada asked the following questions, and I offer my version of defiance afterward:
I have only just recently discovered the tax/FBAR obligations of being a USC abroad, and have spent the past few days reading as much as I can about the subject. I echo the feelings of extreme stress and frustration that so many people here have already expressed.
I was born in Canada in the 80′s to a USC (Cdn PR) parent (other was Cdn cit by birth). Fast forward to 2009, when in casual conversation with a US CBP officer into the states, I mentioned my American parentage. He stated that I was considered a US citizen, and should be entering the US on a US passport.
Wanting to comply with the rules, and not fully (or at all) researching the obligations that would come with it, I applied for and received my US passport in 2009. I also checked off the box on the passport application to receive a US social security number.
I entered the US on my US passport perhaps a dozen or so times between 2009-2011. (Shopping day trips and short tourism).
Until last week I was unaware of the specific requirements of the IRS. I had heard that Americans were supposed to file, but also believed (incorrectly) that the FEIE was the limit to file, rather than an exclusion of tax.
Suddenly, I find myself trying to figure out what the best course of action is.
I have no idea how the bureaucracy of the US works. I believe I am completely unknown to the IRS. However, the DoS issued me my passport, and has my details (including former address). I don’t know what the communication is between these departments, and if the DoS would ever furnish a list of US passport holders (particularly those recieved from consulates abroad) to the IRS for compliance checks.
None of my banking information has anything to do with my (late) American citizenship. Again however, I do not know what the full ramifications of FATCA will be. A concern I have is that the DoS gives info to the IRS, who in turns starts flooding banks for info.
I really would prefer to be compliant. I committed an expatriating act by taking a position with the federal gov’t last fall, with the intention of relinquishing my citizenship. I have not yet informed the Embassy or filed a DS 4079. This is complicated by the fact that I worked for the Federal gov’t in a different position prior to (and after) applying for my passport. I obviously cannot say I had intent to relinquish from my initial job years ago (since I didn’t even know I was a USC), but I hope that my recent job (with new letter of offer, movement to Ottawa, different security clearance, etc) could be articulated.
Finally, I note new Streamlined filing compliance procedures: I am below the threshold for the FEIE 2555 exclusion every year. I had 3 mutual funds (total value ~18K) that during the 2009-2011 tax period “made” money, around 3K a year. These were phantom gains, just recooping loses from years previous, but if I understand correctly, they would be considered income, correct? I have no idea how much tax would be owed on this income, and if it would bump me above the $1500 “low risk” threshold. Is there a way for me to discover this without committing to an accountant to file back taxes (and potentially paying thousands only to find out I’m over the streamlined?)
I am really at a loss. I do believe in compliance with law, even when I don’t agree with it. However, part of me really wants to lie low, since my place of birth is Canada, and I’ve lived and worked here all my life. My time in the US can be measured in weeks. It is the uncertainty of not knowing all the variables, or the best course of action that is causing me so much stress!
[A]nother concern which I have not seen addressed online yet.
If I relinquished and decided to take my chances on not filing a 8854 (in the hopes that a CNL alone with no previous activity and a Canadian CoB would not attract too much attention), I would be a “covered expatriate” in the eyes of the US.
Do I read the exit tax correctly that Canadian pensions (ie. Federal gov’t pensions) are taxed at 30% on their distribution? How can this be? I could work for the next 30 years, after having spent 3 knowing I was a USC, and have to pay out of my pension?
This is the main reason why the idea of being over the “low risk” threshold of streamlined compliance stresses me out… it seems like this is the alternative (since I don’t want to criminalize myself into the OVDI).
Any other thoughts on the pension aspect / exit tax?
In regards to the FBAR, I couldn’t find anything specific on my question:
How does it actually work, from a practical standpoint? I realize we are reporting our bank account numbers, and highest balance. Is that based on an honour system report, with potential penalties if something comes out contrary to the info you provided later on, or is a case of the IRS approaching a Canadian bank and saying “Hey, let me take a look at account 12345 for the 2009 tax year.”
I mean this as a separate question related to filing for back taxes, particularly with the streamlined filing compliance process, as opposed to the FATCA requirements which will have some sort of data transmisison to the IRS.
My response
@Born in Canada, Your first mistake was mentioning that you had an American parent to a cross border guard. American cross border guards are neanderthals whose job is to harass Canadians crossing the border to try and find non-compliant “US persons”–their job is not to know the law nor your rights, but to violate your universal human rights whenever it suits the purposes of the United States.. The United States is a desperate country and it is looking across the Canadian border to its North for potential sources of revenue. Expat food: Don’t feed the beast. Never feed a border guard this kind of information–it is irrelevant. You are a Canadian born in Canada. That’s all he needs to know.
Please be careful about consulting a cross border specialist, or the obtaining a US passport will be one of may be one of the most expensive mistakes you’re likely ever to make. I am personally of the opinion that you don’t really have to do anything, except let your US passport expire and never ever mention your US citizenship to anyone ever again. You are Canadian. You drink Canadian beer and you are not an American even though some cave man on at the border decided that you are one. You can of course go to the US Consulate and tell them that you relinquished your citizenship when you took the job at for the Federal government. I would do that. But I would probably never volunteer any tax information to the IRS–not one single thread of information, and certainly nothing about your legal bank accounts in Canada, for heaven’s sake, especially mutual funds–because the cost of compliance on these funds will likely far exceed the savings that you have in them. If you told your Canadian banks that you were American, then close your accounts and open them in a new bank somewhere and fail to mention your US passport. Tell them you are Canadian–the truth. But it sounds like you didn’t tell the banks anything.
You should not be a “covered expatriate” as you have suggested (but now see this comment), because people born with a foreign citizenship and no significant attachment to the United States are not covered and they are not really required to reveal their assets to the United States–to my knowledge. This is despite owning assets over $2 million. I wouldn’t even bother with the Form 8854 or any yearly tax returns. They are irrelevant in your case. You have to understand that this exception of native born foreign nationals is born in diplomacy–the United States can hardly cause these rules to apply to persons born with another citizenship and no substantial ties to the United States and maintain good diplomatic relations with their neighbors. For the IRS to create a scene in your case would be an out and out act of war against Canada by aggressively seeking to obtain tribute from native-born Canadian citizens resident in Canada. Otherwise, the desperate beast would have insisted that there be no such exceptions.
My suggestions if you are unsure about your tax situation vis-a-vis the US is that you seek an impartial consultant and not a cross border specialist, whose job is to get you into compliance with the US and whose perspective is turned towards the needs of the beast. Find someone who knows your rights and if you can’t find anyone, I can make a suggestion or two.
Remember, you are a Canadian citizen living and working in Canada. The US does not have the right to tax you even if you made the mistake of getting one of their passports. The CRA will not collect from you and unless you have assets in the United States or sources of income from the United States, the IRS has no way of collecting from you even if they had sufficient information to assess a tax liability.
Well, this is my opinion. Be sure that you will receive many others here.
…………….American cross border guards are neanderthals whose job is to harass Canadians crossing the border ………….. hilarious but well put …. they remind me of the bully Biff Tannen in the movie Back to the Future 🙂
Well said. It is so wrong that this person has to even worry one second about all this U.S. Tax, Form and Penalty club nonsense. I agree. Let the passport expire, and never use it again, and never mention US parentage ever again to anyone, especially your bank or a custom official!
I agree about not mentioning it at banks and such but what happens when they start asking? Then you have to make the choice to fess up or lie, and once you lie, you are sliding down the slippery slope to willful intent, right?
But as far as the US goes, isn’t this guy in the system now? Wouldn’t the border guard have made a note and he’s crossed the border numerous times on a US passport, which is also a paper trail.
If he had ignored the border guard, it might have quietly gone away but he didn’t. Now, I think, he should just take steps and dump the status. Better than to have it come back and bite him a decade from now when it can do even more damage.
@ a, Be careful not to assign omniscience and perfectly correlated data systems in the United States. I suspect that Born in Canada could travel to the US on his Canadian passport and not run into problems. If they can correlate his Canada passport to his US passport, he could say that he was simply mistaken, that he was not really an US citizen after all. Then go to a Consulate and inform them of his relinquishment (taking a Canadian government job with the intention of relinquishment). But it may be better not to poke the bear if there are no problems traveling to the US on the Canadian passport.
You are surely correct that he should of paid no attention to the border guard. It is never good to take advice from the stupidest person in the room. And if you are in a room with a US border guard, guess who is the stupidest?
Petros, as things stand today, you are right. But, I wonder about a few years from now as the systems to gather fall into place. If things like FATCA happen, the sifting and matching will begin. And there is a lot of info already freely being given away by people via social networking that companies gather and sell to basically whoever. So all I am pointing out is that if you’ve been identified and tagged in some database, you can’t really be truly safe. Some people are okay taking the risk, but they should be aware that it is a risk. That’s all.
@ a, Well if it’s in the future then Born in Canada has nothing to worry about. But in any case, provided he has all his assets in Canada or elsewhere outside the US (and I’ve been recommending that for a long time now) he never has anything to worry about at the border except being turned back. They can’t arrest him. On the grounds that he didn’t file his taxes: how can they with a dearth of information even establish that he met the income reporting threshold much less a tax liability? The nice thing about living in Canada and earning in Canada is that the IRS can only know most of your financial information if you tell them yourself. There are no automatic reporting requirements to the IRS, yet. And for Born in Canada, there will never be (short of the US completely annexing Canada), because he is a Canadian with a Canadian birthplace.
Thus, I would not buy expensive cruise tickets for cruises that begin in Miami or Galveston, for example. Avoid the US for all expensive vacations. If you get turned back at the Canadian border, no big deal. If you miss a cruise, because you can’t get to your port of entry, or if you lose an nonrefundable vacation in Hawaii, now that’s a pity.
I am Canadian born and raised. Always lived here and worked. I recently discovered FATCA and FBAR. I have two American parents. I have a US Passport and you know the rest.
I am looking for the next steps:
Relinquish my US Citizenship
File my last three years tax returns to IRS
File the last six years of holdings to FBAR
I disagree with double taxation but still want to be in compliance.
Should I file both my tax return and FBAR? Should I wait to relinquish citizenship until I have filed and resolved any issues? Will I be treated differently, as a US citizen? And if I fail to do the above can I ever traveal to the US again?
Petros, key word being “yet”. US is fond of retroactive stuff. It still gets down to risk tolerance. If you are going to lose sleep and troll the Internet looking for reassurance, you should probably take some proactive steps. It might be enough for now for people like him to lay low. Things change and even sometimes for the better.
CalgaryM, people seem to have had success with quietly back filing with a letter explaining they’d only recently discovered their obligations. You might want to get some expert assistance though. Tax preparer who knows US tax law. There is a link on the sidebar for a post that discusses that.
I don’t think you can relinquish if you are a born dual. You have to renounce. And you can renounce before filing, I believe.
@a I sleep well at night. It is the criminals in Washington who should have trouble sleeping.
If things change sufficiently for the worse for Born in Canada, no one in Canada is safe, as the United States has the largest stock pile of nuclear weapons in the world. It won’t make any difference if you are Canadian only either. All of us and I mean all Canadians will suffer. But as it stands, our country, last I checked, was still a sovereign nation, and the CRA has said it will not collect from Canadian citizens. This is all the reassurance I need and that’s why I sleep well at night.
It’s going to be hard to go back to burying your head in the sand, and pretending it will all go away once you’ve stuck your neck out and got yourself a passport and SSN. However, if that is what you’re going to do, then I would strongly advise you not to enter the USA again.
Otherwise, your only other option may be renouncing.
Petros, anyone who loses sleep over their criminal intent and deeds is in the wrong line of work. Have you seen any of the Netflix series, House of Cards? Politics as a career has always been morally dubious. But it still comes back to what an individual can tolerate. You are well out but for those still in and with deadlines looming and the fear-mongering in the media and the Canadian govt really only being somewhat reassuring when they bother to speak on the topic at all – I can understand Born in Canada’s angst and how he might want to take steps. MJH is right. Once you’ve exposed yourself, your risk level doesn’t return to zero just because you decide to hide again. If you’ve never outted yourself that would be different.
I don’t think you can relinquish if you are a born dual. You have to renounce.
Well, I certainly hope that’s not the case, because I’m dual, and have an appointment to relinquish next week. I swore the oath Thursday.
In my opinion, if you follow Petros’ advice, chances are nothing will happen to you. My concern is that since you have a SSN and a passport, they might eventually notice you, and who knows what the situation well be in future? My advice is the check and consider the risk and benefit of every scenario.
From what you’ve said, you’d qualify for the streamlined procedure and almost certainly be considered low risk. Do the three 1040s and six FBARs, then back file for one year and file for the following year and you can renounce without risk since you’re a dual citizen from birth.
You play their stupid game, but then you’re out for good. You can travel freely and sleep soundly. To me the benefits outweigh the risks.
The Mom:
If you swore the oath with the intent of relinquishing US citizenship, then you’re technically not a dual citizen. However, since the US State Department presumes that you intend to retain US citizenship upon swearing a foreign oath, you’ll need to take steps to establish your intent to relinquish, so that it will be formalized.
If you don’t do this, then you’ll have to renounce. I’m in the same boat here, and I still have a couple of years to go before I can apply for Canadian citizenship. Believe me. My US citizenship would be long gone already if only I had the option to dump it without being stateless in the process, although I’ve thinking about dropping $450 to do just that. Hell, the US has long since left me before I left it, anyway.
Petros:
Given Canada’s proximity to the US and the US’s rate of societal decay, I have a feeling that in the next 15-20 years, perhaps sooner, I could see the US embroiled in civil anarchy, or even in another civil war. Will it spill into Canada? I would be kidding myself stupid if I said that it won’t.
a:
Knowing what I know now, if I was born dual, and no one in my childhood has ever pursued for me US citizenship based on my parent’s US citizenship, then there’s no way in hell I would ever pursue it now.
There’s no value in it, and only grief to be had.
What about someone born in the USA but has lived in Canada for 45years, married a Canadian and became Canadian citizen 35 years ago. Has a Canadian passport. Never has had an American passport. Has never filed anything re annual returns or FBAR. Visits the US but has never resided there since 45 years ago. Never has done anything US like. Is there a risk? Should she relinquish or is the risk too low to worry about it? Does not have a certificate of loss of citizenship so if a bank pushed for proof there is none except the pledge to the Canadian flag and citizenship in Canada. It appears that the banks won’t be asking until 2015 in the second wave of data gathering.
Joe, she should be able to apply for a CLN via the consulate on the basis that she relinquished when she became a Canadian. There also seems to be the consensus that she doesn’t have to file at all. There is a post here titled “Did you relinquish before February 6, 1995” that might provide the info you need, but it sounds like all she needs is the CLN although it’s just as likely that a bank wouldn’t question her status on existing accounts.
@Joe,
The person you describe, could be myself. I have lived in Canada 49 years and became a Canadian 41 years ago. I have applied for the CLN and will be having my second (and I hope final) interview at the U.S. consulate soon. There are some who would suggest doing nothing. However, my concern was twofold – the border and border guards pushing the ‘you must enter the U.S.. on a U.S. passport’ when they see a U.S. birthplace and if the banks should ask for place of birth.
For my own peace of mind, I decided to apply for the CLN. Like your example, I have done nothing to negate my intention of giving up my U.S. Nationality when I became a Canadian.
AS was mentioned above, there is lots of information on this site that those of us who ‘relinquished’ our U.S. citizenship many years ago, have no filing obligations with the IRS.
Why would two visits be required for relinquishment? I thought that one was all that was needed.
Joe, Vancouver was forcing two visits on everyone. It’s not the case at all consulates. Just be clear that the appointment is simply to apply for the CLN for a relinquishment that is decades old. There is nothing to think about b/c it’s done and you simply want it recorded and acknowledged as such. It should only take one visit.
That’s Vancouver, which marches to its own drummer. The consulates in Canada were told in November 2012 that they could do all expatriations (renunciations as well as relinquishments) in one visit, but Vancouver continues to require two visits anyway — even for non-renunciation relinquishments.
There is absolutely no reason to require two visits for a s.(a)(1)-reqlinquishment-based CLN application, as obviously the person has nothing to think over, having already relinquished their US citizenship — if anything, this unnecessary delay just makes life harder and harder for them as one is stuck in limbo longer. It’s really hard on people who have not been US citizens all these years/decades but now need CLNs due to changes in US law and policy (and were never even told such a document existed until recently)– and routinely requiring unnecessary second visits is one of the reasons Vancouver has such a long waiting time to get an appointment. Dreadful!
You can read about how people’s meetings are going the different consulates in the Consulate Report Directory and you can see timelines for each consulate from month of booking through month of appointment/s through month of receipt of CLN in the Relinquishment and Renunciation Data Chart.
@Joe,
Pacifica is right. If I knew a year ago what I know to be the case today, I would never have gone to Vancouver. I would have hopped on a plane and gone to another consulate. Believe me, it would be well worth the cost.
Needing two appointments, especially for a long ago relinquishment, is absolutely ridiculous. In my case, at the time I became a Canadian, I had to swear, in addition to an oath of allegiance to the Queen, a ‘renunciatory’ oath giving up allegiance to any foreign sovereign or state. Now why would I need to ‘think about’ what I was doing today (applying for a CLN) when I had already sworn a renunciatory oath.
My first appointment was early last fall and my next appointment more than 6 months later. As I said – RIDICULOUS.
You don’t say what part of Canada you live in, but if it is in the West, I recommend going to another Consulate rather than Vancouver.
Ms. Tiger:
One would think that, in a certain sense sense, you are in violation of a US law and that they would come to you, rather than make you come to them, to get the CLN. Or, at least, accept a notarized letter revealing the facts of your prior renunciation and therby saving them the expenses of doing an investigation.