IRS CompliantForever has entered an excellent post at Maple Sandbox. I am again cross-posting from there: Can Cross-Border Tax Professionals Prepare U.S. Tax Filing Return For Impoverished Canadian Brad Smith For Only $300?
IMPORTANT UPDATE, February 3, 2014:
WhiteKat, a close friend of Brad’s, is helping him contact Brain. Here is WhiteKat’s comment on behalf of Brad (Brad’s comment seemed to be blocked at TaxConnections.com for some reason) — and my reply: http://taxconnections.com/taxblog/cbc-distorts-fatca-facts/#comment-1027
WhiteKat
February 3, 2014 at 9:27 am
Mr. Mahany, Brad Smith asked me to post this because he seems to be blocked from your site. Can you help him please!Changed by the TaxConnections.com Administrator to: “Mr. Mahany, The gentlemen you spoke with earlier asked me to post this. Can you help him please!:“Brian, I called the two tax firms you recommended, but both quoted me three-four times your estimated $300 filing cost. I have practically no income and just a bit of savings. I’m getting seriously scared. I want to pay my fair share and even though I live in Canada I fear that IRS will arrest me and put me in jail.
These companies tell me that it will cost me a LOT of money to file past returns even though I owe no tax! Something is really wrong here. No way I’m a tax crook. I have hardly any money which is not my fault. What can I do? Brain, PLEASE HELP!”:
“Brian, I called the two tax firms you recommended, but both quoted me three-four times your estimated $300 filing cost. I have practically no income and just a bit of savings. I’m getting seriously scared. I want to pay my fair share and even though I live in Canada I fear that IRS will arrest me and put me in jail.
These companies tell me that it will cost me a LOT of money to file past returns even though I owe no tax! Something is really wrong here. No way I’m a tax crook. I have hardly any money which is not my fault. What can I do? Brain, PLEASE HELP!”
Reply
calgary411
February 3, 2014 at 9:39 amAlthough many will not relate to Brad’s situation, there will, in fact, be countless so affected.
As McGill law professor, Allison Christians, points out in blog post “Citizenship-Based Taxation and Taxpayer Rights Don’t Mix”:
“It is another to say to other countries–and much less individuals in other countries–if people who live in your country have US status AS WE DEFINE IT, you are harboring potential criminals and you must help us find them and enforce our claim over them even if your government also claims them and even if our claim conflicts with your government’s own law.” … which is more “entitled USA” hogwash and US collateral damage to Brad and so many others, in the process destroying individuals and families.
*************************************
Recently, Mr. Brian Mahany on a TaxConnections Worldwide Tax Blog discussed costs of filing U.S. tax returns for duals living abroad and took issue with some statements on tax preparation fees made by Allison Christians in a CBC article.
Here is the CBC “Myth,” according to Mr. Mahany, followed by the Mahany “Fact”:
CBC “MYTH”: The annual cost of filing U.S. taxes can be “astronomical,” tax expert Allison Christians notes. Accounting firms estimate the cost of filing personal U.S. taxes can be anywhere from $500 to several thousand dollars.”
Mahany “FACT”: “I suppose if I were Bill Gates or Warren Buffet, the cost to prepare my tax return might be in the thousands. There are many very qualified CPA firms and expat tax services that prepare returns for dual nationals, including FBAR filings, for about $300. [We don’t prepare returns but can certainly send you to folks who do.]”
http://taxconnections.com/taxblog/cbc-distorts-fatca-facts/#.Uu6BlD1dWE4
I was also intrigued with Mr. Mahany’s statement that the U.S. has special rules on “trusts” such as RESP, RRSPs, and TFSAs, implying that these should be easy to deal with.
Several commenters took issue with Mahany, with one saying:
“Please, show me a competent accountant that will do a US tax return for $300 when RESPs. TFSAs, and Canadian mutual funds (outside of a RRSP) are involved. There is no such animal.”
I decided to pursue this question and asked Mr. Brad Smith, who might or might not be a composite character, to follow up with Mahany on this inexpensive $300 tax service. Brad is a 27 year old single Canadian resident and Canadian citizen living in Toronto who just discovered that he is a U.S citizen. Mr. Smith insists on entering into IRS tax compliance in order to pay, as he says, his “fair share”. He is unwilling to file returns on his own and refuses to renounce his new-found U.S. citizenship.
I selected Brad as he has a very simple tax situation: very low self-employment income ($19,000 annual), a single share of a Canadian mutual company (value $100), and $200 in a Canadian tax free savings account (TFSA).
—Brad corresponds with Mr. Mahany:
On the Tax blog, Brad asked Brian Mahany:
“Hi Brain [sic],
I just found out that I am a US person. You say that you can find a qualified CPA firm that will prepare my tax return for only $300 (including FBARS). This sounds pretty good to me.
What is the name of this CPA firm?
Thank you for your help. I will sleep a lot better tonight knowing that I can become IRS compliant at low cost.”
Mr. Mahany then sent Brad a private email disclosing the names of two tax professional companies that will be called below “Yellow Jacket” and “Boll Weevil.”
Brad then responded in a comment on the blog with lots of thanks, but Mr. Mahany removed from the response the personal details of Brad’s income and savings (TFSA, mutual fund) mentioned above. Brad’s response of thanks to Mr. Mahany:
‘Wow! Many thanks for getting back to me so quickly with the names of two companies, I will call both CPA companies on Monday and get quotes for preparing my tax return. You mentioned that the price depends on the situation, but my tax situation is simple [PERSONAL DETAILS DELETED BY TAX BLOG ADMINISTRATOR].
I will let everyone know on this post what I am quoted by the two companies. I really thought that the cost would be so much higher and thank you for helping me out.
I don’t ever want to be accused of being a tax cheat. I left the U.S. when I was two years old and have never returned but I am happy to pay my fair share.”
See:
https://taxconnections.com/taxblog/cbc-distorts-fatca-facts/#comment-976
—Brad discovers the true filing costs of IRS compliance:
Mr. Smith phoned both tax companies and obtained quotes over the phone. Yellow Jacket also has some costs listed on-line. You can imagine Brad’s disappointment when he discovered that costs for yearly U.S. citizenship compliance, given Brad’s very simple financial situation, were much higher than Mahany’s $300 estimate.The costs from the two companies were similar and are shown below:
Yearly compliance cost——————Yellow Jacket Boll Weevil
Basic cost IRS 1040 ———————–$357—————————– app. $400
TFSA (2 trust forms)———————–$357—————————– app. $400
Mutual fund (PFIC form)——————$149—————————– app. $250
FBAR——————————————–$67—————————– app. $100TOTAL—————————————-$930/year———————- app. $1150/year
Mr. Smith also insisted on entering into one of the IRS “disclosure” programs. Both firms suggested that a “Quiet” IRS disclosure approach might be the way to go, but the cost was the same for “Quiet” and “Streamline” disclosures.
[Note, IRS helpfully advises: “Those taxpayers making “quiet” disclosures should be aware of the risk of being examined and potentially criminally prosecuted for all applicable years.”]
The costs for the disclosure were:
Yellow Jacket: basic return three years ($915), FBAR 6 years ($402), TFSA ($357 X 3 = $1071), Mutual Fund ($149 x 3 = $447) for a total of $2835 U.S.
Boll Weevil: basic return three years ($1200), FBAR 6 years ($600), TFSA ($1200), Mutual Fund ($750) for a total of $3750 U.S.
The costs of five years IRS compliance to exit the IRS system as an expatriate will be higher but this is not relevant for Brad.
—What are Brad’s options given the cost of IRS tax filings?
This is not a random sampling of tax firms but it does prove that using the companies Mr. Mahany has selected, and a Canadian-U.S dual who all must admit has a simple (impoverished) tax situation, US tax returns for people like Brad cannot be done cheaply.What is striking is the high penalty (confiscation of savings) that must be paid by Brad for owning the tiniest of two harmless Canadian (i.e. “foreign”) retirement vehicles for which, in Brad’s case, the cost of compliance is actually more than the value of the TFSA and mutual fund FOR EVERY YEAR OF COMPLIANCE.
[But could any of us ever be comfortable in suggesting to Brad that he should give away his small retirement savings just because IRS deems it to be toxic—or in helping Brad become IRS compliant?]
Brad wants to be IRS compliant, but with his meager income knows that he will never be able to afford these costs, yet he refuses to part with his toxic Canadian mutual fund and TFSA because these were given to him by his family to help him in his retirement.
Brad is also unwilling to take a stab at filling out the IRS forms himself because he does not want to make a mistake. Even if Mr. Smith wanted to renounce U.S. citizenship (he tells me that he will never renounce) and exit the IRS system legally, he would never be able to afford the costs of five years IRS compliance.
Given Brad’s financial situation, IRS compliance costs, and his wishes, what are Mr. Smith’s options?
@Excellent post. Has Mr. Bryan Mahany been advised and what is his reply? Will he do a new column informing his readers of these results?
It’s a basic issue, why should a resident Canadian have to pay all these costs to prove they owe NOTHING to the US Government?
@Don
Can our PM , Flaherty , Mulcaire , May and Trudeau answer this question of yours?
Thank you, Brad for your research. Maybe you’ll reevaluate your newly found US citizenship when you realize it will take 5% of your income to maintain it.
What an excellent post! This was certainly needed to refute the statement by Brian Mahany at the “TaxConnections Blog, titled ‘CBC Distorts FATCA Facts’ “:
quoting Mr. Mahany:
CBC: “The annual cost of filing U.S. taxes can be “astronomical,” tax expert Allison Christians notes. Accounting firms estimate the cost of filing personal U.S. taxes can be anywhere from $500 to several thousand dollars.”
FACT: I suppose if I were Bill Gates or Warren Buffet, the cost to prepare my tax return might be in the thousands. There are many very qualified CPA firms and expat tax services that prepare returns for dual nationals, including FBAR filings, for about $300. [We don’t prepare returns but can certainly send you to folks who do.]
Obviously, Mr. Mahany didn’t do his homework before putting those words in his article! If he can prove otherwise and has is a reputable firm and knowledgeable CPA who can do international US tax returns without incurring PENALTIES for the person engaging his or her services, someone for $300 (a year?) to solve his “US tax compliance problems”, Mr. Many can do another blog post to prove for us this is possible.
Some people may not relate to “Brad”. In reality, there will be a lot of Brad’s out there; his is not an uncommon life situation at all.
Hopefully, most of the other “Brad’s” won’t be as headstrong as this Brad who wants to comply at any cost. Others should be able to see clearly that the only way they can have a normal life (now that FATCA comes across other-country borders where they live) is to either move back to the “homeland” or to expatriate — get rid of that extraneous US citizenship as the US taxes on citizenship, not residence. Anything like a normal unfettered tax life won’t be possible, unless a person is quite wealthy or the “off-shore company” he works for takes care of his US tax return and FBAR compliance. Were the US change to residence-based taxation, as the rest of the world (except the US and Eritrea), Brad and others like him would not have this expensive, life-changing problem.
Thanks so much for researching to show the REAL COST US tax compliance will be for Brad Smith and so many others like him! What can they do???? No wonder so many hide from this in fear as their Canadian government, in the meantime, appears to be doing little to show they will be protected.
We hope that the statements that Finance Minister Flaherty has made will not change. Canada will not collect penalties for FBARS for ANY so-called US Person in Canada. Canada will not collect tax or tax penalties on behalf of the US for any CANADIAN CITIZEN, from the time such a person became a CANADIAN CITIZEN. Seems, at the least, the choice must be to become a Canadian citizen if you have not made that commitment or return to the homeland. You are US chattel.
Cost in the UK is astronomical.
“Our fee for a resident US tax return (form 1040) usually start at £1,600 although for very straightforward US tax returns, we may be able to offer a reduced fee of £1,350. ”
I would have a straightforward US tax return showing no US tax due. I am also receiving income support from the government because my income is so low.
That fee would be equal to one one fifth of what the UK is providing me for income support, or one tenth of my total income. All to show I owe the US nothing.
http://www.bdo.co.uk/services/tax/corporate-clients/human-capital/us-expatriate-tax-services
@LiverpoolEXPat
1350 English pounds is $2,023.91 Canadian
HR Block charged me $517.39 in Montreal. My taxes were very simple (no mutual funds, no RESP, no TFSA). I only had RRSP’s.
@MontrealFactaOff
Was this for Canadian and American taxes.
I myself use Turbo Tax for $30.00 to file my Canadian taxes myself.
H&R Block did my daughter’s US taxes a few years ago. She received a $10,000 IRS penalty for something H&R Block failed to report, with little actual time to pay it. They did not do a fix for it; but a more competent accounting firm did. I had my 2005 – 2007 US tax returns prepared by a Calgary cross-border accounting firm — again, those years had to be done over. In between the firm that corrected those returns and my final 2012 US return, I had to fire one useless, again incompetent CPA located in New York State. The mistakes I made fill a big box.
Calgary 411
Would you biggest suggestion be, if you are hidden and had a Canadian citizenship years ago. Stay hidden and use your driver license for photo ID. Talking to FFI “I am Canadian what do you mean”.
The focus of the FATCA debate if the Canadian government signs an IGA without a ‘carve out,’ has to turn into ‘WE WANT A CARVE OUT.’ A dual US / Canadian citizen’s relationship is between them and the US, not a troika of them, US and Canada.
Flaherty, Mulcaire, May and Trudeau appear to be little US puppy dogs who follow their commands.
Troikas don’t work.
George 3rd,
I don’t have any good suggestion. Look at all the mistakes I made in my history of this; the last person that should make suggestions is me. Everyone has to make their own decision based on the research that they do for themselves.
In talking to MY Canadian “foreign financial institution” I will say I am Canadian only as I have now officially renounced / have rid myself of my former US citizenship and have a CLN to prove that (not that I am entirely confident that the US will not do something in the future that makes that not so — as I was told, rather “warned”, by the US Consulate in 1975 that if I became a Canadian citizen, which I did, I would lose my US citizenship. Yup, changed! Will it again?) I want my Government of Canada to stand up for all of their people. My PARAMOUNT allegiance is to my country, Canada, and I want Canada to demand they have a PREDOMINANT claim on me — and on my adult son (and all others like him who would be otherwise ENTRAPPED into a US citizenship they never laid clam to in any way). I want Canada to assert its PREDOMINANT CLAIM for my son, especially, with no interference from the US (his so-called other, never asked for, automatic citizenship by birth to me).
I run a sole proprietor business that spans 3 countries (it’s just me not some massive company). My US tax return was over 100 pages last year and cost my about USD 5,000. I could not explain that tax return to anyone if my life depended on it – it is so massive and complex. I also filed tax returns in the country I actually live in and also make money in. The cost of paying my ‘fair share’ and getting zero services to the US is a crime. I would just prefer if the US said – the cost to keep my US passport each year is ‘X’ and I just pay that rather than this horribly complex and costly system.
I’m convinced that lot of homelanders would prefer not think that our taxes have anything to do with services, but are necessary to keep the homeland running while we’re away. It’s a pay tribute to the empire mentality.
Someone here should try to get Mark Fitzgibbons on our side
http://www.nonprofitprosperity.com/staffbios#mark
I am sorry for people who have to pay tax payers and but I feel sorry especially for the Denver Broncos. You do not need an elderly quarterback, just common sense and a great defense to win the game. I have never paid a cent to tax preparers. I back-filed 7 years of stuff in 2011. Not a peep from IRS. I just ignore any deductions as I owe zero tax anyway. IRS is underfunded anyway.
@Calgary how can they collect a 10K fine!
@All I grew up in Seattle but have renounced. I still like American Football.
People, the Canadian government might say it will not collect for the IRS- but what are the companies going to do? The banks and investment firms- the FFIs? The thread above says that some company is a withholding company – and that is just it. If the US person does not pay his taxes- then the FFI will be liable. And they are not going to like that. So if the government doesnt do anything, the companies which are supposed to pay your tax will, because they wont pay your taxes – thats for sure. So how will that work out? Anybody?
I dont know why the whole world doesnt just say “no” to the blackmail of the US government. United we stand, divided we fall. The whole banking system would not work if everybody just said no. But the governments are toppling one after the other and seemingly think this is all a good idea. Add the NSA to the mix with its industry espionage and insider trading, and we have a form of tyranny. But nobody seems to see where this is heading?
BTW_ there was just a german TV report yesterday showing the danger of the NSA spying. It is in the media more and more in Germany with increasing outrage. And yet, still they profess their mutual “friendship”. WHY? How can spying on friends and stealing their secrets still be friendship?
I feel very confused this morning. This world is becoming a real Orwellian nightmare.
I even got screwed by my tax accountant who wouldnt adhere to a verbal agreement about price. Its a monopoly because amercan tax accountants are so rare in other countries and the prices abroad for a tex return can be 5 times as high as anything in America. None of this is taken into account!
But I just had a thought….what if the penalties were diminished by say 5% for each deacde that an expat lived abroad? Wouldnt that display more fairness? Because somebody who has lived many many decades if not their whole lives abroad really dont have any affiliation to America anymore. Maybe that could be a means of exressing these discrepancies in a more fair way?
I plan to renounce, waiting for an appointment time. This means I need to do 5+ years of back taxes. I doubt I will owe anything because I don’t make 90,000$+ a year ad the Canadian tax treaty with the US.
I have the means to pay for an accountant but to be honest I don’t want to waste anymore rescourses on an issue that has made me go mad. I plan to use Turbo Tax and hope to hell I don’t make a mistake. If I do, I will say “come get my money $&@&$@”. I have lived in canada since I was 3 years old and thought I relinquished when I registered as a Canadian citizen.
If canada signs an IGA, I will take my name off my joint savings with my husband. I’ve already liquidated any American investments and paid off an Ontario student loan.
I used H and R Block and they didn’t do my forms correctly three times in a row. Instead of fix their mistake for free they charged me each time to do a whole new form. That firm though cheap is not recommended. If they make a mistake you pay the penalty not them.
Anyone who does international taxes and who knows what they are doing is not going to be charging the rock bottom prices of those who simply say they know what they are doing. As many of you know my forms are very simple. In total by the time I am out I will have paid close to 4000.00 and that is cheap.
This guy hasn’t a clue what he is talking about. Tossing figures off the top of his head. And what if he were correct anyway? For a retired person on a very small income that 300 is a lot of money.
Fortunately, I don’t think brad has to file FBARs as he does not have 10,000$ or more.
Brad- I have a Canadian accountant friend and a lawyer friend (who is dual with the US) who both said that the workers at H and R block took a weekend course to be competent with US taxes. I was quoted at a starting rate of $350 per year plus 50$ per year for FBARs at h an R block. So if someone with a weekend course can enter digits into a software program, why can’t we do the same using turbo tax (or whatever).
I was quoted at a starting rate of $2500 for an accountant who specializes in US to do the “streamline” which includes 3 years of taxes. Given I have investments (tfsa, rrsp, pension), it could be upwards of 10,000$.
It is outrageous that someone with so little, could have yearly compliance costs that are so high! Brian should be ashamed at himself for suggestion that $300 is a typical yearly accounting fee. Maybe for an 18 year old, but not for someone who has worked long enough to have started up any RRSPs, TFSA’s or bought any Canadian mutual funds. And you don’t need to be well-off to find yourself in a place where your compliance costs are several thousand a year. I am pretty average, but compared to Brad, I suspect my compliance costs could easily be 5 times his with 3 RRSPs (one locked, one personal, one spousal), 3 RESPs for my 3 kids, 1 TFSA, and pretty much everything invested in Canadian mutual funds (yes, I know mutual funds are useless, but I am no investor). And when I think of all the reshufflling of mutual funds I have done over the last few years on the bank lady’s advice, I cringe knowing they are PFICs and that I have inadvertently created mounds of paperwork and calculation nightmares for myself. Surely the stupidity of repeatedly selling and buying Canadian mutual funds is enough to prove non-willfullness should I ever be challenged on that point!
I think that Brad neglected to mention one other cost which is the cost of obtaining data from Brad’s financial institution required for reporting his Canadian mutual funds as PFICS. My understanding is that the process is quite complicated, and the banks need to do a lot of digging to provide the required information. Banks are not going to do this for free.
Whitekat,
I have had investments with another bank that are now closed. The cost to get statements is 10$ per page for my brokerage account and 5$ per page for my checking account. The man I spoke to at brokerage said he would do a quick scan to see which investment statement is the highest for fbar. The bank said they wouldn’t do this so I would have to order statements for every month x 3 years.
@Stressed,
Is it just because you were back-filing that you needed these bank reports? In other words, once one is in compliance, should you have enough data from regular bank reports to do your annual US tax returns (presuming you HAVE NO CANADIAN MUTUAL FUNDS)?
ANYONE INVESTING IN CANADIAN MUTUAL FUNDS WILL HAVE TO GET FURTHER INFORMATION FROM THEIR BANK IN ORDER TO DO THEIR ANNUAL US TAX RETURNS AND FBARS. Banks will not do this for free, and if you have been stupid like me, and moved your funds around a lot, expect big expense and headaches. Actually, I heard this will soon get to be pretty much impossible because currently IRS allows a ‘marked to market’ valuation (much simpler calculations), but at some point this method will be scrapped. Does anyone know what I am talking about?
order to file US tax returns, or