cross-posted from citizenshiptaxation.ca
Last week in my email was a link to an article by Michael J DeBlis (unable to determine whether it was the father or the son). It runs in my memory that prior to the launch of the Tax Connections website, the younger Michael had started a blog that was specifically about expatriate issues and many of us joined and took part. He seemed particularly sympathetic and supportive of our plight and one who I would never have labelled a “condor.” And this post is in no way meant to be demeaning.
Imagine my surprise to read this:
Consider the following example. Pierre is a dual citizen of the U.S. and Canada who presently resides in Montreal. He has fastidiously filed U.S. and Canadian tax returns for the last ten years. Following an audit of his 2012 U.S. tax return, the IRS determined that there was a $ 20,000 deficiency and mailed him a notice of deficiency. Pierre timely filed a protest but Appeals found in favor of the IRS. Having failed to file a petition with the tax court, that deficiency soon became a $ 20,000 assessment.
The IRS now seeks to collect on its claim by imposing a tax lien on real estate owned by Pierre in Canada. Essentially, what the U.S. government is attempting to do is cajole collection officials from the Canadian Revenue Agency (Agence du revenue du Canada) to do its dirty work for it: namely, to collect Pierre’s unpaid U.S. taxes by enforcing an IRS tax lien on property located within Canada.
As incredible as this might sound, reliance upon a foreign taxing authority for assistance in collecting a tax judgment against a citizen of the requesting country is entirely permissible under the terms of the U.S.-Canadian Treaty. Of course, such a request must be accompanied by documents firmly establishing that the taxes have been finally determined.[ix]
Therefore, the Canadian Revenue Agency would have no choice but to enforce the lien and to collect the unpaid taxes. But what if Pierre filed a motion in a Canadian court to have the tax lien imposed by the Canadian Revenue Agency, at the behest of the IRS, set aside? Not surprisingly, the court would refuse Pierre’s request on the grounds that the imposition of the tax lien was proper under the terms of the treaty.
The reason for my surprise was that it is a well-known fact not only in Canada, but among expats in general, that Canadians are lucky because Canada will not collect tax for the U.S. on people who were Canadian citizens at the time the tax was incurred. Nor will the CRA collect FBAR penalties as they are not a tax, falling under Title 31 of the U.S.C. Most of us had become aware of that when our-then Finance Minister, the late Jim Flaherty had stated unequivocably that Canada would not collect for the U.S. under these two circumstances. So I decided to post a comment.
Thanks for this article, particularly for outlining the limits of what can/cannot be done with regard to the border. While the officers can be bullies, along with knowing very clearly, the limits of the Reed Amendment, this is good information to have. Canada and Denmark both have provisions that state they will not collect for that US citizens/persons that are also, their own citizens. In the case of the US-CDN Treaty: Article XXVIA 8) No assistance shall be provided under this Article for a revenue claim in respect of a taxpayer to the extent that the taxpayer can demonstrate that: a) Where the taxpayer is an individual, the revenue claim relates either to a taxable period in which the taxpayer was a citizen of the requested state …………. So the CRA would not collect for the US in Pierre’s case, since he is dual and a citizen of Canada. While the boundaries for the revenue rule may be fading, it is still alive and one which the late Finance Minister, Jim Flaherty, reiterated many times while voicing his shock that the US would expect FATCA to be implemented in Canada. It is very clear that FBAR penalties, which are not part of Title 26 and therefore not covered under the Treaty, also would not be collected by the Canada Revenue Agency. The Canadian courts have refused to enforce claims of the US against Canadian citizens. I presume the Canadian government would honor XXVIA for US citizens/persons who are permanent residents of Canada who are not Canadian citizens. What I am afraid we will see, in spite of past rulings, is that the IRS will attempt to collect from Canadian bank branches in the US with corresponding branches in Canada. I have been told that this does happen by compliance people in spite of court rulings etc. However, it seems to me a bank would be liable to be sued, since presumably, PIPEDA (privacy laws) would in this case, apply to the US citizen/person even though it is overridden by the IGA when the bank sends info to the CRA. We have all seen how the compliance industry tends to enforce the “law” even when the IRS etc, has not provided guidance (which also, is not necessarily, the “law”). An example of this is putting someone who relinquished US citizenship decades ago, into the system according to 877A. Tax lawyers have tended to dismiss past citizenship laws that as far as can be seen, are not automatically changed retroactively. This is completely unacceptable. It is largely useless to Canada to have the right to collect on Canadian citizens resident in the United States due to the fact that once a Canadian is a permanent resident of another country, they are no longer liable for tax in Canada. This is also the reason that FATCA is of very little value to Canada.
You may be interested in a few of the court cases mentioned (indirectly) above: United States of America v. Harden (1963), 41 D.L.R. (2d) 721 Supreme Court of Canada https://scc-csc.lexum.com/scc-csc/scc-csc/en/item/7322/index.do 68 O.R. (2d) 379; 1989 Ont. Rep. LEXIS 206 RE VAN DEMARK ET AL. AND TORONTO-DOM http://uniset.ca/other/cs6/68OR2d379.html Chua v. Minister of National Revenue, 2000 DTC 6527 (FCTD http://ca.vlex.com/vid/chua-v-minister-of-national-revenue-38618242
I received a message asking if I could confirm the information concerning Canadians at this post on the CitizenshipTaxation FB group.I became involved in the conversation and remembered that I had recently learned that Denmark also had such a clause protecting its citizens in the US-Denmark Treaty. So I wondered if it could be the same for the other three countries that have a Mutual Assistance in Collection clause in their treaties with the U.S. namely, Sweden, France and the Netherlands. It didn’t take too long to find that they do indeed have the same type of clause. I was dumbfounded. Why had we never heard this before? I was careful to look at the Protocols because some of the Treaty dates are over 20 years old; there was nothing to suggest the conclusion was incorrect. I also had a couple of professionals take a look and they agreed.
So this is A VERY BIG DEAL. If you are a dual citizen of DENMARK SWEDEN FRANCE the NETHERLANDS or CANADA and were a citizen at a time when the U.S. claims you owe U.S. tax, your country WILL NOT ASSIST THE U.S. in collecting U.S. tax. !!!!!!!!
Then I wondered about FBAR and where that might be confirmed since it is not specifically stated in the Treaty. I googled and found a link to a comment of mine that I have no memory of posting:
25 July 2012 T.I. 2011-0427221E5 – FBAR penalties
Principal Issues: Whether US FBAR penalties are included in “revenue claims” defined in Art.XXVI-A(1) of the Canada-US Treaty.
Reasons: FBAR penalties are not civil penalties in respect of taxes covered under Art.II of the Treaty.
25 July 2012 T.I. 2011-0427221E5 – FBAR penalties
July 25, 2012
Re: Civil Penalties and Article XXVI-A
We are writing in response to your letter of November 7, 2011, in which you asked for our comments in respect of the application of Article XXVI-A of the Canada-United States Tax Convention (1980) (Treaty).
You have described a hypothetical situation involving an individual who is a citizen of the United States (U.S.) by right of birth, and a Canadian citizen by way of naturalization prior to 1995. The individual is a resident of Canada for purposes of the Income Tax Act (Act) and the Treaty. We are to assume that the individual has failed to file Form TD F90-22.1 Report of Foreign Bank and Financial Accounts with the U.S. Department of the Treasury as required under the U.S. Bank Secrecy Act. As such, the individual has been assessed a civil penalty (FBAR Penalty) in the U.S. for the failure to file Form F90-22.1.
In this regard, you have asked whether the FBAR Penalty could be considered a civil penalty that is included in a revenue claim as defined at paragraph 1 of Article XXVI-A of the Treaty, and if so, whether paragraph 8 of Article XXVI-A would preclude the collection of the FBAR Penalty by the Canada Revenue Agency (CRA) on behalf of the U.S. Government.
The CRA has previously indicated that Canada would assist the U.S. Government in the collection of interest and penalty in respect of U.S. taxes owing pursuant to Article XXVI-A of the Treaty. However, paragraph 8 of Article XXVI-A provides that Canada will not assist in the collection of a revenue claim from the U.S. Government in respect of an individual who is a Canadian citizen, such as the individual described in your hypothetical situation.
In addition, we are of the view that a civil penalty, such as the FBAR Penalty, which is imposed under the U.S. Bank Secrecy Act, is not a penalty in respect of U.S. taxes owing. Therefore, it is our view that an FBAR Penalty is not an amount that would be considered a revenue claim pursuant to the definition at paragraph 1 of Article XXVI-A.
We trust that our comments will be of assistance.
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
Then I started wondering about FATCA. The “reassurance” we receive constantly from the Canadian government is that FATCA does not result in any new tax etc, that it is just an information exchange. Which begs the question, why is the information being collected if there won’t be any “new” taxes? In this regard:
Andrew Bonham, “FATCA and FBAR Reporting by Individuals: Enforcement Considerations
from a Canadian Perspective” (2012) 60:2 Canadian Tax Journal 305-54, at 345.
Still, as noted above, the minister has the discretion to refuse assistance in collection. Certainly from a public policy standpoint, it must be relevant that the Crown, in providing collection assistance on a FATCA revenue claim, would in many cases be acting against its own taxpayers in the enforcement of a claim founded upon information obtained in a manner that may not be constitutional under the laws of Canada. The Crown is not obliged to do anything contrary to the public policy of Canada in collecting a revenue claim under the treaty. This last point is analogous to the common-law public policy defence discussed above.
However, it is also quite possible, and perhaps probable, that FATCA is in equal part both an information-gathering tool and a revenue-generating tool. It is for this reason that FBAR will never go away. With information garnered from FATCA FFI reports, penalties can be levied under both FATCA and FBAR if an individual fails to file. However, as we have noted, the long arm of the IRS cannot reach Canada with respect to FBAR, and as further posited, it is likely that FATCA penalties would also be unenforceable in Canada. From the US perspective, the best-case scenario would see all financial institutions around the globe complying with the strictures of the disclosure requirement. Armed with the massive list that would be generated from such compliance, the IRS would merely have to check names against received disclosures and levy fines against those individuals who had not complied. Carrying this scenario further, the IRS could then, after the exhaustion of all administrative appeal periods and recourse, approach the minister of national revenue with a list of individuals owing FATCA penalties and ask that those penalties be enforced by the CRA under the terms of the Canada-US tax treaty. It is assumed that in a large number of cases, a notice from the IRS to an individual noting lack of FATCA compliance would not be responded to, and in those cases, a penalty of $50,000 would be levied, thereby raising a very significant amount of revenue.
Finally, although the revenue rule and the penal/public-law rule would currently preclude Canadian courts from assisting in collection, the ever-expanding role of judicial comity may one day see a repeal of these rules, or at least a relaxation of their strictures. Should that occur, the United States would be in a position to resort to principles of public international law as a basis for enforcement, even against dual citizens. In such a case, it may well be open to defendants to argue that the mere fact of their US citizenship should not, in and of itself, be enough to satisfy the real and substantial connection test—especially in cases where the defendant has had little or nothing to do with the United States and has certainly derived no benefit from his or her US citizenship.
A lot of interesting possibilities are discussed in the article above and it is definitely worth reading. While there are no guarantees that these Treaties will not change in the future, the advantage of this information now is:
- if you are in an unsure situation at the moment, this is something that is as much a part of your situation as your “U.S. Person-ness” and can be a great help in deciding what your risk level is
- if you are not compliant & not yet a citizen of the 2nd country, you might consider applying for citizenship now
- you can help get this information out to other members of your expat community
Lastly, here are the actual wordings in the treaties involved; I am only including the Article/paragraphs that pertain to this idea.
• Income Tax Treaty – 1994
• Protocol – 2005
1. The Contracting States undertake to lend assistance and support to each other in the collection of the taxes to which this Convention applies, together with interest, costs, and additions to such taxes.
4. The assistance provided for in this Article shall not be accorded with respect to the citizens, companies, or other entities of the State to which the application is made, except as is necessary to insure that the exemption or reduced rate of tax granted under this Convention to such citizens, companies, or other entities shall not be enjoyed by persons not entitled to such benefits.
• Income Tax Treaty – 1994
• Protocol – 2004, 2009
19 ARTICLE XII
Paragraph 5 of Article 28 (Assistance in Collection)
of the Convention shall be deleted and replaced by the following:
“The assistance provided for in this Article shall not be accorded with respect to citizens, companies, or other entities of the Contracting State to which application is made.”
Assistance in Collection
1. The Contracting States undertake to lend assistance and support to each other in the collection of the taxes to which this Convention applies (together with interest, costs, and additions to the taxes and fines not being of a penal character) in cases where the taxes are definitively due according to the laws of the State making the application.
5. The assistance provided for in this Article shall not be accorded with respect to citizens, companies, or other entities of the Contracting State to which application is made
except in cases where the exemption from or reduction of tax or the payment of tax credits provided for in paragraph 4 of Article 10 (Dividends) granted under the Convention to such citizens, companies, or other entities has, according to mutual agreement between the competent authorities of the Contracting States, been enjoyed by persons not entitled to such benefits.
8. No assistance shall be provided under this Article for a revenue claim in respect of a taxpayer to the extent that the taxpayer can demonstrate that (a) where the taxpayer is an individual, the revenue claim relates to a taxable period in which the taxpayer was a citizen of the requested State,
Article XII of the Protocol replaces paragraph 5 of Article 28 (Assistance in Collection) of the Convention. The change revises paragraph 5 so as to remove the now obsolete reference to the provision of paragraph 4 of Article 10 (Dividends) of the existing Convention prior to amendment by the Protocol related to the “avoir fiscal.”
Assistance And Support in Collection
1. The States undertake to lend assistance and support to each other in the collection of the taxes which are the subject of the present Convention, together with interest, costs, and additions to the taxes and fines not being of a penal character.
4. The assistance provided for in this Article shall not be accorded with respect to the citizen, corporations, or other entities of the State to which application is made, except in cases where the exemption or reduced rate of tax granted under the Convention to such citizens, corporations or other entities has, according to mutual agreement between the competent authorities of the States, been enjoyed by persons not entitled to such benefits.
INCOME TAX TREATY 2000
1. The Contracting States undertake to lend assistance to each other in the collection of taxes referred to in Article 2 (Taxes Covered), together with interest, costs, additions to such taxes, and civil penalties, referred to in this Article as a “revenue claim.”
8. No assistance shall be provided under this Article for a revenue claim in respect of a taxpayer to the extent that the taxpayer can demonstrate that a) where the taxpayer is an individual, the revenue claim relates to a taxable period in which the taxpayer was a citizen of the requested State, and b) where the taxpayer is an entity that is a company, estate or trust, the revenue claim relates to a taxable period in which the taxpayer derived its status as such an entity from the laws in force in the requested State.
Article XXVI A
Assistance in Collection
NOTE: S. (8) is still in effect, though with different wording. It currently reads: “8. No assistance shall be provided under this Article for a revenue claim in respect of a taxpayer to the extent that the taxpayer can demonstrate that where the taxpayer is an individual, the revenue claim relates to a taxable period in which the taxpayer was a citizen of the requested State”
1. The Contracting States undertake to lend assistance to each other in the collection of taxes referred to in paragraph 9, together with interest, costs, additions to such taxes and civil penalties, referred to in this Article as a “revenue claim”.
8. No assistance shall be provided under this Article for a revenue claim in respect of a taxpayer to the extent that the taxpayer can demonstrate that
(a) where the taxpayer is an individual, the revenue claim relates to a taxable period in which the taxpayer was a citizen of the requested State, and………
8. No assistance shall be provided under this Article for a revenue claim in respect of a taxpayer to the extent that the taxpayer can demonstrate that
- (a) where the taxpayer is an individual, the revenue claim relates to a taxable period in which the taxpayer was a citizen of the requested State,
1. Subparagraph 8(a) of Article XXVI A (Assistance in Collection) of the Convention shall be deleted and replaced by the following:
(a) Where the taxpayer is an individual, the revenue claim relates either to a taxable period in which the taxpayer was a citizen of the requested State or, if the taxpayer became a citizen of the requested State at any time before November 9, 1995 and is such a citizen at the time the applicant State applies for collection of the claim, to a taxable period that ended before November 9, 1995; and
2. Paragraph 9 of Article XXVI A (Assistance in Collection) of the Convention shall be deleted and replaced by the following:
9. Notwithstanding the provisions of Article II (Taxes Covered), the provisions of this Article shall apply to all categories of taxes collected, and to contributions to social security and employment insurance premiums levied, by or on behalf of the Government of a Contracting State.
I wonder what this is/was used for, found on the U.S. Senate website:
^ It goes into reasons to abolish citizenship-based taxation. Because of that, I am intrigued if the issue is currently being discussed.
The link is to a letter that the writer sent to the Senate Finance Committee when tax reform was being considered back around Spring of 2015.
To the best of my knowledge, if you mean in the Senate, I would say “no.”
I really hate playing the devil`s advocate here, but first off- how many of us have expected justice and right from the courts and found it didn’t happen? Thats one thing. And secondly, Tax evasion is considered a crime in many countries. Not so in Switzerland where only tax fraud, not evasion, is considered a major crime. So what happens to some country which does not collect, but for whom tax evasion IS considered a crime? Maybe they will use this case to get at somebody? I just know that some swiss banker who was on America`s “gotcha” list went to Italy and was arrested in a hotel there. Who is to say that cannot happen to somebody else? This is all very risky advice. I know it is meant to calm nerves, but I am unsure of how this is all going to go down in the future. Don’t they always find ways to get around other country`s laws?
‘why is the information being collected if there won’t be any “new” taxes?’
The information is being collected for PENALTIES. Sure the US has so far only penalized US persons in Canada for failing to pay quadruple taxation on self employment income (double to Canada plus double to the US) prior to the 1984 treaty on social security, but even though the US hasn’t done it on FBAR yet, past non-performance is no indication of future results.
“Still, as noted above, the minister has the discretion to refuse assistance in collection.”
Sure, but banksters have the indiscretion to provide assistance in collection. Banks aren’t parties to the treaty but they’re allowed to recognize a treaty ratified by Canada as Canadian law.
@Polly: “…some swiss banker who was on America`s “gotcha” list went to Italy and was arrested in a hotel there.”
Raoul Weill was not arrested due to any personal owing of tax but rather, as an officer of a Swiss bank as part of the 2008 crackdown. It is not the same situation as addressed in this post.
Tax evasion may be a crime in an individual country but generally countries do not enforce the laws of other countries on their own soil. There are simply too many conflicting laws to imagine any plausible way the world could operate like that.
Any country that does not have a Mutual Collection clause would rely on the Revenue Rule which the US itself still follows except in these 5 cases. Of course everything can change but for now, this is how the situation is for the five countries discussed in the post.
As to this being “advice” it is no different than any other topic on Brock. It is to clarify what is actually real as opposed to hype one hears from condors, badly-informed govt officials and above all, scared-to-death expats who do not investigate and imagine the worst. That’s all. I am not saying that anything else cannot happen but that this is how things stand at this point in time.
Colleagues and I have written on this subject over the years. I have also noted that the IRS and the State Department seem not in accord as to the effect of judicial retroactive restoration of citizenship (Afroyim, Terrazas, etc.): internatrional law seems not to allow nonconsensual attrivbution of citizenship other than at a time of birth, adoption or (less commonly now) marriage. In the past, cdertain Argentine and Isaraeli laws have been called into question and changed. It seems to me that the IRS does not pursue persons with doubtful nationality status, although in the current culture that hasn’t stopped banks from at least initially refusing accounts from some who lost, or never had, US nationality but do not possess a CLN. The pesumption of alienage upon birth abroad is alive and well, whatever the personal views of some border guards, and the difficult issues of proof of facts are discussed in Vice Consul Amelia Shaw’s article: http://www.afsa.org/citizenship-and-unwed-border-moms-misfortune-geography
As for references, one might add:
IRS Chief Counsel Advisory 199939034
Internal Revenue Manual at 18.104.22.168
The case of Danish tennis player Torben Dilling is well-known and discussed, among other places, here:
The curious 1989 cross-border collection case you allude to is Van deMark v. Toronto-Dominion Bank and can be found here:
It’s wideley discussed on the Internet:
The claim was for tax due from a deceased father and seems to have involved “transferee liability”. The bank had to pay out twice: once to the IRS from its NY correspondent and once from Canada to its depositor.
I have raised elsewhere the applicability exception clauses in relation to EU/EEA/Swiss citizens exercising right of establishment in another Member State — a matter for the CJEU in Luxembourg to address, and, should the UK enter into such an agreement, as to Irish citizens who, under the Ireland Act 1949 are not “aliens” in the UK, a matter confirmed by the Good Friday Agreement.
Fraudulent conveyance issues — similar to transferee liability — commonly arise. See United States v. Van der Horst
Retroactive tax laws, and, ironically, criminal offenses that depend on them, are more likely to pass judicial muster (human rights, constitutional rights, vested interests) than other laws. But this is not an unlimited tolerance: see Chua v. Canada (Minister of National Revenue)
European Human Rights law has led to limits on the ability of a tax authority to impose penalties (but not necessarily underlying tax) on the heirs of a tax debtor: E.L., R.L. and J.O. –L. v. Switzerland, Eur. Ct. H.R. 75/1996/694/886, 1997-V at 1509;
A.P., M.P. and T.P. v. Switzerland, Eur. Ct. H.R., 71/1996/690/882, 1997-V at 1477.
Collection agreements typically limit exemption to persons who were citizens of the requested country at the time the tax was imposed. This can implicate issues of foreign nationality law. I suspect that it is mainly real estate, royalty, trust, pension assets and streams of revenue (including salaries) that are susceptible to seizure since liquid assets can quickly disappear from the jurisdiction.
How prescription (statutes of limitation) and bankruptcy will operate across borders remains unclear. But the IRS will rarely appear in its own name or that of the US Government, in foreign courts since the Harden decision. One risk that the USG takes is that a foreign country might rule that the purported tax debtor is not, in fact, a US citizen or US Person. This is why the conventions appoint foreign tax authorities as their proxies and try to force the litigation of all issues in the US courts. That said, the IRS does not typically bring cases unless it thinks it can win them, so many issues of the sort I’ve mentioned go unresolved.
What I would take away from this discussion is that persons born outside the USA, even if under US law they are US citizens but who have never been documented as such, have little risk. And this is probably so even where the non-US nationality was attributed at a time later than birth because dependent upon some formal act such as consular registration. US laws are frequently written in ignorance or disregard of the conflicts they create, and tax law — with its occasional statutory override of treaties included — is a particular minefield. The kinds of cases raised by Vice Consul Shaw depend on facts regarding residence and presence that are difficult, sometimes impossible, to prove. It is not the IRS that is going to choose such cases and foreign banks probably will not either whatever their FATCA worries.
A final comment: the USG, the Financial Action Task Force and to some extent the OECD have done much to assimilate tax evasion to money laundering, wire fraud, common-law fraud, and terrorist financing. There is a move to include tax evasion in extradition treaties; the current US-UK extradition agreement led to extradition of persons accused of financial crimes (thus: the Natwest Three) and computer hacking (Laurie Love) even when prosecution in the UK was declined. This has implications for the future.
That said, financial crimes are expensive to pursue and the cases chosen to pursue are those involving notoriety, difficulty of the accused to flee to a safer jurisdiction, or large sums of money.
The question was not meant on a surface level. Of course we all expect FATCA could lead to collection etc. The author of the paper outlines the view that even FATCA-based amounts would end up like FBAR i.e., uncollectable. Are you saying that Canada has collected tax for the US on self-employed income? What does that have to do with penalties? You are describing an area where double taxation exists but what does that have to do with collection?
As far as FBAR is concerned, Canada has taken quite a stand on that and the last protocol went further by spelling out “taxes” specifically. No one can predict the future. This post addresses things as they stand now.
Your comment about the banks makes no sense. A bank cannot on its own collect for a foreign governments. A bank cannot even be involved in exchange of information, (thus the IGAs) nevermind outright collection. Any Canadian bank who did such a thing could count on being sued and lose. The Treaty does not empower the bank to collect on behalf of the US. Only the government. I can imagine the IRS attempting to put liens on CDN bank accounts via CDN banks with branches in the US but there is nothing to suggest the banks would be able to do such a thing. Case law suggests otherwise.
Thanks for this wealth of information.
Yes, Accidental Americans are those who are most likely to benefit from this information. Though I renounced almost immediately when confronted with US taxation, I later understood the Canadian provision would apply for me from the point of taking Canadian citizenship (2008). I suppose I could have relied upon that but it was not enough to protect from all aspects involved.
I think this info will tend to give people a little more time (and information) to consider their decisions which is why I wrote the post.
Aren’t the significant facts in the Weill case the extradition, and subsequent acquittal?
Regardless of treaty mutual collection provisions, would or could Canada, the UK, or any other democracy collect IRS taxes if the IRS couldn’t prove the taxes were due under US law?
To prove that, wouldn’t the IRS have to (a) get the evidence and (b) get the person back to the US to be tried?
What do you predict the IRS will do with foreign account information on non-residents who aren’t filing US tax returns? Can they even sort the residents from non-residents?
As regards Weill the significant facts in his dituation are the extradition and the acquittal. But his case does not match the focus of this post.
Other Articles in the treaty do provide for the necessity of proof, that the process has been followed etc. I will post them in a bit-too complicated to do from cellphone.
I don’t think one can speak of collecting US tax via a foreign country without consideration of the Treaty unless there is a mutual collection provision. I don’t think a country without such a provision would try to collect it for the US since common law relies in the Revenue Rule.
I don’t know that extradition would be required. The IRS would simply file a request (in the case of the 5 countries discussed here) and the tax authority would review and make a decision. The payment etc would go through the tax agencies.
If the US asked a country who does not have a mutual collection treaty clause, it’s anyone’s guess whether the laws of that country would operate outside the Revenue Rule. And anyone’s guess how they would go about it without the Revenue Rule.
@Bubblebustin: The IRS is unlikely to be proactive. For one thing, foreign banks are proving incompetent to deal with their obligations. (1) One of our firm’s Swiss banks refuses to accept a W-9 with s different address (actually the one known to the IRS but never mind, the IRS doesn’t get that paper, because the address isn’t the legal domicile under Swiss law: of course US law of domicikevdiffers snyway. Another Swiss bank accepted the same form filled out the same way (and that latter bank unlike the first paid billions in fines.
We have yet to hear from our Canadian bank but from what I know we should: if only because the one badge of US personhood they have is … a NYC Vonage telephone number that rings only in Europe.
I suspect IRS’s first priority is an ability to search for big-money non-taxpayers. For the rest, false positives would kill them. What about my Acciddntal American daughters (all born abroad) with non-Amcit children? One of the reasons why that FSJ article is so precious to me.
They say that Weill planned his every move because he was tired of not being able to travel out of little Switzerland anymore and he was relatively young at the time. Seems like he took the risk because he knew he had a pretty good chance for an acquittal after thorough discussions with his lawyers. But his crime as a banker helping tax evasion isn’t my point at all. What I am saying is that his name was on a list when he checked into his hotel in Italy. My point is that if tax evasion is considered a crime in another country, then similar to murder, people can be caught and extradited. Switzerland for example states that it will afford “Amtshilfe” but not “Rechtshilfe” which translates to information sharing but not physical or judicial intervention. It has something to do with the jail time one gets for a crime and anything under one year wont be extradited or considered deserving of reprisal. ( Sorry but I am struggling for the right words here in english.) The crime has to be considered as such a serious event by both countries. But in other countries tax evasion is considered a serious crime involving jailtime and so a summons for extradition could be honoured. In addition, it is even in question whether Switzerland will uphold this division for the future because most articles say “for the time being”.
And yes- we don`t know what the banks may do in the future either if faced with financial consequences.
I think these issues are not one dimensional. There are many factors at play. I`m not sure if a no collection clause will hold water if there are any kinds of loopholes they can use to enforce their agenda. Just like the judge who said the banks are to blame for the suffering of expats and not FATCA- I am really losing hope that any normal logic will work anyway, and how well a no collection agreement will hold in the future with increased pressure from America is up in the stars.
I see the IRS pursuing non-residents as a default position, not a proactive measure. Sorting non-residents from residents would require some kind of policy decision, wouldn’t it? I don’t see how the IRS can on its own decide to not pursue non-residents under FATCA without something like SCSH or direct intervention by the Treasury Department.
I can also see US tax compliant non-residents getting upset about discrimination should other non-residents be given a pass, as similarly situated taxpayers should be treated similarly.
@Patricia Moon – “I don’t know that extradition would be required. The IRS would simply file a request (in the case of the 5 countries discussed here) and the tax authority would review and make a decision. The payment etc would go through the tax agencies.”
Yes, I see what you mean. And presumably the dual citizen would have an opportunity to argue his/her case to the tax authority?
For instance, if the IRS was asking for collection of back taxes on a US Person who wasn’t aware, at the time in question, that US law required them to file US tax returns and pay US taxes.
@Bubblebustin wrote “I see the IRS pursuing non-residents as a default position, not a proactive measure.”
The IRS doesn’t have the resources to do much but write letters to suspects living abroad with no record of tax compliance and no obvious connection to the USA.
Bankruptcy is a particularly interesting matter. A foreign (Canadian, English or other non-US) discharge (probable because the IRS is unlikely to file proof of claim/debt and subject itself to foreign jurisdiction as it did in Harden) will not — without such filing of a claim — discharge the tax debt within the USA or in any country other than the one that issued the discharge. But that may be enough.
Like the Chua case, many requests for collection abroad may be default cases. The IRS’s morals are little better than other US debt collectors (who buy credit card debt, often time-barred, identity-theft or otherwise uncollectible, then sue on the claim and proceed to garnishment and seizure of assets. https://encrypted.google.com/search?ie=UTF-8&q=site%3Anytimes.com+credit+card+debt+collectors Or other branches of government with their civil forfeiture practices: https://encrypted.google.com/search?ie=UTF-8&q=civil+forfeiture+site%3Aanytimes.com#q=civil+forfeiture+site:nytimes.com
It is true that mistaken or fraudulent English County Court judgments (CCJs) too can be issued based on sewer service or worse and ruin an innocent party’s credit, destroy a life. There are so many traps for the unwary, and it’s not just in taxes: CCJs against those who sell cars and fail to notify the DVLA (motor vehicle registry) and the buyer doesn’t either, and gets parking tickets. The law isn’t there to “do justice” http://uniset.ca/terr/art/dojustice.html — and tax law least of all.
That’s why I am not optimistic for a solution to CBT or even FATCA anytime soon. Unless and until (1) New York ceases to be the clearing place for virtually all small and medium foreign exchange transactions and/or (2) tax treaty partners have had enough and take up American practice of unilateral legislative override of tax treaties.
@Polly: “…[Weill’s] [alleged] crime as a banker helping tax evasion isn’t my point at all. What I am saying is that his name was on a list when he checked into his hotel in Italy. My point is that if tax evasion is considered a crime in another country, then similar to murder, people can be caught and extradited.”
As I understand it, Weill’s name was on a list because he had been indicted and had refused to co-operate and was therefore (in US eyes) a fugitive. He presumably was aware of that, or his lawyers were.
It wasn’t Switzerland, his country of residence, which handed him over; it was a third country which had no responsibility to protect him.
@Iota and @Patricia Moon:
Collection of any sort presumes that the target non-taxpayer is solvent and has non-protected assets. It’s true that “spendthrift” and “discretionary” trusts don’t exist in many countries. But for the person determined to defy the IRS, much of what is discussed on Isaac Brock doesn’t matter. Until and unless (in my personal experience) when the absconder dies and has heirs living in the US. (In a case I’m thinking of, one the big-4 accounting firms negotiated a compromise with the IRS, even then.)
A bit more on extradition. The US extradition treaties drafted like the US-UK one with a view to extraditing accused terrorists quickly (on the model of the European Arrest Warrant) have netted few terrorists but several “financial criminals”. The cases I can think of, like Ian Leaf extradited from Switzerland to Britain or Regina v. Garner,  1 W.L.R. 73 (a matter of VAT fraud and bankruptcy) or Theophile v. Solicitor-General,  A.C. 186, 201 (a firm is not deemed to have “ceased trading” until all debts are paid, including taxes) involved serious evaders and absconders. Or “carousel fraud” a type of VAT theft. The US Government has to have a reason to extradite. And as other posters have noticed, sometimes the accused is acquitted — if s/he’s not been bludgeoned into a plea bargain by the threat of decades in prison. Thinking of Alvarez-Machain in particular, abducted by a bounty hunter (see his Wikipedia page): the Ronald Anderson case was different, Canada protested and ultimately Kissinger relented: http://uniset.ca/other/news/wp_ronaldanderson.html
Yes, I believe an individual is able to present a case before the Competent Authority in his/her (the Requested State’s) country. I will check.
I do know I have read that it is possible to be extradited from Canada to the US regarding tax debts.
These provisions are found in the Denmark and Canadian treaties with similar but shorter descriptions in the other three:
@Patricia: One cannot be extradited for Civil debts. You can have your US passport cancelled for $50,000 tax debt as you know. and for someone without another passport that might be the same thing. Once in the USA there could be a writ Ne Exeat Republica issued, but that’s very rare. Maybe the Barretts should have travelled separately.
Competent Authority https://www.irs.gov/individuals/international-taxpayers/competent-authority-assistance
I’m told that tax authorities discourage its use and probably there are fees. But that’s all I know.
There aren’t any fees for applying to the Competent Authority under the Mutual Agreement article, but I’m not sure it’s much use in practice, given that the Treaty gives the US the right to tax its citizens just as it likes.