Author Archives: calgary411

UPDATE: September 23, 2014, from JC comment, additional to The_Animal’s original list:

The injustice is even worse than presented:

a) Canadian Welfare payments are considered taxable by the US in Canadian Government POV
b) Canadian Disability payments are considered taxable by the US in Canadian Government POV
c) Canadian Employment Insurance is considered taxable by US in Canadian Government POV
d) Canadian Worker’s Compensation is considered taxable by US in Canadian Government POV
e) Canadian Child Support Payments are considered taxable by US in Canadian Government POV
f) Canadian Child Tax Benefit payments are considered taxable by US in Canadian Government POV

The Canadian-US Tax Treaty is an abomination to embody the point of view of the Canadian government, that Canadian government assistance to families is taxable U.S. income. These areas above should have been explicitly exempted from U.S. tax in the tax treaty. Without the exemption, there is no clearer case of US government infringement on Canadian sovereignty.

I believe this subject is so very important. These are the families I, too, worry about the most — and, believe me, I worry about ALL *US Person* families. For these families, how will they ever have enough for the US citizenship renunciation fee, let alone the cost of compliance either to remain a US citizen abroad or to check out of the USA properly? How will many even understand all of the complexity? Who at a US Consulate OR what Canadian MP, who must take responsibility in subjecting persons to this by not standing up for these *US Person* Canadians, their rights waived by the signing of an intergovernmental agreement for FATCA with the US Treasury, will assist these low-income persons?

From The_Animal, put into this post to be further discussed in comments.

How FATCA will impact those of modest means (low income families).

Homelanders like to trumpet the fact that we have an “foreign earned income exemption” of 97,000. Unfortunately, the trump card is the “earned income” classification. Earned income means pay checks from an employer. So what does that do to most sources of income for those expats of low-income or on social assistance?

a) Welfare payments are not considered “earned income” in IRS’s POV.
b) Disability payments are not considered “earned income” in IRS’s POV
c) Employment Insurance is not considered “earned income” in IRS’s POV
d) Worker’s Compensation is not considered “earned income” in IRS’s POV
e) Child Support Payments are not considered “earned income” in IRS’s POV
f) Canada Child Tax Benefit payments are not considered “earned income” in IRS’s point of view.

So all of these are taxed by the United States Internal Revenue Service in its overreaching grasp. Since most expats of modest means have a corresponding lack of education, they are furthermore hindered by not being able to understand the intricacies of the US tax system. Furthermore they do not have the monetary resources to get into compliance as their choice is between putting food on the table for their families or starving and coming into compliance.

Secondly all accounts that are not disclosed by means of an FBAR are subject to a financial penalty of $10,000 per account that is not considered wilful non-disclosure – the penalty for wilful is $100,000 or 50% of one’s account balance, whichever is greater. How is someone who makes $18,000 per annum supposed to come up with $10,000 for a non-wilful penalty let alone $100,000 (if the whim of the IRS is that the account-holder is a wilful non-disclosure)? For these families there is no financial safety net to dip into. For these people there is not a single way to come into compliance that would not wreak financial ruin on the family.

“There has to be a better way” is the constant refrain that I’ve been hearing from everyone. Unfortunately there is NO way for those of low-income to even think of coming into “compliance”.

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From a comment I made this morning, the portion pertaining to low income persons who have Canadian Registered Disability Savings Plans: https://isaacbrocksociety.ca/2014/06/01/its-time/comment-page-72/#comment-3097016
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“TaxConnections” asks “Shall I Stay or Shall I Go?”

Besides first determining if you are indeed a U.S. citizen, some further self-analysis is necessary.   Anyone, and I mean anyone, should comprehend what is in store for “Americans Abroad” reading this and listening to John Richardson’s interview with CHQR News Talk 77, Dave Taylor, in Calgary, AB:

When it comes to FATCA, there are four kinds of *Americans Abroad*

…there are really four kinds of U.S. Taxable Persons abroad. Each one of them has his own set of problems.

…

They can be grouped as follows:

File U.S. tax returns?     U.S. tax compliant?  What is their problem?

Yes                                               Yes                    Inability to live normal life*

Yes                                               No                     Subject to penalties for mistakes**

No                                                Yes                    Don’t have any income***

No                                                No                    OMG moment is coming****

Dave Taylor got it and summarized:

It’s unbelievable that the US Government is going after people who in many cases, for decades, have not considered themselves to be Americans, American citizens, but indeed Canadian citizens, for money they don’t owe. It’s unbelievable the US Government has the audacity to think it has a claim on the assets of those people. It’s incomprehensible THAT THE HARPER GOVERNMENT IS PLAYING RIGHT ALONG. So we will watch this story because I think it’s a gross violation of rights and miscarriage of justice.

This analysis / summary of the absurdity and injustice for *US Persons Abroad* should be understandable to anyone who reads it or listens to the interview.

Whether *anyone* would include US Congresspersons whose job should be to understand and make reasonable effective change in legislation is debatable. Why is that?

From “JC”:

https://fatcalegalaction.com/ now live.

Attorney Bopp has issued a legal opinion on FATCA stating three constitutional claims, with strong legal merit, can be brought against the legal requirements imposed by the Foreign Account Tax Compliance Act (FATCA) and the Foreign Bank Account Report (FBAR).

Yes FBAR!

According to James Bopp, Jr., “It is our preliminary opinion that the potentially meritorious claims are a violation of the treaty power, an 8th Amendment Excessive Fines Claim, and a 4th Amendment Search and Seizure Claim. . . . We believe that these 3 claims form the basis for a successful suit that would stop the damage that FATCA and FBAR have inflicted of U.S. citizens.”

The meat of the claim: Bopp FATCA Legal Opinion

At the start of the Legal Opinion, Mr. Bopp highlights Allison Christians’ arguments regarding the legal status of the FATCA IGAs signed by countries around the world.

The legal status of these IGAs is unclear and susceptible to challenge. They are not treaties under U.S. law because they have not be en submitted to the Senate for advice and consent pursuant to the Treaty Clause of the U.S. Constitution, Art. II, sec. 2, c l. 2. Nor ae they congressional-executive agreements because Congress has not authorized the Treasury Department to conclude the IGAs as part of the FATCA implementation effort. Instead, the Treasury Department appears to be treating the IGAs as treaty-based agreements, interpreting the information exchange provisions of existing tax treaties and tax information exchange agreements already in place with FATCA Partners. However, Allison Christians, a tax law expert and associate professor of tax law at McGill University in Montreal, argues that none of the IGAs are properly considered treaty-based agreements. Allison Christians, The Dubious Legal Pedigree of IGAs (And Why it Matters), Tax Notes International Vol. 69, No. 6 (Feb. 11, 2013).

…

To bring the subject of one of Eric’s posts back to the forefront, State Department to hike renunciation fees to US$2,350; says “no public benefit” in respecting human right to change nationality, I add another article, today, from the U.S. — Wall Street Journal, Laura Saunders, August 30th: U.S. Fee to Drop Citizenship Is Raised Fivefold. Commenting is open and comments have started.

Advocates for U.S. expatriates reacted angrily to news of the increase. “I’m so disappointed and insulted by the continuing punitive actions of the U.S. in trying to prevent persons and companies from leaving,”

Also from the U.S., which complements the articles on higher fees for renunciation, one from the U.S. Chamber of Commerce, highlighted this morning by badger: Exit Strategy: FATCA Tax Law Keeps Pushing Americans To Give Up Citizenship. Growth opportunity — the HIRE Act continues to give.

Here’s a hot tip for accountants and tax attorneys: now is a good time to develop specialized expertise in advising clients who may be seeking to expatriate from the United States. That demographic looks more and more like a real growth opportunity.

Some firms have already figured this out!

Further to suggestion by “JC” that this be posted here at Isaac Brock:

Update (undated) from American Citizens Abroad (ACA) – Why FATCA is bad for America

There is a lot of information here. This is Americans Abroad argument why FATCA is Bad. May we at IBS comment on it with an eye to strengthening the arguments put forward, then we may send it back to Americans Abroad?

While there is lots of information at IBS there are no master documents summarising all points. Here is where Americans Abroad have a summary.

One area where it could be strengthened is mention of the tax treaties. Australia is mentioned and says that not much extra tax would be owed. Point of Information: the US wants to tax the Australian pension fund called Superannuation. Also, if you have a share/shares and get Australian dividends – there is an Australian tax break on dividends – you would likely have U.S. tax liability. Also, the US wants to tax on “passive income.” So the closer to retirement the more passive income you may have, the greater your retirement funds, the greater the U.S. double tax exposure.

Note: As has been discussed here before, ACA does not seem to represent those who wish to expatriate from the USA. It is more an organization that represents those who want to remain “Americans” and perhaps someday return to the US to live. They have well outlined much that is bad for America and may welcome additional input from some of us.

Patrick Cain, Global News, August 21, 2014: Want to shed U.S. citizenship? Get in line.
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UPDATE: August 27, 2014

State Department to hike renunciation fees to US$2,350; says “no public benefit” in respecting human right to change nationality

UPDATE: August 22, 2014

The Patrick Cain article itself can use some comments, which uses Facebook, Yahoo, AOL or hotmail. There are only four there — the last saying “Being little brother has its benefits. But it also comes with a cost.”

(Correct!: Costs to stay within the new Berlin Wall and cost to get over it.)

One comment (Innocente) reports:

When the US DOS set the renunciation price at $450 in 2010, it stated that it covered less than 25% of the cost. Will the new price be increased to $1,800 ($450/.25) or perhaps $2,250 ($450/.20)?

Also, see the reasoning for the subsidized $450 below:

“Schedule of Fees for Consular Services, Department of State and Overseas Embassies and Consulates

A Rule by the State Department on 06/28/2010

Documentation for Renunciation of Citizenship

The CoSS demonstrated that documenting a U.S. citizen’s renunciation of citizenship is extremely costly, requiring American consular officers overseas to spend substantial amounts of time to accept, process, and adjudicate cases. A new fee of $450 will be established to help defray a portion of the total cost to the U.S. Government of documenting the renunciation of citizenship. While the Department decided to set the fee at $450, this fee represents less than 25 percent of the cost to the U.S. Government. The Department has determined that it must recoup at least a portion of its costs of providing this very costly service but set the fee lower than the cost of service in order to lessen the impact on those who need this service and not discourage the utilization of the service, a development the Department feels would be detrimental to national interests. See 31 U.S.C. 9701(b)(2).”

Another says:

Today I visited the consulate in Vancouver. … Both the clerk and the Consular encouraged me to renounce not relinquish as my relinquishment would be denied and I would have to come back later to renounce and then the fee would be going up to I think they said 2800.00 but it might be 2400.00 I stopped listening after they repeated no relinquishment one too many times. I insisted they forward my file to Washington.

So what will be the new fee that is a guaranteed right to renounce and when will it be implemented?

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As is pointed out, in Patrick Cain’s article:

Pushing the appointment into next year doesn’t just frustrate the impatient, however – it adds an entire year to U.S. tax reporting. Someone making an appointment now to renounce in Toronto in January wouldn’t be able to log out of the U.S. tax system until June 2016.

However, people can work the phones and find a U.S. consulate that can give them an earlier appointment, Nightingale says:

“If Toronto is booked up, you can go somewhere else. You can go to the Montreal consulate; you can go to the embassy in Ottawa.”

The U.S. State Department estimates that about a million people considered American under U.S. law (who may also be Canadian citizens) live here. In theory, all of them, unless their income falls under minimum levels, are supposed to file tax returns with the IRS, and report their bank accounts to an arm of the U.S. Treasury Department called the Financial Crimes Enforcement Network, on pain of heavy fines.

In practice, few did until recently.

Update: August 11, 2014

In response to Hazy,

“I believe all IGAs have a most favoured nation clause (MFN) which means that if one country gets a better deal, than other countries can obtain the same.”

You are correct BUT, the most favored provision solely applies to provisions under Article 4 and Annex
1.

The “Reciprocity Clause” is an Article 3 provision therefor the “better deal clause” does not apply.

Here is that section on most favorable language;

“Canada shall be granted the benefit of any more favorable terms under Article 4 or Annex I of this Agreement relating to the application of FATCA to Canadian Financial Institutions afforded to another Partner Jurisdiction.”

Sooooooo Canada was outsmarted by the likes of Czech Republic, Jamaica, South Africa, Mauritius which got a far better deal.

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George requests Domino’s comment (just below) be its own post, asking

The following recent comment needs to be on the front page as this is hot news. Basically, very recent IGA agreements have a sunset clause if the USA does not provide reciprocity.

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The Vinyl Cafe August 10th, 2014 “Stanstead:Border Town”,

featuring that “Canadian citizen” who returned to his birth country, the USA, Jesse Winchester. RIP, Jesse!

Piece Description

This town straddles the border of Canada and the United States. And the border line goes right through the Haskell Opera House. The stage, where Stuart McLean is standing, is in Canada but the audience is in the United States. Making this the only opera house in the USA without a stage and the only one in Canada without an audience.

Stuart tells a story about the time Dave tried to smuggle clothing across the border, and the border patrol mistake him for a different kind of smuggler all together.

Broadcast History

This show will air on CBC Radio One & Two, Sirius 159, KUOW, WFYI, WCPN, Prairie Public, North Country Public Radio, Iowa Public Radio, NIPR, KNPR, KBBI, KWMR, WTIP, WPTC, WBEZ, Maine Public Broadcasting Network, KSQM 91.5FM, WUTC, WFSU, WHDD and WUCX
Timing and Cues

IN: “Hello, I’m Stuart McLean..”
RUNS: 54:00

(Note: Do not try this these days!)

There has been a request to bring the subject of Security to the forefront. Another look at prior commentary on the subject follows.

FATCA’s Security Problem

Does FATCA pose an unacceptable security risk to Americans abroad?

So, with FATCA all that information gets shared with new vendors far from the American Homeland, whose security of data protocols are unknown. I am just left to hope that in the collection and transmission of my data, somehow it will arrive at the IRS DATA banks at the center of the universe, without being breached or stolen. Now, if I was living in the Middle East, and worried about terrorist activity and my identity being discovered, how would I feel about FATCA?

FATCA facilitating attacks by terrorists on citizens abroad

Bubblebustin found and JC suggested the the following be a post:

Newsmax Finance, August 6, 2014: High Taxes, Abusive Enforcement Causing Businesses, Citizens to Flee America

Author, Peter Morici, starts out by blending US corporate and US personal of overreach of the US into other countries business and people:

President Obama, as promised, is changing America. High taxes and abusive enforcement are compelling businesses and ordinary citizens to leave the country altogether.

The United States has much higher corporate tax rates than other industrialized countries do, and increasingly, the IRS uses more aggressive enforcement tactics than foreign tax authorities use.