Category Archives: Issues regarding US persons abroad

Laura Snyder, Karen Alpert and John Richardson point out the disparities between domestic and overseas persons in US tax policies and procedures in a detailed new paper in TaxNotes Federal, Mission Impossible:  Extraterritorial Taxation and the IRS.  It covers a lot of ground very clearly and also includes a terrific chart, “Comparison of IRS Services for Domestic and International Taxpayers,” illustrating these disparities at a glance.  This paper is also featured in an article in AmericanExpatFinance.

The Senate Finance Committee is accepting submissions on “How U.S. International Tax Policy Impacts American Workers, Jobs, and Investment.”

The statement must be in a Word document, single-spaced, not exceeding 10 pages.   No other file type will be accepted for inclusion. Title and date of the hearing (25 March 2021), and the full name and address of the individual or organisation must appear on the first page of the statement. Statements must be received no later than two weeks following the conclusion of the hearing.  Send to:  Statementsfortherecord@finance.senate.gov  Deadline: Wednesday 7 April.

Stop Extraterritorial American Taxation (SEAT) brought this to my attention and they give further information about this Committee hearing on their website.  SEAT encourages all Americans living overseas who would like to submit a statement to do so; and, should you wish a model, they’ve put several templates on their website.

Over the past several years, a “Concerned Citizen” has submitted several Access to Information requests to CRA, demanding detailed information about what is being reported. After a series of complaints and appeals, CRA has been more forthcoming.  I have seen the document received in response and asked Concerned Citizen to provide a brief summary of the results:

“A recent Access to Information Act Request revealed that for 2019, Canadian financial institutions reported approximately 615,000 accounts with a balance under US$50,000 to CRA for eventual transmission to the IRS under the terms of the FATCA agreement. The US-Canada IGA sets out a reporting threshold of US$50,000 – accounts below this balance are not required to be reported. Canadian banks have nevertheless chosen to report accounts of lower value. With approximately 1 million accounts reported in total for 2019, over 60 percent of these records did not need to be sent. Since reporting began in 2014, roughly one-half to three-quarters of all accounts reported fell below the balance threshold and need not have been included in the annual transmission of data to the IRS.

Total accounts and account-holders reported

These numbers have been publicly available, though the request has given us more accurate totals than the estimates published in media accounts.

2014    158228

2015    318345

2016    632042

2017    727280

2018    900000 approx

2019    1000000 approx [to be confirmed]

Because individuals and business entities generally have multiple accounts, the total number of individual account-holders subject to FATCA reporting will be much lower than the total number of accounts reported. CRA was asked to estimate the number of account-holders based on common elements in the data, such as matching addresses, SIN or SSN values, etc. CRA was unwilling or unable to provide this information.

Country of account owner

FATCA requires that Canadian financial institutions identify accounts held by US persons, regardless of where they live. CRA was asked to provide the total numbers of accounts associated with Canadian addresses and with US addresses. This allows us to estimate the proportion of Canadian residents affected (who could be dual citizens, or US expats without Canadian citizenship) to US residents affected (who could be Canadian expats in the US, or former US expats with Canadian assets).

CRA initially refused this request, but after an appeal and complaint it eventually provided a set of estimates for individuals and entities associated with addresses in each country. Of interest, the Canadian addresses make up 62 to 75 percent of the total accounts – so roughly one-quarter to one-third of accounts reported likely belong to US residents, who would be US taxpayers and presumably filing FBAR reports as well. The following table shows the percentage of Canadian addresses each year:

(Astute readers may notice that the total number of records for each row does roughly match or fall slightly below the total number of accounts reported each year in the table previously shown.)

Accounts below reporting threshold

The US-Canada IGA only requires financial institutions to report US-person accounts with a balance over US$50,000. However, they are not prevented from reporting lower-value accounts. There has long been concern that banks were reporting more accounts than necessary, but no proof of this on a systematic basis.

CRA was asked to provide the number of accounts reported each year with a balance below the threshold. They initially refused, but after an appeal and complaint they did provide some estimated values. The following table lists these numbers along with a percentage of the total accounts reported for each year.

[the percentage for 2019 is based on the estimate of 1 million total – to be confirmed]

This information tells us that in any given year, anywhere from one-half to three-quarters of the account records sent to the IRS (via CRA) by Canadian banks were lower-value accounts that did not need to be reported.

Non-reportable account types

CRA was asked if they had any data to indicate that accounts belonging to types excluded from reporting under the IGA – RRSP, RESP, RDSP, TFSA and other similar accounts – were being reported to the IRS. CRA replied that the data they receive from financial institutions does not include any information to indicate account type. This is both good news and bad news. While we cannot rule out the possibility that some Canadian banks report these accounts when they are not required to, CRA’s response does indicate that the IRS would receive no information indicating the account type, which would be a possible concern for anyone holding TFSAs, for example.”

Serbian President Vucic threatens to enforce its Citizen-Based-Taxation, using a method of credits and exemptions similar to USA’s tax regime.

The articles are translated below, describing a system similar to the US system. The article describes that the ability to tax extra-territorially exists according standing laws. It highlights the usage of “or” in their language mentioning a significant connection such as property or bank account back in the Serbian expat’s homeland.

Southern Europe (both in and outside of EU) is well known for having a large net loss of young workers due to economic migration to high-wage countries. Serbia has a long history of high education and skilled craftsman which are under high demand in high-wage countries. With a rich culture and strong Christian family ties, most Serbs have a strong connection to their families, church, and family properties in their homeland.

The exemption is proportionally lower than the US exemption, however the tax level appears lower. The details would be difficult to fully understand, as the Serbian system has a very high (50%?) employer-contribution social fee (that paid prior to the employee receiving his salary). The social fee appears to potentially be charged to expats. As salaries inside Serbia are very low (typical white-collar worker might have a salary under 500 Euros per month), it seems that most locally-employed persons have an income tax of about 10%.  However, the salaries of an expat would be many times greater, and the credit amounts would become more complicated as the local Serbian tax rates raise above 10% at the level of the salaries of Europe or North America.

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A new organisation, Stop Extraterritorial American Taxation (SEAT), which is singularly focused on ending CBT, has been formed by John Richardson, Keith Redmond, Karen Alpert, Laura Snyder, David Johnstone and Suzanne Herman.

“While there are several organizations for American expatriates that address the tax issues, none is solely focused on extraterritorial taxation. SEAT is a non-partisan international organization created under the laws of France (Law of 1901). Furthermore, SEAT does not accept sponsorship from anyone in the tax compliance industry, so you can be sure that information on this site is independent. You can learn more about SEAT and its founders on our website.”

I encourage current and former US citizens to take SEAT’s Survey.  Deadline is November 30th.  Your participation in the Survey will enable SEAT to better educate policymakers, the media and the public.

Interesting article that accurately explains WHY people are renouncing US citizenship – AKA #citizide: "COMMENTARY: U.S. citizenship is not as coveted as it once was – National" | https://t.co/r5V8GeCTh7 https://t.co/WRVgZ3ZijC

— U.S. Citizen Abroad (@USCitizenAbroad) September 12, 2020

The above tweet references the article written by Brett Goodin. Although not entirely free of technical errors (let’s not point out the errors in the comments to this post), the article debunks the absurd suggestions that individuals are renouncing for political reasons or because of the coronavirus.

Mr. Goodin writes that:

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Rewarding nonresident aliens who filed a 1040 instead of a 1040NR …

Foreign Workers Living Overseas Mistakenly Received $1,200 U.S. Stimulus Checks https://t.co/paaAkliTPF

— U.S. Citizen Abroad (@USCitizenAbroad) September 10, 2020

As has been widely discussed on Brock, there has been much discussion of:

1. Nonresidents of the United States receiving the $1200 CARES Act payment; and

2. The fact that certain US citizens whose spouse does not have a Social Security number were disentitled by statute from receiving the payment.

It appears that the media has woken up this reality. The NPR article was referenced in a September 9, 2020 article in the Washington Post. The comments to the article are fascinating and I think worth the read. For example:

FWIW, I live in Germany and have still not received my stimulus check either. I spent hours on the phone with IRS to find out why. The representative I spoke with said they had not received my 2018 or 19 tax returns, both of which I had filed. I checked with my accountant, who informed me that when they tried to do an electronic filing, it had been rejected and they had to send a paper filing. We have followed up both by fax and by paper, again, and still nothing. I’m not sure if I’ll ever see a dime, don’t know if it’s the IRS or USPS holding things up, but am to the point that I wonder why I have to file every year if they aren’t going to bother to process my returns.

I know of at least one non-resident who received a check overseas. I assumed it was because he was receiving Social Security payments from 10+ years of working in the US. How many others are there?

Its been 5 months, told twice they mailed a check to us overseas. Never received it. I was told no International mail came from the US postal service, guess that was a lie too.

Checks to deceased U.S. citizens?

Checks to non-citizens?

And people wonder why the national debt is exploding under “Only I can fix it” Chump

Could it be that the United States is actually establishing a new “Marshall Plan” to assist the rest of the COVID-19 afflicted world?

In March of 2020, @LizT1 warned that CDN Financial Institutions would come under increasing pressure to tighten the compliance requirements in #FATCA IGAs. "U.S. tax rules raising the stakes for Canadian residents with American citizenship" | CBC News https://t.co/2FdUY78ZlV

— U.S. Citizen Abroad (@USCitizenAbroad) September 6, 2020

March 2020: From Elizabeth Thompson of CBC …

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