Review of Moody’s Seminar, Calgary, 23 June 2018

By Ron Henderson (formerly Nononymous), 24 June 2018

Alex Marino (youngish US tax lawyer hired by Moodys to work in Calgary) doing his regular two-hour dog-and-pony show. Very charming and funny guy, under different circumstances someone I would absolutely enjoy having a beer with. Audience of 40-50, mostly skewing older; based on questions asked I think a good percentage were Americans who’d moved to Canada (some becoming citizens, others not) rather than Accidentals. Some were compliant and looking to renounce; others non-compliant. Most looked anxious and/or pissed off, as you’d expect.

I have the printed slide deck and attempted to record audio, in addition to my notes.

Some key themes:

Scary, scary, scary! Even when he’s willing to admit that there are limits to US power, he always makes everything sound so big and bad and scary, tremendously complicated, with terrible consequences for any little mistake. Of course he does.

The internet is not your friend. He constantly warns against finding advice online. I think this has less to do with Brock (never mentioned any such groups by name) but rather places where you will learn that all your US tax problems are automatically solved if you performed an expatriating act in 1983 and you need do nothing further, or ads for other less competent practitioners.

Slagging the competition. Lots of funny stories about the expensive messes he has to clean up due to bad advice given by inept lawyers and accountants. On this he’s probably quite right, even though it’s part of the sales pitch. Immigration lawyers without US tax expertise can be very dangerous. (In particular, watch out for anyone claiming to be an attorney in Massachusetts or a CPA in Illinois, because those states will give you a credential after a multiple choice “ethics” exam only – don’t have sex with or steal from your clients, basically.)

He claims that Moodys clients now constitute 9-13 percent of yearly global renunciations. Fair enough, the total numbers are kept artificially low. It’s a global practice with clients everywhere.

Estates, inheritances, executors, beneficiaries. Death and taxes. Always returning to the problems you will leave for the next generation if you don’t renounce or aren’t compliant. Low on specifics, but high on the fear and guilt.

I tried to listen with an open mind, as best I could. One concern I have is that I (and others here) live in an echo chamber, in the resistance bubble. Moodys actually works with clients who renounce and submit tax paperwork and communicate with the US government. They deal with this every day. So when he makes a claim I find questionable, I have to admit to myself that he has direct experience that I do not. In which case all I can do is shut up and report back.

He seems very familiar with skeptical or defiant questions from the audience. If you pin him down on a finer point of the rules, he admits that you are right, but asks if things won’t change for the worse in the future. Historically, he has a point.

Presentation highlights:

Boris!

Of course there’s a Boris Johnson slide right at the beginning, about how he shot his mouth off and “had” to pay US taxes. I put my hand up and asked a question:

“Boris was an idiot, on this we agree. But if he hadn’t been a political figure, with US income from book deals and speaking fees, how specifically would the US government have forced him to pay taxes, as a UK citizen living in the UK with only UK assets?”

“It’s like you work for Moodys. That’s the subject of my next slide – FATCA.”

“FATCA is about collecting information, not collecting penalties. How exactly could he have been compelled to pay?”

“I get this a lot from Australians. They like telling the US to pound sand.”

God bless the Aussies.

I pushed the point, and raised it again later on in the presentation, and he did willingly admit that under current rules the CRA will not collect on behalf of the US against a Canadian citizen, and that the US cannot put a lien on or otherwise touch Canadian assets. But he did mention something new to me that I need to follow up on, an “article 27” of the tax treaty providing for more extensive collection assistance, which was passed but has not been invoked or enacted or something like that. (I used to think that any attempt by the US to grab money from dual citizens would be met in Canada with great public outrage, but now after reading the comments on the recent CBC pieces, I suspect not, a large slab of the electorate is either too dumb to figure it out, or thinks it’s “fair” and has no problem with it.)

Random highlights

He insists that if you are “caught” by FATCA, you will receive a letter from the IRS, and at that point you cannot go into any sort of amnesty program. I have never heard of anyone receiving such a letter. But this is an area where I have to defer to his experience, because he is a working tax lawyer and I am not. Maybe this never happens and he’s making it up. Maybe it happened once or twice to very wealthy clients and he uses the example to scare up new business. Maybe it happens all the time and we never hear about it. (My hunch is number two.)

Untruthful answers to FATCA questions from banks are “perjury and tax fraud” – I suppose one day I should look up those definitions. He talks about banks asking for place of birth. That doesn’t typically happen in Canada, although it might when you get into the seven figures, but of course he has a global client base so that is true elsewhere.

He did however give a disturbing example of a Canadian client attempting to publish a book on Amazon who was asked not only for her place of birth but also her parents’ places of birth, presumably as part of Amazon’s own procedure to determine whether she needed to complete a W8 or W9.

He made some absurd claims that if you renounce without coming into tax compliance, you will “have a big target on your back” and will get all sorts of attention from the IRS, the attorney general, the FBI, pretty much everything short of a drone strike. This I suspect is scaremongering horseshit, unless maybe your last name is Manafort.

On the other hand, he gave the perfectly sound advice that if you have a taxable event coming up, renounce immediately because you have 12-18 months to get the tax paperwork in order, all past returns plus the 8854 and so on. Don’t wait. He has at least one client who was told by “an Illinois CPA” to enter streamlined (so only three years of returns) then wait two more years to file and get up to five before renouncing; they were of course caught by the transition tax surprise (which he calls the “one-time screw-you tax”) and are now writing a very large cheque to the IRS, and suing the accountant for giving crap advice.

On passports and travel, the interesting point was made that while it is illegal for a US citizen to enter the US with anything but a US passport, the US must also admit any and all of its citizens. You cannot be denied entry if you show up at the airport or border with a Canadian passport alone, or with an expired US. While there is no known punishment for violating the passport law, they will very likely detain you long enough to miss your flight or otherwise cause great inconvenience. Also, as of October 2017 it’s no longer possible to get a US passport without an SSN – you can’t enter all zeros if you don’t have one.

Renouncing

Lots of talk on the mechanics of renunciation. Apparently Calgary and Toronto are the only two US consulates that allow a US lawyer to be present during renunciation. Even better for his business model.

Moodys thinks you need a lot of expensive coaching to get through your renunciation interview without blowing it and having yourself barred for life from ever setting foot in the US. Of course they do. He claims that if you tell the consul that “I never owe US tax but I’m getting really tired of all the paperwork every year” that will be enough to trigger a “disbarment letter” and you can never cross the border again. (Then a scary slide about the Reed-Schumer Amendment.) I think this claim is ridiculous but again, he’s working on the coal face, he deals with renunciations all day, whereas I am just a crazy person on the internet.

When he was talking about the interview, the woman sitting next to me said quietly “Oh my god, that’s stressful.” I quietly replied “It’s not. I’ve been to one. It was perfectly easy and polite. This is a sales pitch.” She did not reply.

Depending on complexity, Moodys will charge you from $7-8k at the low end to $15-20k at the high end (Canadian dollars I assume) just to assist with renunciation – tax compliance not included. Plus the US fee. My jaw dropped. What the hell? It’s not that complicated.

He talked briefly about the challenges of mental competence (he advises you not to lick the glass during the interview) and the tragedy of people paying tax on an RDSP without being allowed to renounce. Of course, one only pays this tax if one is compliant and chooses to report the account and the income. At this point I put up my hand, and the exchange went something like this:

“As I understand it, under the current regulations, the IGA, all RDSP, RESP, RRSP and I think even TFSA accounts are not reported to the US under FATCA.”

“The US considers them taxable and they need to be reported on FBARs” etc.

“Right, but they are not reported under FATCA, so if you are partially compliant you can simply not report them and not pay that tax.”

“I don’t understand your point, they are reportable.”

“I am suggesting that you cheat.” Laughter in the crowd.

“I hope nobody from CRA is in the room.” Nervous laughter in the crowd.

“Why? This has nothing to do with paying your Canadian tax.”

Other random stuff

Don’t wait for things to change, they will likely only get worse. Sending petitions and letters to US politicians is a complete waste of time (on this I agree).

He has heard from someone in the State Department that the renunciation fee will go up to $4-5k in the next year of two. The express purpose being to discourage renunciation by younger people. I have no idea whether to believe this.

When a non-compliant US person dies, they pass on the problems to the executors, who are legally obliged to bring the estate into US tax compliance even if it means complete liquidation. I doubt that happens very often, and I’m not even sure that it’s true.

Much discussion of the exit tax, and how to avoid it. After renunciation, he claims there is a high likelihood of an 8854 audit, and that all renunciants’ returns are carefully checked. I suspect this might be true for high net worth individuals who are either paying or are close to paying an exit tax.

Conclusion

It’s all about the fear. Non-compliance is not an option. The IRS will find you, and will find a way to collect from you, and you will never be allowed into the US. Even if you don’t have a US birthplace. Unless of course you hire Moodys to take care of this for you.

I wanted to hang around to talk to people afterwards, but I was in two-hour parking and there was a soccer match about to start, so I fled. Whenever there’s a chance I think we should try to have others go and politely ask difficult questions, in addition to pure intelligence gathering. He’s fine with it, he’s seen it all before. It might help some of the folks in the room but I doubt it, they either have a good grasp of what’s going on already, or are far too spooked to listen to the heckler in the back row.

My balanced, open-minded view is that if you have a complex situation – you are worth a lot of money, you have a cross-border business, or you worked for many years in the US before moving to Canada – then it is probably worth your while to seek good, competent professional advice. I’m sure you will get that from Moodys, though it’s not cheap. But if you’re an ordinary sort of person with a modest income and uncomplicated financial affairs, either go the DIY route or just ignore the fearmongering and get on with your life.

I’m sure I could say more but we’re over 2000 words and I’m done here…

Originally posted as a comment 24 June 2018