Here’s a Canadian tax lawyer who gets it. In Financial Post article U.S. Steps Up Tax Enforcement Beyond It Borders, Vern Krishna says:
As of July 1, the United States will tighten the tax noose around the necks of Canadian citizens living in Canada and anyone else whom it considers to be “U.S. persons” for tax purposes. The Canada Revenue Agency will assist the U.S. by kicking away the stool on which they stand. All of this intrusion into our sovereignty is in the name of curtailing so-called “aggressive tax avoidance.”
6 thoughts on “IRS Tightens Noose. CRA Kicks Stool.”
I wonder if the author of that article has considered the logistics of enforcement outside their borders, where they have neither the manpower nor the jurisdiction to audit and enforce. The IRS doesn’t even have the manpower to prevent large scale tax avoidance and fraud within their own borders where they have jurisdiction, and where they would stand to collect some taxes if they could.
Chasing foreigners for unreported income would yield little or nothing, because few foreigners would ever owe anything. They are almost always covered by the foreign earned income exemption and/or the foreign tax credit.
I would have expected a new nuanced analysis from “the author of fifteen texts in tax, international tax, and business law and numerous articles and case comments”. He mixes up FACTA bank reporting and FBAR personal reporting requirements, and begins and ends with some pretty dire stuff.
Chasing foreigners one by one is expensive, but sending out massive waves computer-generated form letters and scaring them into voluntary filing and paying is not. I will be interested to see if the IRS does send threatening letters to non-filters it finds via the FATCA dragnet. Mostly though, that won’t be longer term duals like me or “accidental Americans”, because we have very faint US indicia: our accounts don’t record our places of birth, and we probably didn’t declare our citizenship as “American” when we opened them.
The first test of whether the IRS is going to dragnet non-filing minnows will be Permanent Residents in Canada. US folks who have lived here a long time, stopped filing, but never bothered to take out citizenship. They’ll show obvious US indicia and will get reported via FATCA. What will the IRS do to them? Ignore them? Or try to scare them into the system with scary letters? 2014/15 promising to be an edifying year.
@PYYJ: We didn’t have to give citizenship when we opened Canadian bank accounts. In fact, under long-standing Canadian banking laws, banks cannot accept foreign birth certificates as ID for opening an account. Only Canadian birth certificates can be used.
Most of us likely used a driver’s license and a SIN card. So, banks should have no record of citizenship–especially because banks are not permitted to ask that question under long-standing human rights laws.
Unfortunately, the proposed legislation to enable FATCA will override all federal Canadian laws. CRA guidelines say FIs will not be required to ask for place of birth–but as others have pointed out, that is very different than saying they can’t ask for place of birth.
Canada seems to be unique in this. It is my understanding from others that in many (perhaps most?) other countries, a birth certificate has long been required for opening a bank account.
If people outside the United States are bombarded with threatening letters from the IRS, it may cause panic for a while but soon people would clue in that it’s just bluster. It could cause panic among people who have serious family and/or business reasons to go back to the States.
Soon people would figure out that the IRS has less extra territorial jurisdiction than people imagine.
Few Americans in their arrogant attitude of exceptionalism have yet to clue in that their country is becoming less and less attractive as a visitor destination. Why go there? This applies not only to people with US indicia. The cost of medical care is a huge deterrent for me, as I am sure it is for others.
Speaking for myself, I will never do anything more than transit the country, and even that I do very reluctantly. I am doing it because I am trying to use up my 500,000 Aeroplan points, and almost every ticket to South America on points routes me through the States. If I did not have all those points to use up, it would be a frosty day in hell before I would even set foot in their country.
If the IRS wants to do as you suggest, let them do it. As far as I am concerned, Americans are, with the bad publicity that would ensue, just be shooting themselves in the foot. They are becoming a pariah state. Anecdotally I notice that here in Colombia. Young people I talk to here who are thinking of a new country to better their lives overwhelmingly prefer Canada, New Zealand, and Australia.
@ArcticGrayling, you may be overestimating people’s tolerance for being declared a criminal, even by a foreign country. Certainly there’s no shortage of people over at isaacbrocksociety.ca preemptively lighting their hair on fire at the thought that the IRS *might* send them a threatening letter, at some unspecified time in the future.
My hope is that the IRS does carry out such a boneheaded maneuver, creating enough sturm and drang and bad publicity that the US considers changing its policy towards non-resident taxation. But in that I may be in turn overestimating the USA’s rationality. Idle wishful thinking is an easy way to while away an afternoon.
@PYYJ and Arctic: Unfortunately, nothing we have seen from IRS since the beginning of this nightmare indicates there is any rationality, logic or even common sense at IRS.
I think the only reason they won’t threaten and harass honest Canadians is because they simply don’t have the resources to do it. But, they are asking for more resources, so who knows what they might do?
Sadly, few Canadians affecfted by this are aware CRA does and and will not collect for IRS for any Canadian citizen and will not collect penalties for IRS for any citizens or residents. Way too many lawyers, accountants and journalists are not telling them either as they are telling them to “come clean before it’s too late.”
I have a friend who was told a few weeks ago by a Canadian accountant she needs to get compliant and then go to US Consulate to surrender her Green Card–even though she was born in Canada and only lived in US with her ex-husband from 1986 to 1989. I have tried to convince her to do nothing, but she believes she will be vulnerable to massive penalties if she does not follow her accountant’s advice. I feel guilty because she told her accountant about her Green Card after she learned about the IRS from my rants.
She is retired due to health issues and she did not need this issue foisted on her by a Canadian accountant who did not once mention CRA protections to her.