Monthly Archives: February 2014

Canada Caves to FATCA

“So sorry Canada” someone in the UK just said in the subject line sending the article Canada Signs Agreement To Dull Impact Of US Crackdown on Tax Cheats.
Here’s the IGA
Here’s the proposed legislation to enable FATCA in Canada
Here’s FATCA Information from CRA
Finance Canada News Release
Canadian Bankers Association News Release
CBC: FATCA Tax Deal With U.S. Takes Some Heat Off Canadian Banks
Globe and Mail Ottawa To Give IRS Information on Americans in Canada (Read My Lips: We Are Canadians!)
Global News: Canada-US Sign FATCA Tax Deal

URGENT: Finance Canada Doing FATCA Briefing Today!

Get ready everyone. Today may be the day.
I was just contacted via e-mail by Barrie McKenna of the Globe and Mail:

It looks like Canada has reached an agreement with the US on FATCA. Details at 2 p.m. Are you around to react later today? Please let me know, or perhaps suggest someone else. Thanks

I responded:

OMG! Yes, I am available to speak with you. Can I share the information from you with others and on the web?

What is your source that a deal has been reached?

His reply:

Finance Dept. is doing a media briefing shortly on “issues associated with FATCA,” embargoed to 2 p.m. I am making an assumption they have an IGA with US.

So, this is not for certain an IGA has been reached. But, we should know if that is reason for the briefing when the media is able to release the details at 2:00 p.m.
I’ll keep you updated as soon as I learn more.

Say No To Washington's Survellance State

We’re on a roll!  Here’s another article. Theo Caldwell Say No To Washington’s Surveillance State in the National Post.
This encompasses many aspects of American snooping, but here’s what it says about FATCA:

Canadians need not travel to become entangled in the web of U.S. surveillance. Canada’s acquiescence to America’s Foreign Accounts Tax Compliance Act (FACTA) will see to that.
Beginning on July 1 (ironically, Canada Day), Canadian banks and financial institutions will be required to review all client accounts containing $50,000 or more to determine if they are “U.S. Reportable.”
This transcends the infamous and larcenous practice of the Internal Revenue Service demanding tax returns and payments from “U.S. persons” worldwide. Under the FATCA regime, not only will U.S. Persons (broadly and capriciously defined by the U.S. Treasury) be required to file taxes with the IRS even if they have never set foot on U.S. soil, their assets must be reported to American authorities.
The closest Canada has come to effective resistance is a meaningless bureaucratic tweak: Rather than report directly to the IRS, Canadian banks would report to the Canadian tax authority, which then forwards the information to its American counterpart.
In each of these cases, Canada has gone along through a national self-interest no more considered than, simply: “The United States said so.”
Canada and the United States enjoy the largest bilateral trading relationship in the history of the planet. It is in the interests of both countries to keep that going. Canada, as a resource-rich, exporter nation, enjoys unique access to the largest consumer market in the world.
Nevertheless, economic comity is not everything, and there would be much to be said for a prime minster who, like Hugh Grant at the end of Love Actually, has the courage to stand up and announce he is unhappy with important aspects of the relationship.
Can such leadership be found, or has Canada made peace with an “American-style” future?


FATCA Blowback in Washington Diplomat

FATCA Blowback: Some Americans Outraged by U.S. Tax Evader Law reports the Washington Diplomat.
The article reports:

If the bank doesn’t report on an American client’s overseas investments or assets, FATCA puts its secret weapon into action and levies punitive sanctions on the financial institution that failed to comply with U.S. law.
A little confused? It’s understandable.

James Jatras says:
“We’re making a demand on foreign institutions to follow a law that they have no legal or moral obligation to obey and threatening them with what, in my opinion, are illegal sanctions if they don’t obey,” said Jim Jatras, a former diplomat and U.S. Senate staffer who now works in government relations and media, and edits the website. “That is a gross violation of the norms of international behavior,” he told The Diplomat.
The article also assesses IGAs:
IGAs are essentially tweaking the laws of a country so that its banks can ignore that country’s privacy and data protection laws and, basically, bow to the wishes of the United States, critics argue, with some calling FATCA an example of U.S. imperialism and the epitome of the “ugly American.”
It quotes an American accountant who insists FATCA is “nothing new,” but it just adds an extra burden. I think we can conclude he doesn’t live outside the U.S. with his personal financial records about to be sent to a foreign government.
Or, like Daniel Kuttel (aka Swiss Pinoy), the US military vet who was forced to renounce to protect his Swiss family, mortgage and home.
The article features We Are Not A Myth Portrait Protest (with a photo of Lynne Swanson (aka Blaze), making it appear she is an American citizen (She is NOT!).
Everything is best summed up at the end with a comment at We Are Not A Myth Portrait Protest from a Canadian wildlife photographer:

“Wife works as part-time retail cashier. You think we’re hiding millions?” he asks. “Get real.”



Abolish FATCA Petition From Republicans Overseas Now Online

If you are opposed to FATCA consider signing this abolish-FATCA petition from Republicans Overseas which will be submitted to U.S. Congress.  
You have to be a U.S. citizen, Green Card holder, or a FORMER U.S. Citizen.  Your name and address has to be provided, but if you choose, only your initials and country will be published. If you worry about disclosure for any reason consider carefully whether you want to sign this petition.
You can fill out online at:
This petition is associated with a resolution by the Republican National Committee to abolish FATCA and is aimed at providing pressure on each Senator and Congressperson to vote to repeal FATCA.  In future, the same approach will be used to kill U.S. citizenship-based taxation. See:
You might or might not like the Republican Party, but I am a single issue U.S. citizen and voter and will sign off also on the same anti-FATCA petition that the Democratic party provides, should this happen. You do not have to be a Republican to sign and you can submit from any country, including the U.S. (you can be a homelander).
The Petition begins with:

Honorable Senators and Representatives of the United States Congress,
I am writing in support of abolishing the Foreign Account Tax Compliance Act (FATCA). FATCA has negatively impacted 7.6 million U.S. citizens living abroad.
First, it violates U.S. Citizens’ right to privacy by requiring foreign banks to disclose U.S. citizens’ account names, taxpayer identification numbers, addresses, and their account balances, deposits, and withdrawals to the IRS…

The Petition ends with:

…The IRS Taxpayer Advocate Service (TAS) 2013 Annual Report to Congress admits that FATCA’s most serious problems are its reporting requirements and violating taxpayer rights. TAS Report #23 on page 43 is titled The Foreign Account Tax Compliance Act Has the Potential to be Burdensome, Overly Broad, and Detrimental to Taxpayer Rights.
I agree. I believe that FATCA is morally reprehensible and detrimental to overseas Americans’ basic human rights. America, as a shining city upon the hill, must not impose this horrible choice between citizenship and livelihood on its own citizens. Thank you.

Can Cross-Border Tax Professionals Prepare U.S. Tax Filing Return For Impoverished Canadian Brad Smith For Only $300?

Recently, Mr. Brian Mahany on a TaxConnections Worldwide Tax Blog discussed costs of filing U.S. tax returns for duals living abroad and took issue with some statements on tax preparation fees made by Allison Christians in a CBC article.
Here is the CBC “Myth,” according to Mr. Mahany, followed by the Mahany “Fact”:

CBC “MYTH”: The annual cost of filing U.S. taxes can be “astronomical,” tax expert Allison Christians notes. Accounting firms estimate the cost of filing personal U.S. taxes can be anywhere from $500 to several thousand dollars.”
Mahany “FACT”: “I suppose if I were Bill Gates or Warren Buffet, the cost to prepare my tax return might be in the thousands. There are many very qualified CPA firms and expat tax services that prepare returns for dual nationals, including FBAR filings, for about $300. [We don’t prepare returns but can certainly send you to folks who do.]”
I was also intrigued with Mr. Mahany’s statement that the U.S. has special rules on “trusts” such as RESP, RRSPs, and TFSAs, implying that these should be easy to deal with.
Several commenters took issue with Mahany, with one saying:

“Please, show me a competent accountant that will do a US tax return for $300 when RESPs. TFSAs, and Canadian mutual funds (outside of a RRSP) are involved. There is no such animal.”

I decided to pursue this question and asked Mr. Brad Smith, who might or might not be a composite character, to follow up with Mahany on this inexpensive $300 tax service. Brad is a 27 year old single Canadian resident and Canadian citizen living in Toronto who just discovered that he is a U.S citizen. Mr. Smith insists on entering into IRS tax compliance in order to pay, as he says, his “fair share”. He is unwilling to file returns on his own and refuses to renounce his new-found U.S. citizenship.
I selected Brad as he has a very simple tax situation: very low self-employment income ($19,000 annual), a single share of a Canadian mutual company (value $100), and $200 in a Canadian tax free savings account (TFSA).
—Brad corresponds with Mr. Mahany:
On the Tax blog, Brad asked Brian Mahany:

“Hi Brain [sic],
I just found out that I am a US person. You say that you can find a qualified CPA firm that will prepare my tax return for only $300 (including FBARS). This sounds pretty good to me.
What is the name of this CPA firm?
Thank you for your help. I will sleep a lot better tonight knowing that I can become IRS compliant at low cost.”

Mr. Mahany then sent Brad a private email disclosing the names of two tax professional companies that will be called below “Yellow Jacket” and “Boll Weevil.”
Brad then responded in a comment on the blog with lots of thanks, but Mr. Mahany removed from the response the personal details of Brad’s income and savings (TFSA, mutual fund) mentioned above. Brad’s response of thanks to Mr. Mahany:

‘Wow! Many thanks for getting back to me so quickly with the names of two companies, I will call both CPA companies on Monday and get quotes for preparing my tax return. You mentioned that the price depends on the situation, but my tax situation is simple [PERSONAL DETAILS DELETED BY TAX BLOG ADMINISTRATOR].
I will let everyone know on this post what I am quoted by the two companies. I really thought that the cost would be so much higher and thank you for helping me out.
I don’t ever want to be accused of being a tax cheat. I left the U.S. when I was two years old and have never returned but I am happy to pay my fair share.”

—Brad discovers the true filing costs of IRS compliance:
Mr. Smith phoned both tax companies and obtained quotes over the phone. Yellow Jacket also has some costs listed on-line. You can imagine Brad’s disappointment when he discovered that costs for yearly U.S. citizenship compliance, given Brad’s very simple financial situation, were much higher than Mahany’s $300 estimate.
The costs from the two companies were similar and are shown below:
Yearly compliance cost                Yellow Jacket                      Boll Weevil
Basic cost IRS 1040                     $357                                     app. $400
TFSA (2 trust forms)                     $357                                     app. $400
Mutual fund (PFIC form)               $149                                     app. $250
FBAR                                             $67                                       app. $100
TOTAL                                         $930/year                             app. $1150/year
Mr. Smith also insisted on entering into one of the IRS “disclosure” programs. Both firms suggested that a “Quiet” IRS disclosure approach might be the way to go, but the cost was the same for “Quiet” and “Streamline” disclosures.

[Note, IRS helpfully advises: “Those taxpayers making “quiet” disclosures should be aware of the risk of being examined and potentially criminally prosecuted for all applicable years.”]

The costs for the disclosure were:
Yellow Jacket: basic return three years ($915), FBAR 6 years ($402), TFSA ($357 X 3 = $1071), Mutual Fund ($149 x 3 = $447) for a total of $2835 U.S.
Boll Weevil: basic return three years ($1200), FBAR 6 years ($600), TFSA ($1200), Mutual Fund ($750) for a total of $3750 U.S.
The costs of five years IRS compliance to exit the IRS system as an expatriate will be higher but this is not relevant for Brad.
—What are Brad’s options given the cost of IRS tax filings?
This is not a random sampling of tax firms but it does prove that using the companies Mr. Mahany has selected, and a Canadian-U.S dual who all must admit has a simple (impoverished) tax situation, US tax returns for people like Brad cannot be done cheaply.
What is striking is the high penalty (confiscation of savings) that must be paid by Brad for owning the tiniest of two harmless Canadian (i.e. “foreign”) retirement vehicles for which, in Brad’s case, the cost of compliance is actually more than the value of the TFSA and mutual fund FOR EVERY YEAR OF COMPLIANCE.

[But could any of us ever be comfortable in suggesting to Brad that he should give away his small retirement savings just because IRS deems it to be toxic—or in helping Brad become IRS compliant?]

Brad wants to be IRS compliant, but with his meager income knows that he will never be able to afford these costs, yet he refuses to part with his toxic Canadian mutual fund and TFSA because these were given to him by his family to help him in his retirement.
Brad is also unwilling to take a stab at filling out the IRS forms himself because he does not want to make a mistake. Even if Mr. Smith wanted to renounce U.S. citizenship (he tells me that he will never renounce) and exit the IRS system legally, he would never be able to afford the costs of five years IRS compliance.
Given Brad’s financial situation, IRS compliance costs, and his wishes, what are Mr. Smith’s options?