Any US citizens here? Have you been filing your taxes?
 

U.S. tax crackdown hits Canadian residents - The Globe and Mail

A tax crackdown by the United States has sent more than one million Americans and green-card holders living in Canada scrambling to figure out how to comply.

The move is part of a push by the U.S. Internal Revenue Service (IRS) to make sure U.S. taxpayers are paying what they owe on foreign accounts. Unlike most countries, the U.S. requires its citizens to file annual tax returns based on their worldwide income, regardless of where they live.

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Watchlist: 10 tips That means that people like Kerry Knoll’s two teenage daughters, who have never had a U.S. address or earned a penny there but have dual Canadian and American citizenship, will have to file U.S. tax returns on accounts they hold in Canada and may face penalties.

“Suddenly we are being told that my daughter’s savings account from her summer job is considered an illegal offshore account by the Americans, something that I find preposterous,” Mr. Knoll said in an interview.

“My daughters might owe thousands out of their registered education savings plans (RESP). These are not even taxes, these are penalties because it was not reported. And the reason we did not report it is because we had no idea we were required to,” Mr. Knoll said.

Starting in 2013, the IRS will require financial institutions outside the United States to disclose all accounts held by current and former U.S. citizens and green-card holders. They will likely have to file years of U.S. tax returns and detailed annual account disclosure.

Finance Minister Jim Flaherty said Friday that Canada is not a tax haven and that the U.S. Foreign Account Tax Compliance Act will place an onerous burden on Canadian financial institutions.

“Unfortunately, U.S. tax law does little to distinguish between U.S. citizens living on sandy beaches in Caribbean tax havens and those living in a relatively high-tax country like Canada,” said Warren Dueck, a certified public accountant and chartered accountant with W.L. Dueck & Co. in Richmond, B.C.

The IRS has issued a limited amnesty for U.S. citizens, residents and green-card holders to report their foreign bank accounts. Under the Offshore Voluntary Disclosure Initiative, which ends on Aug. 31, penalties are reduced to a range of zero to 25 per cent of the balance of all non-U.S. financial accounts and assets in 2010.

Mr. Dueck, who specializes in cross-border tax matters, offers these tips for any U.S. citizens, residents and green-card holders living in Canada who want to come clean to Uncle Sam:

1) Determine your status. If you are a U.S. citizen or resident, a dual citizen or a green-card holder, you are generally required to file U.S. federal income-tax returns.

2) Americans whose financial accounts outside the U.S. do not exceed $10,000 in aggregate are generally only subject to tax penalties if they owe U.S. tax. They still have to file returns.

3) All U.S. citizens, residents and green-card holders who own financial accounts outside the U.S. that exceed $10,000 in total at any time of the year must disclose them in the U.S. Department of Treasury Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, commonly called FBARs.

4) A “foreign financial account” means Canadian bank accounts, checking and savings accounts, investments, securities and brokerage accounts, RRSPs, RESPs, TFSAs, insurance and annuity policies with a cash surrender value, commodity futures or options account, shares in a mutual fund, etc.

5) U.S. citizens, residents and green-card holders who own 10 per cent or more of a Canadian or other non-U.S. corporation, partnership or other entity, must disclose that or face penalties of $10,000 for each year and for each entity.

6) The amnesty program allows U.S. citizens, residents and green-card holders to eliminate or minimize their tax penalties and also protects accepted applications from criminal prosecution. In most cases, failure to submit information will mean more severe penalties in the future.

7) Paying taxes in Canada does not offset all of your U.S. tax obligations. Figure out what your U.S. tax liability is before you apply for the amnesty, since it may change your overall tax strategy.

Americans living in Canada risk facing massive tax penalties


An Aug. 31 deadline looms for an untold number of Americans living in Canada — certainly many thousands, and possibly hundreds of thousands — who are at risk of massive penalties from the IRS, even if they have no U.S. income, owe no back taxes and haven’t lived in the States for years.

Huge numbers of Americans don’t know the IRS requires all U.S. citizens living abroad to file annual tax returns. They must disclose their foreign bank accounts and other holdings even if they have no American tax liability. So says Warren Dueck, an accountant whose Richmond-based firm specialized in U.S.-Canada tax issues.

And, although the law has been on the books for years, the issue is being brought to a head by a new push to enforce this provision much more vigorously than in the past.

The Aug. 31 deadline is for an Offshore Voluntary Disclosure Initiative introduced last winter to encourage non-resident Americans to make the required disclosures. For those who meet the deadline, it provides for reduced — but still hefty — penalties, although it also holds out at least some hope that the penalties could be waived.

But Dueck, who says he and his colleagues are swamped with requests for help from new clients, thinks it may already be too late for many to meet the complex filing requirements in time.

The only alternative that will be left, he said, is a provision called “quiet disclosure.”

Although it amounts to little more than confessing and then begging for mercy, he recommends it for anyone who doesn’t get the proper paperwork filed in time for the deadline. It offers at least some hope of being better than the alternative.

The alternative may be grim. Among the penalties the law sets out for failure to disclose such things as bank accounts, or “trusts” like RESPs and TFSAs, Canadian corporations and partnerships, or Canadian mutual funds, are fines of $10,000 per offence per year. (That is, for non-wilful offences. The penalty is $100,000, or can go as high as 50 per cent of a major asset, if the IRS thinks there was deliberate attempt to cheat it of revenue.)

But even with ordinary accounts held by people who innocently failed to file, “Say you have four of them you haven’t disclosed for six years,” Dueck said. “That’s $10,000 times four times six — $240,000.”

And, “It doesn’t matter if the undisclosed account is a $5,000 TFSA or a $5-million investment, you still have maybe 10 pages of filing that needs to be done.”

The Offshore Voluntary Disclosure Initiative could reduce the penalties by as much as 90 per cent, but it comes with three conditions. To be eligible, American citizens must establish that they lived outside the U.S. from 2003 to 2010, that they made a good-faith effort to comply with tax laws in the country or countries where they’ve been residing, and that they had less than $10,000 of U.S.-source income. People who meet those criteria may be able to apply for an extension to get all the paperwork done, Dueck said, but it is not automatically granted.

It’s hard to get a count of how many Americans live in B.C. or in Canada, but the consensus is that the number is big. Published estimates range from 600,000-plus to a million or more nationwide, and the American consulate in Vancouver estimates 90,000 in this region alone.

Dueck said that, based on his considerable experience, he believes about half of these don’t know they have to file annual returns, and as many as half of those who do file don’t know they also have to disclose their bank accounts and holdings.

Even more chilling, he said, Canadian-born children of American citizens may not realize they may automatically get U.S. citizenship without ever making any effort to apply for or acknowledge it. So some may be at risk of penalties without even realizing they’re dual citizens.

Several Americans who have suddenly realized they are not in compliance declined to be interviewed for this story. But David Perrin, an American citizen who teaches chemistry at the University of B.C. and who has had professional help filing to the IRS every year since he arrived in Canada in 2000, said the filing can be complicated.

“And the more complicated your finances get, the more onerous the filing gets.”

The Canadian tax on most job-related income is higher in Canada than in the U.S., so there’s generally no money owing to the IRS on wages or salary. But certain investment income is treated differently in each country, and there are other cases — lottery winnings, or capital gains on the sales of a home — where the U.S. collects tax but Canada does not.

“The same thing can happen with end-of-life issues, or winding down investments for retirement, and that sort of thing,” he said.

In past, the IRS has had no reliable way to track down most American citizens living in Canada, but that seems likely to soon change.

The U.S. Foreign Account Tax Compliance Act, which comes into effect in 2013, will require non-U.S. financial institutions to tell the IRS about any clients who are American citizens.

Dueck said the IRS has the clout to pressure Canadian institutions that do business on both sides of the border into doing this. So the only way for Americans living in Canada to avoid being identified would be to have no dealings with any financial institution, or to commit perjury — an option he emphatically advises against — when their bank asks about their citizenship.

The IRS did not comply with The Sun’s request for an interview, and it did not send, as its spokesman promised, background information on the issue. But some fairly detailed information is available on the IRS website at 2011 Offshore Voluntary Disclosure Initiative Frequently Asked Questions and Answers



Read more: Americans living in Canada risk facing massive tax penalties

That's weird, it's not like the U.S. governemnt needs the money...

My mother has been filing for the last 5 year and it's a huge PITA. She wishes she never got her dual citizenship because of it.