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1.6 million Canadian banking records shared with IRS

The Canadian government has shared more than 1.6 million Canadian banking records with the U.S. Internal Revenue Service since the start of a controversial information-sharing agreement in 2014, CBC News has learned.

In 2016 and again in 2017, the Canada Revenue Agency provided the IRS with information on 600,000 Canadian bank accounts each year. That’s a sharp increase from the 300,000 records shared in 2015 and the 150,000 records shared in 2014, the year the sharing began.

However, that doesn’t necessarily correspond to the number of people affected. Some people may have more than one bank account, while some joint accounts could have more than one account holder — including people who don’t hold U.S. citizenship.

Among the items of Canadian bank account information being shared with the U.S. are the names and addresses of account holders, account numbers, account balances or values, and information about certain payments such as interest, dividends, other income and proceeds of disposition.

The information transfer is the result of a controversial information sharing agreement between Canada and the U.S. negotiated in the wake of the American government’s adoption of the Foreign Account Tax Compliance Act (FATCA). The act, adopted in a bid to curb offshore tax evasion, obliges foreign financial institutions to report information about accounts held by people who could be subject to U.S. taxes.

The Canadian government argued that negotiating the information-sharing agreement would be better than forcing Canadian banks to deal directly with the IRS. Under the agreement, Canadian financial institutions send information on accounts held by clients with U.S. indicia (such as the account-holder being born in the United States) to the CRA; once a year, the CRA then forwards the information to the IRS.

In return, the IRS is supposed to send the CRA information about U.S. bank accounts held by Canadians. The CRA, however, has repeatedly refused to reveal how many records, if any, it has received from the IRS as a result of the agreement.

Nor does the CRA automatically notify Canadian account holders when their information is transferred to the U.S., said CRA spokesman Etienne Biram.

“There is no legislative requirement to disclose this information,” he wrote. “However, if requested by a taxpayer, the CRA will confirm whether information relating to a particular individual or entity has been reported and provided to the United States of America under FATCA.”

The CRA said the increase in the number of records transferred from one year to the next was expected because certain financial accounts did not have to be reported during the first two years of the agreement.

The revelation that 1.6 million records have been shared with the U.S comes as the Federal Court of Canada prepares to hear a constitutional challenge of the information-sharing agreement next week in Vancouver.

Those challenging the agreement argue that it violates sections 7, 8 and 15 of Canada’s Charter of Rights, which protect Canadians from violations of their right to life, liberty and security, unreasonable search and seizure and discrimination against those who hold U.S. as well as Canadian citizenship.

In its submission to the court, the plaintiffs argue that some of the people whose banking records have been shared with the IRS may not be subject to U.S. taxes.

The government, however, presents the information-sharing agreement as the lesser of available evils and an attempt to mitigate the potential impact of FATCA, which included a potential 30 per cent withholding tax on institutions that didn’t comply.

“There were potentially severe consequences to the Canadian financial sector, its customers and investors, and to the Canadian economy as a whole if Canadian financial institutions were unable or unwilling to comply with FATCA,” wrote the government in its submission to the court.

“Canada sought to avoid those consequences and at the same time obtain less burdensome compliance rules for Canadian financial institutions and their customers, and additional information from the United States for Canadian tax compliance purposes.”

The government argues the deal doesn’t violate any charter rights — and that even if it does,  it is a reasonable limit on those rights given what was at stake. It also points out that close to 100 countries have negotiated similar deals with the U.S. in the wake of FATCA.

Stephen Kish is a member of the Alliance for the Defence of Canadian Sovereignty, which mounted the legal challenge. He questioned how many of those records should have been shared.

“It’s a huge number of accounts. What our lawyers are trying to find out is how many of those accounts were those of Canadian citizens, how many of those accounts were, in fact, U.S. persons, how many of those accounts should not have been sent because they didn’t achieve the correct account balance.”

Conservative Revenue Critic Pat Kelly said sharing banking records with the IRS has increased the number of Canadian residents at risk of being hit by the repatriation tax signed into law by U.S. President Donald Trump in December 2017. The tax has hit thousands of Canadian residents with U.S. or dual citizenship and a company incorporated in Canada.

“The information sharing agreement … helps facilitate giving the IRS a target list in Canada,” he said. “The Canadian government has to respect Canadians’ privacy and be aware of all of these consequences.”

NDP Revenue Critic Pierre-Luc Dusseault said the CRA should proactively notify Canadian bank account holders when information about their accounts is transferred to the U.S.

“The CRA should do its job of informing their citizens, the taxpayers of Canada that they are taking their personal banking information and transferring it to a foreign country. This is the bare minimum and it shows again the lack of transparency of this government.”

Written by Elizabeth Thompson  elizabeth.thompson@cbc.ca

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4 Days Left for OVDP What’s Next

IRS Compliance Deadlines

On September 28, 2018, i.e. in four days, the IRS is terminating the 2014 Offshore Voluntary Disclosure Program (O.V.D.P.) which may trigger very serious legal consequences for eligible non-compliant US taxpayers. The program allows US persons who are willfully non-compliant with their US tax- and foreign financial accounts reporting obligations to avoid criminal charges and excessive civil penalties that would otherwise apply, by voluntarily disclosing all their foreign assets, filing original or amended US tax returns for the previous 8 tax years and paying outstanding taxes, along with penalties for outstanding tax liabilities.

Many taxpayers may believe they always have a choice to take the less expensive route offered by the Streamlined disclosure procedures by mistakenly considering themselves eligible. Indeed, coming in compliance under Streamlined Domestic Offshore Procedures  would only cost a taxpayer 5% penalty over the highest balance of their unreported foreign financial accounts (or even no penalty at all for qualified non-residents under Streamlined Foreign Offshore Procedures) and result in paying the outstanding tax liabilities for only 3 to maximum 6 years in some cases, with no additional tax penalties, as well as in filing fewer tax forms. But as appealing as it may sound, in certain cases Streamlined Procedure may not be an available option. 

 Unlike with O.V.D.P. program, Streamlined Procedures are not considered amnesty and thus filing under Streamlined Procedures does not fully protect taxpayers from civil penalties and criminal charges should IRS doubt the conduct was non-willful. Therefore, for those non-compliant US persons who were aware of FBAR reporting requirements and their US tax obligations, the O.V.D.P. program currently remains the safest and the only solution to receive the amnesty and avoid civil penalties and even criminal charges. 

 It is always suggested to seek professional assistance from a qualified cross-border tax specialist to find out whether you qualify under O.V.D.P. or under a Streamlined Procedure. And since the O.V.D.P. program will be gone in just 4 days, we urge those US persons who think they may not be eligible under Streamlined Procedures to get professional advice immediately and to use this last chance to come forth and take advantage of the O.V.D.P. amnesty program while it is still possible. 

 The IRS has also announced on numerous occasions this year that the Streamlined Procedures may also be closed in the near future. But this information has neither been confirmed yet, nor was the date officially set. Those taxpayers who were unaware of their US tax obligations and foreign assets reporting obligations or were otherwise non-willful, are urged to come into compliance under the Streamlined Procedures while they remain available. 

 

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Taxpayer ID Numbers Will Be a Must for Some FATCA E-Filing

FATCA

Some foreign banks trying to report Americans’ accounts to the IRS could face a tougher time in 2018 if they can’t get taxpayer identification numbers (whether Social Security Numbers (SSNs) or Individual Taxpayer Identification Numbers (ITINs) for the account holders. The Internal Revenue Service said April 11 that after 2017, it will no longer let the banks report the accounts through a special technical system without the numbers. That information can be hard to get in some cases as overseas financial institutions work to comply with the Foreign Account Tax Compliance Act. The law requires them to report U.S.-held accounts to the IRS or face penalties and higher withholding taxes.

The new guidance, set out in question-and-answer format, emphasizes that banks will have to report ID numbers with the accounts starting Jan. 1, 2018. The move could reflect an increasing IRS insistence on learning ID numbers for U.S. and foreign people with U.S. money overseas.

(Per BNA Daily reporter as of April 12, 2017)

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U.S. sues Vancouver dual citizen for over $1M for not reporting accounts

IRS building

A U.S.-Canadian dual citizen living in Vancouver is being sued for over US$860,000 ($1.1 million) by U.S. tax authorities for failing to report bank accounts to them.

U.S. citizens (including dual citizens) with signing authority over non-American bank accounts are required to report them, along with the highest amount in the account during the year, on a form called a Report of Foreign Bank and Financial Accounts, or FBAR.

“To my knowledge, this is one of the first actions of enforcement of FBAR penalties against a Canadian-resident U.S. citizen,” says Max Reed, a Vancouver-based cross-border tax lawyer.

The accounts include two with the CIBC and one with RBC, documents filed with U.S. federal court in Seattle say. The penalty is purely for not reporting accounts, not for taxes owing or penalties for unpaid taxes.

READ: Dual citizens sue feds over FATCA tax deal with U.S.

Failure to file an FBAR comes with penalties. If the failure to file the form is deemed to be wilful, the account holder can be fined US$100,000 or 50 per cent of the value of the account, whichever is greater, per account per year. Non-wilful failures are capped at US$10,000 per account per year.

“The case illustrates the inherent unfairness of the U.S. tax rules,” Reed says. “While those rules are really unfair, they probably aren’t changing any time soon. It’s been this way for a long time.”

Unlike other industrialized countries, the U.S. requires citizens, including dual citizens, to file tax returns no matter where in the world they live.

Selling a house and putting the money in a bank account puts the value of the house into the penalty calculation. And moving that money around between different accounts multiplies it, as each dollar is counted several times.

READ: Meet the Alberta man who went to Tijuana to renounce his U.S. citizenship

Both of these things happened in Pomerantz’s case, he says, making his penalties balloon.

“If you take the same $500,000, and open up a bank account at CIBC, and then say ‘Oh, I’d rather bank with Scotia,’ then I move the same $500,000 – nothing has changed, I haven’t had any income on the $500,000 — and I move it from CIBC to Scotia, and I say, ‘Oh, RBC is going to give me a better deal,’ and I move it to RBC, now it’s a million-and-a-half dollars.,” Pomerantz explains.

Pomerantz prepared his own U.S. tax returns (omitting the FBARs), something he now regrets.

“Don’t file your own taxes,” he says. “Make sure if you’re living in Canada, that you’re hiring a professional. If you don’t cross all your Ts and dot all your Is, they will find some way to screw you.”

“We decline to comment beyond the government’s filings,” said Nicole Mavis, a spokesperson for the U.S. Justice Department.

READ: Unwilling dual citizens face 10-month wait to shed U.S. citizenship in Toronto

Estimates of how many people in Canada have U.S. status vary.

The U.S. State Department puts the total at a million. But in the 2006 census, about 300,000 people in Canada said they were U.S.-born. Of that number, 160,950 said they were dual citizens, 117,425 said they were Canadian citizens only and 137,425 said they’re U.S. citizens only.

Under the Foreign Account Tax Compliance Act, an information-sharing deal, Canadian banks have been identifying U.S.-status customers and reporting their account details to the CRA, which in turn sends them to the IRS. The data lets the IRS know which accounts haven’t been reported on FBARs.

About 300,000 Canadian accounts were reported to the IRS last year.

There’s a limited amount the IRS can do with the flood of account information coming in from all over the world, however. (The U.S. now has similar treaties with 113 countries.)

“The U.S. government has limited resources to throw at this issue,” Reed says. “Litigation is complicated and expensive for both parties. But many people will settle before it goes to litigation — as soon as they’re assessed penalties, they’ll settle.”

“The IRS probably doesn’t have the resources to pursue all non-compliant Americans in Canada, but they can pursue some of them. Some people will get pursued, and because of the stress and associated cost, you don’t want that to be you.”

READ: Unwilling dual citizens face 10-month wait to shed U.S. citizenship in Toronto

On the other hand, the IRS has a limited ability to collect penalties in Canada.

“The CRA has a policy that it will not assist in the collection, at all, of FBAR penalties. Its rationale is that FBAR penalties are not covered by the Canada-U.S. tax treaty.”

So non-compliant Americans in Canada are shielded to an extent, so long as they don’t own U.S. property and don’t plan to cross the border. But Americans here (who are likely to have relatives in the United States) could inherit money there, or the tax treaty could change, Reed says.

In any case, Pomerantz says, he doesn’t have the money to pay the penalty:

“I get paid my Social Security, and I get a small pension from Canada. I don’t have the means to pay that. Having no assets and no income, it’s going to be an interesting challenge for them.”

Published on © 2017 Global News, a division of Corus Entertainment Inc.
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Weekly Q & A – What if my Previous Streamline Submission was Incomplete

Weekly Q&A

Q: What if my Previous Streamline Submission was Incomplete?

A: A false “Streamline” procedures submission could lead to a serious of penalties.  They may include charges under Internal Revenue Code’s section 7206(1) for filing a false document signed under penalty of perjury, under section 7212(a) for tax obstruction, under section 7201 for tax evasion. Each of these penalties are imposed independently and range from fines of $1,000-$100,000 and imprisonment from 1 to 5 years. It’s worth noting that section 7206(1) is not just for false tax returns, but applies to any materially false document signed under penalty of perjury if the filer knew that the document was false when signing it.  False assertion of non-willfulness on documents filed under penalty of perjury is an example of “classic” tax obstruction.

Tax evasion charges could be based on the false assertion as a new act of evasion, renewing the statute of limitations and increasing the number of tax years available for additional charges, even if the statute had otherwise expired.  This applies to both income tax returns and FBARS.

Don’t underestimate the amount of information that the US government has.  Ensure that you select a reputable and experienced cross-border tax accountant who can lead you through the “streamline” process and who can compile your previously omitted returns in the most accurate and complete fashion.

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Rebutting the Presumption of U.S. Citizenship Under FATCA

FACTA agreement

 by  U.S./Canada Tax Lawyer, admitted in both Canada and the U.S.

The following is a summary of an in-depth paper published by the Canadian Tax Foundation for its 2014 annual national conference, which you my find by clicking here.

When stripped of its soul-crushing complexity, FATCA—including the Canada-U.S. intergovernmental agreement (the IGA) and the Canadian implementing legislation found in Part XVIII of the Canadian Income Tax Act (the Act)—is designed to identify U.S. citizens, U.S. residents, and U.S. entities and encourage them to become compliant with U.S. tax and filing obligations by reporting them either directly or indirectly to the IRS. With the exception of children born of certain diplomats, all persons born in the U.S. become U.S. citizens at birth.[1]Thus, the clearest indicator of U.S. citizenship status is a place of U.S. birth.

Under FATCA, if an individual was born in the U.S. that individual is presumed to be a U.S. citizen, (and thus the account becomes reportable), unless the individual adequately rebuts this presumption. The Act and the IGA allow an individual resident in Canada the ability to rebut this presumption by providing a certificate of loss of nationality (CLN)[2] or, if the individual does not possess a CLN, a reasonable explanation for not having one despite having relinquished his U.S. citizenship. To date, no guidance has been issued by Finance, CRA, Treasury, or the IRS as to what constitutes a reasonable explanation for not having a CLN.[3]

The harm that may result to individuals who attempt to rebut the presumption of U.S. citizenship by currently obtaining a CLN is based in the dissonant concepts of loss of U.S. citizenship for nationality purposes and loss of U.S. citizenship for tax purposes. Before 2004 (in most cases) loss of U.S. citizenship for nationality purposes also terminated U.S. citizenship for tax purposes.

In 2004 U.S. law  and under current U.S. law, an individual may have lost his citizenship for nationality purposes years ago, however he loses his tax-citizenship at the later of giving notice to the Department of State or receipt of a CLN. Thus under current U.S. tax law, individuals who may have lost their U.S. citizenship for nationality purposes years, or decades, ago may find themselves subject to current income tax obligations (because the U.S. taxes its citizens on world-wide income), FATCA reporting, and the expatriation tax regime because they failed to properly terminate their citizenship.

Importantly, FATCA and the IGA use the tax definition of U.S. citizen and not the definition that is used for nationality purposes.  Specifically subparagraph 1(1)(ee) of the IGA provides that the term U.S. Person means a U.S. citizen “interpreted in accordance with the U.S. Internal Revenue Code.” Thus appreciation of the manner in which citizenship is lost for tax purposes is critical to understanding not only rebutting the presumption of U.S. citizenship in particular, but also FATCA in general.

U.S. nationality law (like Canadian nationality law) used to be replete with a multitude of statutes under which an individual would automatically lose citizenship by performing, or not performing, certain acts, regardless of the individual’s intent at the time.

However, in 1967 the U.S. Supreme Court held in Afroyim v. Rusk, 387 U.S. 253 that the Fourteenth Amendment to the U.S. Constitution precluded the automatic loss of citizenship unless the individual performed the requisite action (or inaction) voluntarily and with the specific intent of giving up U.S. citizenship. Thus many individuals who had been stripped of their U.S. citizenship found it to have been restored retroactively. In light of the fact that the U.S. taxes its citizens on their worldwide income many individuals who had their U.S. citizenship retroactively restored faced tax and filing obligations for prior years.

Under current law, termination of U.S. citizenship for nationality purposes is addressed in 8 U.S.C. section 1481(a). Under current law individuals may lose their U.S. citizenship for nationality purposes by voluntarily performing certain, provided such act is concurrent with the intent of relinquishing U.S. nationality.[4]

 Anyone who asserts loss of nationality must prove such by a preponderance of the evidence.[5] Further, any individual who commits any of the proscribed expatriating acts is presumed to have done so voluntarily, however the presumption may be rebutted by showing by a preponderance of the evidence that such acts were not done voluntarily.

For tax purposes, however, section 7701(a)(50) of the IRC provides that an individual shall not cease to be treated as a U.S. citizen for tax purposes until the factors of section 877A(g)(4) have been satisfied. Section 877A(g)(4) provides that U.S. citizenship is lost on the earliest of the following events:

The date the individual renounces U.S. nationality before a diplomatic or consular official, provided such renunciation results in the issuance of a CLN.

  1. The date on which an individual furnishes a signed statement confirming a prior expatriating act, provided such statement results in the issuance of a CLN.
  2. The date the U.S. Department of State issues a CLN.
  3. The date a court of the U.S. cancels the individual’s certificate of naturalization.

Thus, under current tax law, and therefore FATCA, the issuance of a CLN is required to terminate an individual’s U.S. citizenship for tax purposes.

Until further guidance is issued regarding what might constitute a “reasonable explanation” for not having a CLN, Canadian financial institutions will be in the unenviable position of attempting to interpret their customers’ explanations under both U.S. nationality law and tax law. Similarly, Canadian residents with a U.S. place of birth may attempt to obtain a CLN without fully understanding the tax and compliance consequences of doing so.

[1] U.S. CONST. amend XIV, § 1 (“All personyB born or naturalized in the United States and subject to the jurisdiction thereof, are citizens of the United States.”). See also 8 U.S.C. section 1401(a). Only children born of foreign diplomats with full diplomatic immunity are exempt from this rule. See INS Interpretation 301.1(a)(4)(i).

[2] “Certificate of Loss of Nationality of the United States” is found on U.S. Department of State Form DS-4083.

[3] An in-depth analysis of these issues, including historical developments, recommendations, and a working template for determining “reasonable explanation” is contained in the paper entitled FATCA in Canada: The ‘Cure’ for a U.S. Place of Birth available at https://www.ctf.ca/CTFWEB/EN/Sign_In.aspx?returnurl=/CTFWEB/EN/Secured_Content/2014/Annual_Conference/2014_Annual_Conference_Papers.aspx&IgnoreProfileRedirect=true.

[4] 8 U.S.C. section 1481(a). Very generally, and subject to jurisprudential and administrative interpretation,  the acts are: obtaining naturalization in a foreign state; taking an oath to a foreign state; serving in the armed forces of a foreign state; accepting employment of a foreign state; formally renouncing nationality before a diplomatic or consular official; and conviction of treason.

[5] 8 U.S.C. section 1481(b).

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U.S. FBAR PROPOSED CHANGES

US FBAR Proposed Changes

As of March 1st, 2016 the U.S. Treasury’s Financial Crimes Enforcement Network has issued a notice of proposed rulemaking order. The proposed rule will rearrange long-standing system of reporting foreign bank and financial accounts using form FinCen 114 or FBAR.

FBAR applies to all U.S. taxpayers with foreign financial accounts that have an aggregate value $10,000 or more at any point during the year. If you own or control foreign bank or financial accounts with a combined value over $10,000, then you will likely file an FBAR. The reporting requirement covers many different types of foreign bank and financial accounts that are held outside of the United States, including everyday checking, savings, foreign retirement, investment and many others. A $10,000 per violation penalty can apply if you do not file an FBAR stating your foreign accounts even if this is done unintentionally. Harsher penalties may be enforced if the failure to report is willful.

Currently the FBAR requirements apply to persons, including company employees, officers, and financial professionals even though they do not have a financial interest in the account but merely possess signature authority. The signature authority that arises is typically a result of the employee-employer agency relationship.

Another current requirement limits the reporting obligations of an individual who holds 25 or more foreign bank or financial accounts. The obligation is deemed to have been met so long as the holder retains detailed account records for five years.

There are two changes proposed which affect the aforementioned reporting obligations. The first proposed change removes the reporting requirement for employees, trustees, or officers in an organization that have been afforded signature authority but do not have a bona fide financial interest in the account. The second proposed change waives the limitation of the requirement for account reporting once the 25-account ceiling is reached.

The proposed change for holders with 25 or more accounts are less impactful in light of the standing Foreign Account Tax Compliance Act (FATCA). Since FATCA’s reporting obligations were first introduced in 2011, holders of these accounts have already been subjected to reporting of all accounts held personally or jointly irrespective of the number.

Regardless, if the proposed rule will affect you or not, particularly in light of the underlying FATCA requirements, March 1st’s notice serves as an invitation for anyone to comment on the proposals. The U.S. government will keep this welcome window open until April 25th, just a little over a month from now. As always in tax, staying informed serves as a shield against possible tax penalties and poor guidance.

get-a-free-consultation

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Australia Shares FATCA Information, Canada Set to Follow

FATCA

By J.P Finet  Sept 24, 2015 Posted on Taxnotes.com
Australia announced September 23 that it has shared bank information with the IRS for the first time in compliance with the intergovernmental agreement   it signed to implement the Foreign Account Tax Compliance Act (FATCA).

According to a release issued by the Australian Taxation Office (ATO), the details of more than 30,000 financial accounts valued at more than $5 billion were provided to the United States.

“The information provided on U.S. citizens and tax residents with Australian bank accounts is the first step in a wave of transparency measures being implemented globally by Governments and tax administrations,” the ATO release said. “Beginning in 2017, close to 100 countries will be sharing non-resident data under the OECD Common Reporting Standard (CRS).”

The release said the automatic exchange of financial account information was “the new international standard to eliminate tax evasion.” The ATO added that it is committed to ensuring that taxpayers are disclosing their offshore income and that in 2017 it will implement the CRS, under which it will exchange financial account information with almost 100 countries.

Canada’s government had previously stated that it would share its bank information on September 23 in compliance with the Canada-U.S. IGA  , but it was not clear that it had done so. Requests for information from the Canada Revenue Agency were not returned by press time.

Canada made no official announcement of its exchange, but a docket entry in a Canadian federal lawsuit that sought to block the transmission of financial data on reportable accounts to the United States said Canada would begin transmitting data September 23. The lawsuit, Hillis and Deegan v. the Attorney General of Canada [2015 FC 1082   ], was dismissed September 16. (Prior coverage  .)

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