We are certainly not fans of FATCA, Obama’s Foreign Account Tax Compliance Act. The new law is overly burdensome and when combined with oppressive IRS penalties under the Bank Secrecy Act, potentially lumps the majority of innocent FBAR nonfilers with the few true criminals. So why are we a bit miffed by a recent story in Canada’s CBCNews criticizing FATCA? Probably because it is even more alarmist than we are!
There is a tremendous amount of misinformation circulating about FATCA and the requirement for US taxpayers to report foreign financial accounts. Some of the media horror stories are so bad that many taxpayers are simply too afraid to come into compliance. Add a few boneheaded mistakes by the IRS and one has a sea of uncertainty. For some folks, that means anxiety and bad decisions.
Bad decisions? Yes. The two we see the most are taxpayers who are simply paralyzed by indecision and therefore decide to do nothing and the opposite phenomena of rushing into the IRS’ amnesty program (the Offshore Voluntary Disclosure Program). While amnesty does offer a get out of jail free card, it still carries a harsh 27.5% penalty.
The best course of action varies from one person to the next. Amnesty is not the best option for every taxpayer. Some folks can avoid all penalties by availing themselves of other legitimate IRS offers and options.
Enter CBC, the Canadian Broadcasting Corporation. Their recent article on FATCA has several factual inaccuracies and takes editorial license too far.
CBC: “Who is affected by this law [FATCA]? The short answer is almost every Canadian… Some estimate it could cost $100 million for each financial institution.”
FACT: The law affects a small but statistically significant percentage of Canadians who work in the US, are dual nationals, have an American green card or are retired here.” Before we send every Canadian running to find an accountant or tax lawyer, lets be careful in our definitions.
FATCA requires foreign financial institutions to identify Canadian account holders that may be required to file tax returns in the United States. For most Canadian banks, that means accounts where the account holder identifies himself as a U.S. resident or citizen, an account holder possessing a U.S. passport or “unambiguous indication of a U.S. place of birth,” an account holder with a U.S. phone number, an account with instructions to transfer funds to the United States, an account with a power of attorney or signer that has a U.S. address or an account with instructions to “hold mail” at the branch.
The initial review involves larger accounts; many credit union and checking accounts are simply to small to require review. While we are sure that some “expert” claims it will cost $100 million for each financial institution, we think that figure is preposterous. For most banks the cost will be less than $1 million.
CBC: “Some residents didn’t know until recently that they were dual citizens. For example, U.S. citizenship is automatically given to people born in Canada to U.S. parents or born in the U.S. to Canadian parents.”
FACT: We call these folks accidental Americans. There are very, very few people living in the world who are citizens of the United States and don’t know it. (And for those that truly are accidental Americans, special amnesty rules apply. Don’t worry.)
CBC: ‘[T]he U.S. sees registered savings accounts like RRSPs, RESPs and TFSAs as “offshore trusts,” and therefore can potentially tax gains in them.”
FACT: Once again, there are special rules for retirement accounts. In fact, the United States has a specific treaty with Canada covering retirement accounts.
CBC: “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.”
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.]
We appreciate CBC making folks aware of FATCA. The IRS has done a terrible job of educating taxpayers. Even the IRS’ own Taxpayer Advocate says so. Before everyone gets too wound up, however, check the facts.
Some say FATCA needs to be repealed and we take no issue with those opinions. That’s not the subject of this post, however.
Here is the bottom line if you are a Canadian with U.S. tax reporting responsibilities… do some quality research. We suggest our blog Due Diligence or TaxConnections. Both have hundreds of articles. If you find you that you should have filed here and are more than one year in arrears on FBARs or have a complex tax situation and not sure of your reporting obligations, contact an experienced IRS tax attorney. (Nothing against Canadian Chartered Public Accountants; we recommend a US trained person if dealing with the US Internal Revenue Service.)
Need more information? Our team of IRS tax attorneys has helped taxpayers across the world with FATCA and FBAR problems. We usually offer flat fees for our services. Because we handle many of these cases, we can offer our services for less cost than many other tax lawyers.
Post by Brian Mahany, Esq.
Tag as FATCA, FATCA compliance, FATCA attorney, FATCA RRSP, FBAR lawyer
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