American expats have until TOMORROW to voluntarily pay 5% of their holdings to IRS

[Aardvark154]

So if a dual citizen who has lived all of their adult life in Canada, making Canadian money and paying Canadian taxes.

May I suggest that if they never bothered to file a U.S. tax return this is the least of their problems.

Further they are either a) intelligence operative tight lipped, b) have one of the more stupid tax preparers in Canada, or c) are a total fool as a client personality.

 

[wigglee]

simply put your cash in real estate, then renounce your u.s. citizenship.

 

[fuji]

May I suggest that if they never bothered to file a U.S. tax return this is the least of their problems.

Actually for most people that this catches, this is their ONLY problem. Most dual citizens do not actually owe any US tax. Their tax returns would be one zero owing after another. This is because for most individuals US tax rates are lower than Canadian rates, and so the tax credit for Canadian taxes paid will invariably wipe out any US tax owing. Every year.

However, since this is a penalty on FAILURE TO DISCLOSE, rather than failure to pay taxes owed, it will catch even people who never, ever would owe a cent of tax if they had filed.

It's one thing to have draconian penalties on unpaid taxes, basically nailing tax evaders. It's quite another thing to impose draconian penalties in cases where there are actually NO taxes owed, just based on arcane and not well communicated disclosure requirements.

Note that there are some people living in Canada who are US citizens, but who are only vaguely aware that they are. People who have never worked in the US, in some cases never set foot in the US, and never applied for any sort of US identification. However, if they have two US parents, or if they were born in the US to parents who were there only temporarily, they are citizens--and this rule applies to them--even though they have never lived or worked in the US, and do not hold a US passport, SSN, or any other US identity document.

I heard a guy on the radio talking about this. He immigrated to Canada back when US law was that if you became a citizen of a foreign country you lost your US citizenship. He had assumed ever since then that by becoming a Canadian citizen he had ceased to be an American. He'd always believed that for the last 40 years or so he had held only a single citizenship--Canadian. Well the IRS didn't agree...

 

[oldjones]

May I suggest that if they never bothered to file a U.S. tax return this is the least of their problems.

Further they are either a) intelligence operative tight lipped, b) have one of the more stupid tax preparers in Canada, or c) are a total fool as a client personality.

You left out d) they are American citizens by virtue of having American parents, have never used their American citizenship, nor resided in the US, but have been US tax criminals since banking their first dollar here. They would still be subject to confiscation of 25% of their RRSPs and other accounts, as well as penalties for each annual return they didn't file.

Why you would imagine it is the tax-preparer's duty to pry into one's citizenship when asked to do Canadian taxes, I do not know. But then I'd not know why it makes one a fool not to know the current details of tax laws passed in a country you haven't lived in, have no assets in, nor done any business in for decades.

 

[ExerciseGuy]

This is an interesting situation. The fact is, the disclosure requirement has been around for many years. For those who were paying attention and complying, they have essentially been "penalized" for years by virtue of having to operate in an uneven playing field where non-compliant taxpayers were getting a free pass. Now that the IRS is finally stepping up its enforcement, it seems to make sense that the non-compliants should face some sort of penalty. How else would it be fair for those who were complying? The tax system in the U.S., like it is here, is very much a honour system that relies on taxpayers to honestly self-comply. The penalties for non-compliance are necessary to promote compliance. The IRS already gave a warning shot with a voluntary disclosure program back in 2009, with generally smaller penalties. This recent round is now a second warning shot. That does seem pretty fair.

 

[Moraff]

In Canada generally you don't need to file a tax return in a given year as long as the result if you did file was zero balance or a refund (CRA will happily hold on to your money for you). Wonder if the States has something similar? If so, then all the people who didn't file returns because they wouldn't owe wouldn't be affected by this I would think.

 

[Aardvark154]

Actually for most people that this catches, this is their ONLY problem.

Probably not, in that most people have to file with IRS even if they owe no tax.

 

[fuji]

Probably not, in that most people have to file with IRS even if they owe no tax.

In other cases, though, the penalty for failure to file is generally a percentage of what you owed. If you owe zero, the penalty is generally nothing.

On the other hand, in this case, even if you OWE nothing, the penalty is expressed as a percentage of the account you failed to disclose, even if all taxes are fully paid up (as in nothing was owed).

So yes, you have to file, but if you didn't know that, and IRS demands you get your returns up to date, if you owed nothing the "penalty" for that will be nothing, provided you comply with the demand when you get it--other than this.

 

[fuji]

ThNow that the IRS is finally stepping up its enforcement, it seems to make sense that the non-compliants should face some sort of penalty.

If we were talking about people who were failing to pay their taxes I would agree with you. But we are talking about people who generally don't owe anything, other than the penalty.

 

[diehard]

They were shocked to learn that they had to paid U.S. taxes on their lottery win.
.
.
.
Americans living abroad are NOT double taxed. Any tax they pay to Canada is creditable on their U.S. tax return.

But if they had paid the CRA taxes over the lottery win, did they still have to pay US taxes?

 

[ExerciseGuy]

If we were talking about people who were failing to pay their taxes I would agree with you. But we are talking about people who generally don't owe anything, other than the penalty.

I see what you are saying. It would be nice if there was some leeway for the penalties to be waived based on facts. Perhaps there should be support gathered to lobby for that. I agree that a lot of people who are technically caught are likely not trying to hide anything at all. Yet, there is also another part of the population that does hide income. And, for those, I do see the account information useful to the authorities and the need for penalties to help with enforcement.

Regardless, the current situation is what it is. I wonder if it is well known that the 5% penalty discussed on this thread is only one of the possible penalties under the voluntary disclosure program. There are other methods of calculating the penalty. Outside of the voluntary disclosure program, for example, there is a fixed $10,000 per year penalty, which is still likely better than the 50% (not a typo -- I do mean 50% and not 5%) penalty and may be better than the 5% penalty. People who are affected would be wise to dig in depth into their options.

The other thing that may be useful to know is that there are other rules coming in, aimed at essentially mandating third parties to help in identifying foreign accounts. The general press here has been covering it for a few months now. It likely means that failures to report will be more easily found.

 

[ExerciseGuy]

But if they had paid the CRA taxes over the lottery win, did they still have to pay US taxes?

I did not think that Canada taxed lottery winnings. If taxes were just voluntarily paid to the CRA, it would probably be a good idea to look into getting it back from the CRA. If the question is hypothetical, and the tax were really owed to Canada, I would think a foreign tax credit could be available in the US.

 

[patton]

as with any tax situation this topic is very complicated.
US Citizens get approx a $95,000 tax credit. you make less then that you probably dont have to pay any tax.
more then the tax is calculated between the two countries tax rates... the diffrence is paid.. so its not like if you paid 25% rate in canada u get hit with a rate of 20% in US.
you have to disclose all accounts ( business and personal) that hold amounts over $10,000. they want to know if you are hiding income.
you have to file a tax return no matter how far back. there are penalties for not filing. You dont have to pay any tax. thats the risk you take. There are criminal offences and civil offences.
you cannot revoke your US citizenship to avoid tax. If you do be expected to be audited for 5 years.
CDN's that gave a US citizen spouse some income to help lower their CDN tax are now getting burnt.
The IRS will generally want 3 years filing but also 6 years is not unusual. Having records over 6 years is rare. If you have them dont say you do have them.
holding US citizen ship has it perks. If you are stranded somewhere from anatural diaster or terrorist attack its more possible the US will try to save you.
But then again if you hold a US passport on a plane hijacked the terrorists will more then likely look for you first.

 

[Moraff]

But if they had paid the CRA taxes over the lottery win, did they still have to pay US taxes?

Lottery winnings are not taxed in Canada.

 

[Rockslinger]

as with any tax situation this topic is very complicated.

Complicated is the word. Our company pay a ton of money every year to one of the "Big 4" accounting firms for tax advice.

One of our executives, who is from a wealthy family and married to a spouse from another wealthy family, declined a transfer to a foreign country because he and his spouse would have had to pay well over a million dollars in DEPARTURE TAX. (When one departs from Canada one is deemed to dispose of all of one's assets at fair market value and the capital gain is taxed.)

 

[patton]

The US govt is offering the amnesty deal as they kmnow it willl be difficult and costly to collect all the $$. But if they really properly entitled to the entire amount then why give up 20%?
Because this is the easist way to collect.. by scaring US citizens.
In the future there will be more cooperation between US and CDN govts on these issues. My problem is that this is not a security issue.
Why would the CDN govt help a foreign govt collect a portion of a CDN resident's disposable income? A person living in Canada contributing to its economy and culture will now be forced to pay additional money to a foreign country. This will be more $$ leaving Canada after its been earned in Canada Where will it stop? A slippery slope if you ask me.
An American or any other foreigner living in Canada and contributing to CDN society should be protected. We are not talking about terroists.
These are people who are employees and self employed that are helping Canada be the great country that it is.

 

[afterhours]

Complicated is the word. Our company pay a ton of money every year to one of the "Big 4" accounting firms for tax advice.

One of our executives, who is from a wealthy family and married to a spouse from another wealthy family, declined a transfer to a foreign country because he and his spouse would have had to pay well over a million dollars in DEPARTURE TAX. (When one departs from Canada one is deemed to dispose of all of one's assets at fair market value and the capital gain is taxed.)

On an unrelated note I find it fascinating that people who can afford leave this country and live all their life in a better climate fucking young beautiful things choose to stay here, go to work every day and fuck their old bag of a wive. Greed does miracles.

 

[oldjones]

Probably not, in that most people have to file with IRS even if they owe no tax.

Firstly you have to know you have an obligation to file; very difficult for Americans who have never lived, worked or earned in the US and have never had any communication with its government. Nonetheless they still face punishment for not filing.

Secondly, these measures are meant to capture financial property, as well as income, so that an RRSP entirely earned here, from income that never approached the taxable-level by US standards would still have to be declared, and would be subject to 25% seizure if it was not. Some 'US tax experts' have been telling expats RRSPs, like 401(K)s are not 'bank accounts' within the meaning of the code. Others say the opposite. The IRS of course offers no help, and certifies no one's expertise.

But that does allow for a scenario of a Canadian citizen being held on the American side of the border for being an American citiozen with undeclared accounts abroad, and having to surrender a huge portion as penalty, before they could renounce the US citizenship that they never were really aware they had.

In essence, my expat friends who were unaware of this obligation are now outlaws and must face the dangers I do—as an undeclared criminal due to my DUI—when crossing the border to see their aging re;latives, perhaps for the last time. It would all be moot, as the IRS is unlikely to bother with the cross-border complications of catching such small-fry, but some have family property in the States that might be seized.

Still and all, since this measure successfully wiped out the Mafia, and other off-shore tax-evaders like General Electric, we must be thankful.

 

[Rockslinger]

On an unrelated note I find it fascinating that people who can afford leave this country

According to our tax advisors there is a way to legally move your assets offshore without attracting tax. There is also a way to live in a tax haven country without being subject to Canadian tax.

 

[ExerciseGuy]

Some 'US tax experts' have been telling expats RRSPs, like 401(K)s are not 'bank accounts' within the meaning of the code. Others say the opposite.

I wonder if those who are saying not "bank accounts" would be willing to provide a guarantee to their clients that is the case. The rationale given seems a bit like wishful thinking.

According to our tax advisors there is a way to legally move your assets offshore without attracting tax. There is also a way to live in a tax haven country without being subject to Canadian tax.

I run across tax issues at my company here and there. If there is one thing I have learned, it is that there are a lot of myths out there. Unfortunately, it seems that because people are seldomly caught (or, where they are, there is little publicity), the myths persist and people think they work. I always seek a person who is specialized in the field, and not just dabbling, to give me their views -- in writing -- for my specific facts.