# FATCA a reality in Canada



## Nobledreamer

We have just received the news that Minister Flaherty has signed the FATCA deal with the US. Apparently some/all of our tax-deferred plans are exempt from reporting. The WSJ article makes the claim that some concessions were won that will prevent the breaking of privacy laws. That doesn't make sense. Here are the links:

Canada signs agreement to dull impact of U.S. crackdown on tax cheats | Financial Post

Canada, U.S. Reach Tax Deal -- Officials - WSJ.com

:mad2: :mad2: :mad2:


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## Nononymous

Good thing I didn't bet a beer on this.

We'll have to wait for the details, of course. But if indeed RRSPs, RESPs and TFSAs are exempt, and there are high limits before reporting is required on other accounts (like $200k rather than $50k) then quite a few of us would be exempt. 

Stay tuned...


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## Bevdeforges

The agreement is posted here: Foreign Account Tax Compliance Act (FATCA)

Don't have time to read it now - but based on what I've seen of the French and British agreements, chances are real good that most standard types of tax-free and retirement accounts are specifically excluded from reporting. Check the appendices to the agreement.
Cheers,
Bev


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## Nononymous

Details due out later today. 

As mentioned, if the registered accounts (RRSR, RESP, TFSA etc.) are exempt and there's a decent limit on everything else, then I'm guessing a pretty good percentage of the million or so US persons here will not be subject to reporting, myself among them. (I'm now quite curious as to what my broker might say, after I previously refused to answer the citizenship question.)

The **** is still going to hit the fan in a huge way, all that being said.


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## Nononymous

From the Globe & Mail. 

Ottawa to give IRS information on Americans living in Canada - The Globe and Mail

Doubtless more to follow.

I'm actually fairly sanguine, given all the exceptions. It might make smaller credit unions quite popular among dual citizens.


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## Nononymous

Lastly, just had an e-mail from the family broker, who included a link to an article in a professional wealth-management newsletter. Seems this particular industry insider greeted the agreement with a huge sigh of relief, because it frees them so many reporting requirements with the exclusion of all the registered tax-protected savings vehicles, other accounts below $50k. So less of a regulatory burden for banks and financial institutions than first feared.

Though, to an earlier point, I completely fail to understand how having the Canadian government pass the information to the US, instead of the banks directly, changes anything in terms of privacy protection. I would still expect some Charter challenges to the IGA.


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## Nobledreamer

Well, there is a lot of confusion about the Charter and so on. The Charter only refers to the standard applied to the government. The banks, fall under PIPEDA. I am not familiar enough with PIPEDA to assume that the IGA is contrary to what is allowed. Though old, this may be of interest to Canadians in that regard:

ARCHIVED - Commissioner's Findings - PIPEDA Case Summary #2007-365: Responsibility of Canadian financial institutions in SWIFT's disclosure of personal information to US authorities considered (April 2, 2007)

It's my understanding in general that:

Banks are not required to report under $50k but some have indicated they will, in order to make sure they are in compliance

Between $50k* and $1mm – “Lower Value Accounts” 
FFI's have to perform electronic search for U.S. Indicia and subsequent requirements to obtain further documentation where found

Above $1mm – “High-Value 
FFI's have to perform paper search
Self-certification will be required

There is no distinction between low and high value for new accounts. 
Self-certification required

The commonly quoted $250K refers to entities, not individuals

The banks' thresholds do not mirror those that outline who must file 8938; I think some confuse the figures between these two different sets of info:

If you are a taxpayer living abroad you must file if:

You are filing a return other than a joint return and the total value of your specified foreign assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the year; or
You are filing a joint return and the value of your specified foreign asset is more than $400,000 on the last day of the tax year or more than $600,000 at any time during the year.

Do I need to file Form 8938, â€œStatement of Specified Foreign Financial Assetsâ€�?

So far, the only "positive" reaction I've heard is from the CBA. Everyone else is numb.


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## Bevdeforges

From what you've said, it sounds like they just adapted the French agreement to Canadian terms. In France, the banks are reporting only to the Banque de France (i.e. not the IRS) and then it's up to the Banque de France to communicate with the IRS. Given security laws here, I kind of doubt the Banque de France is just going to hand over bulk tapes or electronic files - but will probably be available to "cooperate" as the IRS makes specific requests. (They currently do something similar when it comes to estate taxes where a French resident has a US bank account or vice versa.)

The main bit of "good news" here is that, with the banks not having to report the tax-deferred or tax-free accounts, nor the under $50,000 accounts, there is no "data mining" to be done to pick up the nits and lice that really shouldn't be any concern of the IRS anyhow.

And having the IRS instructions run contrary to the data exchange treaty/agreements is nothing new. Tax law in the US is deliberately ambiguous like this and has been for a LONG time. It's how they get the "little guys" to toe the line, while what they are really out to get is the fat cats who are willfully evading taxes (not only in the US, but probably on an international scale). 

Major example: How on earth does the IRS realistically expect to have any idea whether overseas residents are "accurately" reporting their salary income? If you're on the local payroll, there is no W-2 and no other system for reporting salary to the IRS (certainly none with your social security number attached, which is the only way they could link you with your salary). Add to that, the "taxable income" figure you use to file your taxes in Canada or France or Germany or elsewhere is not the "gross income" figure you are supposed to declare on your 1040. (Mostly European countries allow you to deduct most social insurances before declaring your income for taxation.) They rely on the average taxpayer being, if not honest, then at least reasonable in their reporting, and then rely on finding overt "cheats" through large and unusual bank transactions.
Cheers,
Bev


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## maz57

Yup, the agreement announced yesterday appears to be a carbon copy of the French agreement you've previously described, Bev. Substitute the Canadian Registered plans for the French ones, of course. Why it took them more than a year to "negotiate" this is baffling because it seems to be pretty much boiler plate Model 1 IGA.

This agreement must be put into force by passing "enabling legislation" in Parliament. No one knows how long that might take. There is the possibility of some fireworks because the opposition parties are all against it.

Once the legislation is passed and once the banks start asking questions that can't be asked the Constitutional challenges will begin. I'm sure all the lawyers are powdering up their wigs as we speak.

The designation of all the Registered accounts as "non-reportable accounts" saves the banks a lot of work, but they continue to be totally taxable from the IRS point of view. This really sucks because several of these Registered Plans include matching contributions from the Canadian government. The IRS considers this as "income" and is happy to grab some of the money our government intended to help the disabled or fund kids' educations. In view of the fact that these plans are now officially invisible to the IRS, many who are in the unfortunate position of having to file US returns may well not bother to mention them on their 1040.

Along with the release of the 47 page text, the Minister of Finance and a high CRA official pointed out that this was strictly an information exchange agreement; there were no changes to the existing tax treaty whatsoever. In other words, the CRA will not be a collection agency for the IRS.


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## Nononymous

I absolutely understand that this makes no changes to tax and reporting requirements, and all the crazy-ass treatment of RESPs etc. 

But what I am quite content about is that it appears as if non-compliant folks like myself won't easily be "ratted out" by FATCA (hey, maybe we should call it "RATCA") and identified for the IRS. The way I see it, as long as I don't have more than $50k in a regular bank or investment account, as opposed to an RRSP, then I am non-reportable - I can continue to hide and fly under the radar, if I so choose. For me, this is a good thing.

I'm quite interested to see what the banks will do. The family broker "knows" I'm a US citizen, although I will not confirm the fact, but as everything I have with him is an RRSP, he doesn't care because he can ignore it now. However, if my regular bank (RBC) asks me citizenship questions even though account balances are under $50k, then we have a bit of an issue. At that point I would investigate moving my daily banking to a smaller credit union that is not required to be compliant (probably a good idea anyway). 

Another point is new accounts. If you're thinking of moving banks, do it before 1 July, when they may begin asking for more information. I just opened an ING account online as free insurance.


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## maz57

There's gonna be a lot of $49,000 accounts!


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## Nononymous

maz57 said:


> There's gonna be a lot of $49,000 accounts!


Across different institutions though - I did see something about how banks were obliged to look for multiple accounts with a total over $50k.


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## Nobledreamer

@maz57


My thinking exactly. What took so long? Maybe Flaherty really tried to get more- some were definitely hoping that duals would be excluded so only US citizens resident in Canada would be reportable, but I guess that was a dream.

@Nononymous

"RATCA" - Good one, really like it!


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## SuzieF

maz57 said:


> There's gonna be a lot of $49,000 accounts!



Wonder how thats going to be treated.. If RRSP and TSFA aren't reportable accounts.. Could they still add them to the total aggregate value?


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## maz57

@ SuzieF. I don't know. Yesterdays announcement really poses more questions than it answers. I will say one thing, though. You couldn't have picked a more opportune time to get your ducks in a row if renunciation is the route you choose!


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## Bevdeforges

Nobledreamer said:


> @maz57
> 
> 
> My thinking exactly. What took so long? Maybe Flaherty really tried to get more- some were definitely hoping that duals would be excluded so only US citizens resident in Canada would be reportable, but I guess that was a dream.
> 
> @Nononymous
> 
> "RATCA" - Good one, really like it!


Unfortunately, I don't think the idea of excluding duals was ever even on the table. As soon as they published those "model" agreements, they pretty well indicated the parameters of the possibilities.

But I still contend that the exclusion of the retirement and tax-free savings accounts seems to say that they aren't really all that interested in those sorts of accounts. They can't change the law in the US (because the Congresscritters there are the ones who passed the fool thing in the first place - and are demonstrating daily their apparent inability to do anything constructive or useful) but they did structure these agreements to focus on what they're really concerned about - and that's the high rollers with the tricky "investment" accounts designed to escape detection. Tells me enough to plan my tax strategy accordingly.
Cheers,
Bev


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## Nononymous

maz57 said:


> @ SuzieF. I don't know. Yesterdays announcement really poses more questions than it answers. I will say one thing, though. You couldn't have picked a more opportune time to get your ducks in a row if renunciation is the route you choose!


If indeed I decide to renounce sooner rather than later (pros and cons; decision pending upcoming conversations with the parental lawyers) then life is suddenly a whole lot simpler on the tax compliance front - fire off five 1040s with my salary income offset by FEIE, do an FBAR for my chequing account, and basta, that's all they need to know. (Yes it's technically illegal not to report the RRSPs and various other minor complications. Whatever.)


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## maz57

Nononymous said:


> If indeed I decide to renounce sooner rather than later (pros and cons; decision pending upcoming conversations with the parental lawyers) then life is suddenly a whole lot simpler on the tax compliance front - fire off five 1040s with my salary income offset by FEIE, do an FBAR for my chequing account, and basta, that's all they need to know. (Yes it's technically illegal not to report the RRSPs and various other minor complications. Whatever.)


@ Nononymous. If those Registered accounts ever became an issue (not likely) you could simply argue that you were confused. After all, the IGA does say they are "not reportable".


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## byline

So, I'm going to ask a stupid question: When we talk about "reporting," does this refer to both FBARs _and_ tax returns? Or just FBARs? And am I interpreting this correctly, that RRSPs and TFSAs are both exempt from reporting?


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## maz57

@ Byline. See, I said it's confusing! This new IGA talks about accounts which are "not US reportable accounts". All the Canadian registered accounts have been "carved out" and included in this category. This means the banks don't have to worry about them or report them.

But this just means the CRA won't hand over info on registered accounts and their beneficial owners to the IRS. It does NOT mean they aren't taxable by the IRS and don't need to be included on your 1040. Any income (interest, dividends, gains or even Canadian government contributed matching funds) must be declared and included with the rest of your income on your 1040. 

Practically speaking they are effectively invisible to the IRS unless you volunteer the information. Everyone will have to make a personal call as to how comfortable they might be neglecting to report them. The fact the IRS insists on taxing them renders them useless for their intended purpose. 

The kicker is that these accounts are designated "foreign trusts" by the IRS. This triggers complicated trust reporting forms in addition to the actual tax owing.

And nothing is changed re: FBAR. It still must be filed (online) by June 30 each year and every account you have must be included.


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## BBCWatcher

May I volunteer the simple fact that the IRS doesn't actually need those details because the IRS will presume (correctly) that a Canadian resident probably has such accounts. So if those accounts are not reported in U.S. tax filings that'll (presumably) increase the odds of an audit. "If resident in Canada and no Canadian tax advantaged accounts reported then add 5 points to the audit score," basically.

Or is that too obvious?


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## graubart

When I discovered my US tax obligations I closed my TFSA. No use saving taxes in Canada only to pay them to the US. Not to mention the trust reporting issues. I think that is pretty standard advice.


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## Nononymous

All we're really suggesting here is that excluding RRSPs etc. from FATCA makes life easier for us scofflaws, because it's possible to remain wholly non-compliant, or to shortcut the paperwork if we're trying to do the minimum before renouncing.

Since I at any rate think non-resident taxation is horse**** and don't plan on living in the US, I wouldn't have a huge moral problem violating heaps of laws to save myself some work; I doubt I'd owe anything anyway, though it might cost me a lot of time and money to prove this "correctly".


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## BBCWatcher

Nononymous said:


> ....or to shortcut the paperwork if we're trying to do the minimum before renouncing.


That part doesn't make sense to me. If you're filing with the IRS for exit (or for any other purpose) while a resident of Canada then an absence of Canadian tax-advantaged retirement accounts from your IRS (and Treasury) filings is automatically suspicious, isn't it? It's roughly the financial equivalent of saying you live in Canada but have never seen a hockey game -- not even a fleeting glance of one airing on a television in a public place. Technically possible but fairly unlikely.

It's hard to get an exact figure, but apparently about two thirds of Canadian residents have RRSPs. Participation is increasing and is getting to be near universal in Canada.

If I were the IRS and saw a tax return coming from a Canadian resident with earned income and no RRSP, I'd definitely add some points to the audit score. It doesn't mean the IRS would audit that taxpayer, but I would bump up the chance of an audit, certainly. Score enough points and you get audited, basically. That audit could be a simple "Are you sure? Isn't there something you 'forgot'?" letter from the IRS, or it could be something more.

The FATCA data only adds to the picture the IRS receives. But the IRS didn't need to know about RRSPs specifically. The default assumption already was that most residents of Canada would behave like most residents of Canada. I don't want to say those data are completely unimportant to the IRS and to the U.S. Treasury, but they're far less important because they already knew what was going on. Also, Canada (and France, to pick another example) have domestic reasons for why they don't want retirement account fraud, so the IRS presumably isn't too worried about those tax-advantaged retirement accounts being used as significant stashes of untaxed wealth. Canada and France really don't want that either.

So, to net it out, the IRS already knows that most residents of Canada have Canadian tax-advantaged retirement accounts. The IRS already knows that, when they get a tax return from a Canadian resident without any such accounts being reported, it's suspicious, to a degree anyway. And they know Canadian tax authorities are watching those accounts to make sure they are inherently limited. All of that was already true pre-FATCA agreement. Now the IRS gets more data to play with, the data they didn't already have that they were really interested in.

You'd have to score several points for the IRS here. I think they got exactly what they wanted.

I would posit that FATCA is a raging success already from the U.S. perspective. The U.S. has now reached FATCA agreements with both the #1 and #2 countries where U.S. citizens live outside the U.S. (Canada and Mexico -- it's unclear which is #1 and which is #2, but those are clearly the top two). Plus agreements have been reached with other popular U.S. expatriate domiciles such as the U.K., France, Italy, Costa Rica, Germany, and several others. And agreements have been reached with most of the classic tax havens for offshore accounts, notably Switzerland, the Channel Islands, Bermuda, Singapore, and the Cayman Islands. Network effects mean this'll only snowball. I would also predict that the terms and conditions within the agreements will be tightened over time.


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## Bevdeforges

BBCWatcher said:


> May I volunteer the simple fact that the IRS doesn't actually need those details because the IRS will presume (correctly) that a Canadian resident probably has such accounts. So if those accounts are not reported in U.S. tax filings that'll (presumably) increase the odds of an audit. "If resident in Canada and no Canadian tax advantaged accounts reported then add 5 points to the audit score," basically.
> 
> Or is that too obvious?


I think that is really overstating the "power" of the IRS by a huge factor. 

First of all, the IRS doesn't scrutinize individual forms that closely, unless they have popped out for really "suspicious" stuff that is automatically kicked out by the computer - say, missing information from a 1099 or W-2 on file with the IRS.

On the overseas accounts, the declaration or not of a popular retirement account is not something they are looking for. There are simply too many legitimate reasons someone may choose not to have one, including the old "it's too much trouble if you're a US citizen and have to file all those papers with the IRS." That's kind of why they don't bother stopping people at the border simply because they haven't filed a tax return in a while. Too many legitimate reasons you wouldn't have to do so.

Then, there is the little fact that the IRS computers are old and in crappy condition. They made a big to do about the fact that the French FATCA agreement stuff is being put off to July 1st because France didn't think they'd be "ready" to comply until then. But there is considerable comment in other places saying that the IRS computer systems aren't actually "ready" for the expected "onslaught" of all that additional data. Believe me, they aren't going to be looking at individual forms for "logical" incongruities unless the forms have already been computer selected for large and obvious omissions or errors.
Cheers,
Bev


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## Nobledreamer

@BBC Watcher

Not at all. There are many people in Canada who do not make use of the most basic of the tax-deferred saving accounts - the RRSP. RESPs would only be for those with kids to educate, RDSPs for those with disabled children etc. I am curious where you get the 2/3rds figure?


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## Nobledreamer

@Graubart

The other big one is Canadian Mutual Funds/PFICs. I am so glad we neither had the money or the knowledge of how to invest in those prior to renouncing.


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## Nobledreamer

Bevdeforges said:


> Unfortunately, I don't think the idea of excluding duals was ever even on the table. As soon as they published those "model" agreements, they pretty well indicated the parameters of the possibilities.
> 
> But I still contend that the exclusion of the retirement and tax-free savings accounts seems to say that they aren't really all that interested in those sorts of accounts. They can't change the law in the US (because the Congresscritters there are the ones who passed the fool thing in the first place - and are demonstrating daily their apparent inability to do anything constructive or useful) but they did structure these agreements to focus on what they're really concerned about - and that's the high rollers with the tricky "investment" accounts designed to escape detection. Tells me enough to plan my tax strategy accordingly.
> Cheers,
> Bev


Actually it wasn't *we* who were hoping but we were hearing this was a possibility. It still begs the question of what took so long since other countries, as you have mentioned, had their tax-deferred accounts exempted.

Boy, you have that right! What a dysfunctional batch those Congresscritters. Let's hope they do get the whales and leave the minnows alone. Enough already!


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## BBCWatcher

Bevdeforges said:


> On the overseas accounts, the declaration or not of a popular retirement account is not something they are looking for.


I agree with you, Bev, provided that characterization relates to tax year 2013 and prior. In the future, I'm less sure. And I'm describing a very basic _scoring_ concept, which the IRS has done practically forever, for many years formally and previously informally.



> Then, there is the little fact that the IRS computers are old and in crappy condition.


Adding another "IF-THEN" for audit scoring purposes does not require either a new or non-crappy computer. For all we know the IRS already scores this one. There's also the fact that basic data mining -- which is plenty of capability for the IRS -- is getting cheaper and easier all the time. That data mining can even be outsourced incredibly easily.

Fundamentally I think we're saying the same thing, though. Metaphorically speaking, there are diamonds, small and large, visibly lying on top of the sand on the beach. The IRS has lots of relatively easy opportunities to collect taxes owed but unpaid, and they're pursuing some of those opportunities. The biggest diamonds are the first and most important targets -- U.S. citizens with hard-to-explain, large Swiss bank accounts, for example. But that doesn't mean the IRS will _never_ get around to sending "friendly" (ahem) inquiries to, for example, Canadian residents not reporting Canadian tax-advantaged accounts, starting first with those who score some other audit points, perhaps based in part on new FATCA data.

There's also the fact that U.S. citizens are actually fairly good about tax compliance by world standards. So while the IRS has some comparatively easy targets yet untapped, their tax compliance target list is probably not as long as, say, France's list. Which means the IRS will get to their smaller diamonds that much sooner, ceteris paribus. FATCA is also leading to some new and unprecedented international tax compliance cooperation, and some Americans are bound to get caught up in such new efforts. Said another way, France (to use the same example) will be asking the IRS for help in pursuing some of its cases, and so it might be France's tax authorities spurring IRS action in particular cases. These agreements are almost always bidirectional.

Again, don't get me wrong. The probability, for now, of a Canadian resident with an unreported RRSP and no other tax compliance problems getting even a letter of inquiry is probably very low. But the trends are quite clear, I think. These probabilities are going to be rising. There were (a whopping) 2,999 U.S. citizens who became ex-citizens in 2013, and some of them would agree with me about those probability trends.


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## Bevdeforges

I suspect we're talking at rather obtuse angles to each other here. I honestly don't believe that the IRS is or is going to lower their sights for compliance issues over the next several years (say, 10 or 20). The FATCA reporting that is currently mandated (and we'll see how closely it is complied with by the FFIs) should give them enough work to keep them busy for a good, long time - your so-called "diamonds." 

For the rest of us, there is the usual sort of risk assessment to be done - and as they taught us when I was working in the tax department for one of the big public accounting firms, always the possibility of taking "an aggressive tax stance." Unless there is substantial potential recovery involved, these sorts of things generally fly. Each person has to decide just how much risk they are willing to bear.
Cheers,
Bev


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## BBCWatcher

Let's step down from the clouds a bit and talk about some real numbers.

Currently the IRS audits about 1% of all tax returns. That's a "real" audit, i.e. somebody from the IRS actually spends at least a bit of time manually reviewing a tax return, often with the filer. Perhaps in an exchange by mail, perhaps over the phone, perhaps face-to-face. That percentage increases significantly as income (reported and/or suspected) increases, but everybody has _some_ chance of being audited. The average chance, though, is about 1% per year.

The IRS also currently throws exceptions on another 6 to 7% of tax returns. That percentage includes automated underreporter (AUR) cases, math error notices, and automated substitute for returns (ASFRs). ASFRs occur when the IRS has data available for a non-filer, constructs a hypothesized tax return, then (usually) sends a bill with penalties and interest. In FY2010 the IRS generated over 563,000 ASFRs. So that's over half a million households per year that didn't file that had preliminary tax returns prepared by the IRS, which the IRS then at least tried to collect.

At present there are probably relatively view ASFRs generated for U.S. citizens living overseas. I think it's a very safe bet, though, those numbers are going to increase with FATCA data coming in. Or at least that data will increasingly influence risk scoring in the other categories.

I don't consider this range of annual percentages to be a nontrivial tax compliance risk as a general statement. Your assessment may vary depending on your tolerance for risk.


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## Bevdeforges

BBCWatcher said:


> At present there are probably relatively view ASFRs generated for U.S. citizens living overseas. I think it's a very safe bet, though, those numbers are going to increase with FATCA data coming in. Or at least that data will increasingly influence risk scoring in the other categories.


On what basis do you believe the ASFRs will increase based on the newly available FATCA data? I suspect very few will be generated involving the accounts that have been specifically exempted from reporting by the FFIs. The larger accounts that are reported, sure. 

But there are still a significant range of income sources overseas that do not generate any sort of notice to the IRS - mostly those related to overseas residents who are subject to taxation by the local tax authority. Things like salary, state welfare-type benefits, etc. Those are subject to local control and review and while they "should" be included on your US returns, if they aren't, chances are they wouldn't generate any tax liability anyhow. I don't see that FATCA is going to influence the number of audits or ASFRs or even questions posed by the IRS for overseas residents.
Cheers,
Bev


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## maz57

OK, BBC, we know you are a big fan of the antiquated, unjust, immoral, CBT system that the US government attempts to foist on it's expats. You also seem to think that it's quite OK for the US government to use extortionate threats (via FATCA) to force every other government of the world to be an unwilling participant in the enforcement of this insane extra-territorial tax scheme AT THEIR OWN EXPENSE.

You also seem to have considerable knowledge of the complexities of the US tax code coupled with knowledge of the inner workings of the IRS. I suspect you may be part of the "compliance complex industry" but no matter, you've managed to help many on this forum by precisely answering lots of questions for free.

So answer me this: Why would the IRS bother to audit, send nasty letters, or otherwise hassle Canadians in Canada when they know that there is absolutely no chance of collecting anything. Not only that, they are probably aware of the bad press it would engender. I suspect that even the IRS knows this is a losing proposition and wouldn't waste limited resources on a fool's errand. (Well, maybe they'd sent a letter, that's cheap.) The truth is, unless a Canadian has US assets or wants guaranteed access to the US, the IRS has no absolutely leverage and there is no reason why any sane person would put up with this crap.

The reality of the present situation is that for a US person who wishes to be IRS compliant any sort of normal financial life or retirement planning in Canada is rendered impossible. So each individual is doing their own personal calculation when they discover what an ugly mess it all is and FATCA doesn't help, it only compounds the mess. For me personally, if it turns out I can never set foot in my birth country again, so be it. My family down there will know what a wretched, vindictive government they have.

How ironic is it that the United States, which was founded on principals of freedom of movement, no taxation without representation, and freedom from unreasonable interference from government has now become the very thing that it opposed more that 2 centuries ago? The US has lost it's soul and the American people have lost control of their government.


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## Nononymous

I found this during a post-announcement scan, and thought this was a pretty good read, from a dual-citizen lawyer in Toronto:

What you should consider before contacting a lawyer | Citizenship Counselling For U.S. Citizens in Canada and Abroad

Basically, you have a range of options from (1) do nothing and hide to (2) give up citizenship to (3) keep citizenship and be compliant. None of the options are good or pleasing; all have pros and cons. It comes down to your risk tolerance and, as the author puts it, whether you prefer anxiety to anger (nice).

I honestly think a lot of dual citizens here will basically tell the US to eff-off, by not cooperating with their banks or whatever. If you don't have US assets and your professional or personal life does not depend on guaranteed access to the US, you can basically afford to tell them to eff off. (Particularly when they may not notice.)


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## maz57

@ Nononymous. Yes, John Richardson's website is clear, concise, and spells out the facts very well. None of the options are ideal. And I think your assessment is absolutely correct. If the choice is compliance with the IRS or effective retirement planning, non-compliance is the only option. I mean, what's the point of being compliant and broke? Even renunciation and the 8854 procedure can be very injurious to a person's assets. For younger people who have not yet accumulated much in the way of assets, renunciation is the logical choice. Get out now, while the getting is good!

Many duals in Canada are rearranging their assets as we speak (if they haven't done so already) to FATCA-proof their holdings. Whatever information that the US government will get is going to be incomplete and erroneous. I predict that it will turn up no "tax evaders". Everyone has known about FATCA for a long time now and the real tax cheats are long gone (if there were ever any in Canada in the first place).

The thing is, people will put up with taxation they think is reasonable and justified based on the services they receive for the money. But when they believe that taxation is unjustified they will go to great lengths to avoid it. So the vast expense of implementing FATCA will be money pounded down a rathole. (Not that the USG cares because it's our money that's being wasted, not theirs.) 

The IRS, in spite of all the threats and penalties, is totally dependent on voluntary compliance by the majority of people. Masses of people choosing non-compliance will be impossible for them to deal with. They've already got massive non-compliance in Canada; FATCA will make it worse, not better.

Civil disobedience works and it has changed things a lot worse than stupid tax laws in the past. Once the word gets out to simply ignore the IRS and the details of how to accomplish that are known, many will choose that option.


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## Nononymous

Maybe I'm dead wrong, but I think with FATCA as it stands it'll be pretty easy for us non-millionaires to remain non-compliant.

The thing I have a hard time believing is that dual-citizen Canadian residents* would actually pay US tax bills at the end of the day. I can sort of see dealing with all the crappy paperwork if your personality makes that necessary and it doesn't cost you anything, but actually, voluntarily sending the US government a cheque when you intend to live your life here? That's just bat**** crazy.

(*As ever, I refer to long-term Canadian residents, particularly "accidental Americans" or those unwittingly repatriated after naturalizing years ago, and without US assets or future inheritances.)


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## Bevdeforges

FATCA was originally created largely to try to keep tabs on US residents (i.e. normal taxpayers) who, for whatever reason, maintain foreign accounts. It's mainly because of the rather unique US policy of taxation by citizenship that the overseas residents get caught up in all the details, and I suspect that much of the annoying requirements for overseas residents is more or less a kludge to appear to be monitoring non-residents as stringently as residents.

The OECD has praised FATCA because it does aid in the global program to fight tax evasion and money laundering. And several countries have implemented FATCA-like programs, mostly involving the reporting of overseas accounts and investment by local taxpayers.

I suspect there is far more "selective compliance" amongst the overseas taxpayers than anyone would like to admit. There are limits, after all, to what the IRS can and can't monitor and know about - and the stuff that FATCA is designed to eek out is not all that comprehensive, at least not for us "little guys."
Cheers,
Bev


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## Nononymous

Selective compliance is a fine expression. I am reminded of my US citizen friend, until recently living here, who every year printed off a copy of his Canadian tax return, then stapled it to a 1040 with a big "0" written on the bottom. It worked.


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## maz57

Good one, Nononymous. That's my laugh for the day!


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## BBCWatcher

maz57 said:


> OK, BBC, we know you are a big fan of the antiquated, unjust, immoral, CBT system that the US government attempts to foist on it's expats.


I don't know why you persist in ascribing views to me that I've never expressed. But for the record, I'm not a "fan" of many governments' policies.

So what? Do you think "howling at the moon" is constructive? I don't -- quite the opposite. Most American political leaders would tune you out in about 3 seconds if you try the "arguments" you've made. In my experience if you're going to make an argument for policy change it has to be effective within its political context. For example, the U.S. has had citizen-based taxation for about a century, so claiming that it's some special new burden just isn't going to go anywhere. You'd be considered a crackpot if you try that argument. Or, likewise, arguing the current ~3,000 (or even 30,000) renunciations per year represents some existential threat to the United States. Ah, no, that's crazy, too. (It was that same absolute number in the 1970s apparently, but on a much lower population base. I'm pretty sure the U.S. survived that renunciation "crisis.")

Where I think reasonable arguments might gain traction in the current political context is in tax filing simplification. To pick an example, why are there both FBAR and FATCA reports with largely overlapping requirements? Could we at least have one, simplified, consolidated report? This is a general problem, though, not one exclusively affecting U.S. citizens living overseas. Congress has continued to make the tax code ever more complex for just about everyone. I happen to think that, in general, the IRS does a remarkably good job given the complexity Congress has handed them. Their publications and instructions are generally well written. So one institutional reform I'd prefer is for Congress to delegate more to the IRS. Give the IRS a revenue target and a set of core "fairness" principles, then let them figure it out, for example. Things like a $68 tax credit for buying a hardcover book on a Tuesday but only if you're married filing jointly, have a non-citizen child, live in a designated rural economic zone, and are eligible but do not take the alternative minimum vegetarian tax credit.... Well, that crap has got to end. It's beyond ridiculous, and I think the fix is going to have to involve some Fed-like separation.


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## maz57

BBCWatcher said:


> I don't know why you persist in ascribing views to me that I've never expressed. But for the record, I'm not a "fan" of many governments' policies.


My apologies if I've got it wrong. Did you just imply that you don't like the US system of CBT either?!! Based on many of your past comments on various threads that's the impression I've gotten. 

The US government doesn't really care what you or I think about it anyway. It's not Facebook where you get to "like" or "dislike". It is what it is.


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## UStoCA

maz57 said:


> How ironic is it that the United States, which was founded on principals of freedom of movement, no taxation without representation, and freedom from unreasonable interference from government has now become the very thing that it opposed more that 2 centuries ago? The US has lost it's soul and the American people have lost control of their government.



I couldn't agree more with this statement (taxation without representation, the main reason why many left European countries despite the dangers more than 300 years ago) and unfortunately this is why the US has really lost it's way both morally and on the world stage. Much of which is just now coming to light in this day of rapid info exchange worldwide (Snowden was most publicized) or erosion of constitutional rights under false flag (suppression of free speech, unlawful searches, lack of due process, etc). I digress but sadly this ongoing issue is alot easier to see when looking from the outside in. At some point this will come to a head again.......likely from the banks using the federal reserve as their holding company.......but until then it will continue to be the few benefiting at the expense to the rest of the population.

I see alot of comments about tax compliance giving the IRS alot more credit than I believe they are due. People wondering whether to comply either fully, partially or perhaps not at all would be best to remember that the most powerful weapon the IRS has is fear. Also people should keep in mind that the US is trying to enforce laws across sovereign borders and the more they try, the more irritated other countries will become (trade parteners only goes so far before countries look for other opportunities). 

I am fully complaint with both FACTA and the IRS (never got into RRSP, RESP or TFSA) but for those that may not be I wouldn't rush out and do so just yet. I think in the future they will need to neuter this legislation even futher (Republicans are looking at a platform which includes repealing FACTA). Yes, some people have started to renounce, but again the "exit tax" attempts to block this avenue so the numbers may not indicate the true magnitude of the issue (kinda like unemployment numbers). No, I would predict that those who truly have any serious assets would continue to operate with accounts in places which are more less likely to cooperate with US requests (Swiss accounts are long gone but others have emerged to take their place). Even if you did get a full audit and they did decide you owed some huge amount of money to the IRS, as long as you have a foreign passport and you reside elsewhere (with no intention of visiting the US again) you can basically tell them to pound sand. These are very interesting times and I believe alot will be changing in the next few years to relieve some of of the tax issues we are seeing today.


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## BBCWatcher

U.S. citizens resident at any point in time in the United States are eligible to vote for their federal representatives in the United States without exception. In some states that right is also extended to U.S. citizens who have never lived in the U.S. but who have a parent that did (in that state).

In short, there is lots of representation. Let's be 100% factually correct here.


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## Bevdeforges

While you may get to vote back in the US as a citizen (one way or another), there is the issue of actually contacting your elected representative. Many Congressional reps have their websites rigged up to screen out anyone without an address in their district, and mail postmarked from outside the district is also subject to screening. Unfortunately, some Congressional reps are completely unaware that they have constituents located outside the US.
Cheers,
Bev


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## BBCWatcher

True, but "taxation with representation" does not mean "your representative must take your call." And the contact issues you describe (with some representatives) also apply to constituents with, for example, vacation homes within the United States.

I made no claims about the _quality_ of anyone's democratically elected representation. But U.S. taxation does indeed come with representation, even for U.S. citizens living overseas.

Please note that residents of the District of Columbia, unlike the vast majority of U.S. citizens living overseas, do have a very legitimate claim that they are experiencing U.S. taxation without U.S. representation. The District of Columbia does not have voting representatives in either house of Congress. DC residents also have majority aspirations for statehood, unlike some Congressionally unrepresented parts of the U.S. (Arguably Puerto Rico very recently expressed such aspirations, too.) And, as I also pointed out, some U.S. citizens who have never lived in the U.S. lack representation because they have difficulty registering to vote in the state(s) where their parent(s) last resided, though this isn't most states or even very many. There are gaps in representation, and these are three that actually exist.


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## Bevdeforges

But, regardless of the technicalities of the issue, for those of us living abroad permanently, it often seems as if we are being subject to taxation without (adequate, if you like) representation of our interests. In fact, I think you can reasonably say that the interests of the overseas residents are often not taken into consideration at all in the writing and passing of many laws, in large part because of misconceptions about our existence and our circumstances.

Ain't nothing likely to change any time soon, I'll admit. 
Cheers,
Bev


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## BBCWatcher

Perhaps, but _surely_ residents of the District of Columbia deserve a place far ahead of the general population of U.S. citizens residing overseas. There is a long line of "aggrieved" cohorts in any/every representative democracy.

Also, "be careful what you wish for." The Foreign Income Exclusion and Foreign Housing Exclusion are among the most powerful tax breaks in the entire U.S. tax code. Most Americans aren't aware they exist, and I suspect a lot of Americans would not be in favor of them if they were aware.

I have some thoughts about how political arguments might be mounted and even won, but this isn't the time or place.


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## Bevdeforges

To add insult to injury, every few years Congress gets the bright idea to offer up a bill that will kill off section 911 of the tax code, which is where the FEIE comes from. It has been quite a while now since the last attempt, so a new one is due.

Check with AARO or ACA for details of how the last few attempts have gone. So far, 911 (ironic, no?) has always been saved, but only time will tell.
Cheers,
Bev


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## maz57

Well if you add up the 7 million or so expats who could vote and spread them out over however many Congressional districts there are currently its not exactly a voting block that's going to get the attention of a Congressman. They are naturally far more concerned with the voters who will actually elect them or vote for the competition as the case may be. Elected officials who find it politically expedient to characterize expats as rich criminal tax evaders are not likely to be of much help anyway. So theoretical representation, perhaps; real representation, no way.

Long term expats are far more likely to devote their political energies to where they actually live. Why bother to be involved in the politics of a country one hasn't lived in for many years? 

If it weren't for CBT none of this would even be an issue. Why not dump CBT, replace it with RBT, create a departure tax (a deemed sale to give the IRS a chance to tax deferred gains before they leave), and send folks off on their foreign adventure. If you don't force them to give up their citizenship or piss them off maybe some day they'll return to retire and bring a big pile of cash or at least spend the winter in Arizona. And that renders the FEIE unnecessary. I can understand why homelanders would view it as a major unfair advantage.

And yes, residents of D.C. get a raw deal. If that can't be fixed, there's no hope for fixing CBT and all the problems it causes. Its just all so mind-numbingly stupid. There's a lot of work that needs doing in Washington; none of it is getting done.


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