Americans living in Canada, beware of the IRS

Over 250 concerned dual citizens met monday to discuss how to prevent the IRS taking their life savings

If you’re an American living in Canada, the IRS could be targeting you.

A group of American and dual citizens living in New Brunswick are organizing a lobby group to prevent the U.S. Internal Revenue Service (IRS) from collecting their pensions and other assets as punishment for not filling out a form.

The form in question is called Foreign Bank Account Report (FBAR). Americans living abroad are required to fill it out and file it with the IRS every year along with their U.S. tax return which they are also required to file even if they owe zero taxes in the states.

The FBAR form must disclose all foreign assets over $10,000 including accounts such as pensions and registered retirement savings plans (RRSPs).

The problem is that most expatriates didn’t know that this law, which has been around since 1972, existed. That is, until this past year when the IRS announced it would be punishing Americans abroad who failed to fill out their paperwork.

These penalties can be severe. According to the IRS website, “the civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 per cent of the total balance of the foreign account per violation.”

Marie Cashion, a retired University of New Brunswick professor, is one of the organizers of the lobby group. She says this is a ridiculous amount of money to take from people when the U.S. failed to inform its citizens about this law.

“I feel betrayed and I’m personally concerned,” she said.

Cashion held a public meeting in Fredericton on Monday to inform people about what they can do to stop this. The people who went to the meeting were concerned, angry, and confused about the penalties.

They were also concerned about an impending act titled the U.S. Foreign Account Tax Compliant Act (FATCA) that will take effect in 2014. The concern is that it requires foreign banks to disclose information about their U.S. customers to the IRS.

“I’ve had so many calls from people who just don’t understand this,” said Cashion. “I think the way that they did it, they didn’t really explain it and they relied basically on newspapers in other countries and I think that just confused people.”

The IRS had what they called a voluntary disclosure period which ended in September in which U.S. citizens abroad could file their FBAR’s late and receive a less severe penalty of “25 percent of the highest year‘s aggregate value during the period covered by the voluntary disclosure,” according to the IRS website.

But the deadline for voluntary disclosure has long passed and now, those who have yet to fill out the FBAR are at risk of losing massive amounts of their savings.

Russell Hunt, a professor at St. Thomas University in Fredericton, has not filed his FBAR form.

“All of my pension, which is a lot of money now after 40 years here, half of that would be ruinous,” he said.

Hunt said that he’s staying away from the border until this issue is resolved. “I’m worried that if I try to cross the border, I won’t be able to get back.”

At the meeting, Cashion urged the protesting U.S. citizens to organize themselves based on regions in New Brunswick and to write letters to their representatives in both Ottawa and Washington to lobby their governments to stop the penalties and FATCA from happening.

“I realize the Canadian government is limited in what it can do,” she said. “But there are ways they can put pressure on them.”

Hunt says he wants to see the Canadian government push to have the FBAR form only apply to the wealthy.

“Right now if you have more than 10,000 dollars you have to report your foreign bank accounts. Well, that’s stupid. Anybody who is saving for their retirement has that much money,” he said.

In September, Canadian finance minister Jim Flaherty did take some action towards the US on this. He wrote a letter to the editor of several major U.S. newspapers. In the letter, he said

“Most of these Canadian citizens, many with only distant links to the United States, have a very limited knowledge of their tax reporting obligations to the United States,” he wrote. “These are people who made innocent errors of omission that deserve to be looked upon with leniency.”

Flaherty has also stated publically that the Canadian Revenue Agency will not be collecting these penalties on behalf of the IRS. It is not clear whether or not the IRS will be able to cross the border to collect the penalties.

The US Ambassador David Jacobson spoke publically about the issue on Oct 21 in a speech to the Canadian Club in Ottawa.

“My message on this one is to sit tight. We are not unreasonable. We are not unsympathetic. We are not irresponsible.” Jacobson said. He added that the penalties are meant to punish tax evaders, not who he referred to as “70-year-old grandma who was born in the US, moved back to Canada as a young child, never earned any money in the US, has no assets in the US, and dutifully paid all of her taxes in Canada.”

But there has been no evidence to prove that this is true.

David Lutz, a now Canadian lawyer and ex-American who renounced his U.S. citizenship in the 70’s, urged the U.S. and dual-citizens to take action against this.

“Things will happen to you if you don’t get organized,” Lutz said during the meeting. “There’s a million Canadians and you need to get organized and tell Mr. Harper you’re concerns. You’ve got to, there’s no other way,” he urged.

Short URL: http://www.newbrunswickbeacon.ca/?p=17445

Posted by Amy MacKenzie on Dec 3, 2011. Filed under News, This Week's Edition. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.