GENEVA, SWITZERLAND – Canada’s finance minister has come out loudly against new US tax laws that will increase reporting requirements to the IRS, the US tax arm, for dual citizens, as well as recently stepped-up efforts by the IRS to obtain tax information about Americans in Canada.
The IRS efforts to chase tax cheats are netting another group, he says, with “the threat of prohibitive fines for simply failing to file a return they were unaware they had to file is a frightening prospect that is causing unnecessary stress and fear among law abiding hardworking dual citizens,” he said in a letter sent to several major US publications 19 September.
He noted that “their only transgression is failure to file the IRS paperwork they were never aware they had to file.”
Canadian media have made their government’s resistance to the US moves headline news this weekend, as concern grows in Canada and elsewhere outside the US over the new Fatca (Foreign Account Tax Compliance Act) rules, expected to go into effect in 2014. Fatca will require financial institutions outside the US to provide information on accounts held by US citizens and green card holders.
CBC, Canadian public broadcasting, quote Flaherty as saying he shares the concerns of fellow citizens over the reach of the IRS beyond US borders (http://www.cbc.ca/fp/story/2011/09/16/5413714.html).
Swiss banks have reacted to the proposed Fatca rules by, in many cases, closing accounts of US citizens and refusing to open accounts for Americans resident in Switzerland because Fatca regulations will be at odds with Swiss banking laws.
US media, meanwhile, have been publishing the news that some 12000 taxpayers took advantage of the most recent tax amnesty by the IRS, which ended 9 September, noting that the IRS has so far collected $500 million in back taxes and interest.
An AP news agency article picked up by the CS Monitor, Yahoo news and scores of US newspapers, with a headline “12,000 tax cheats come clean under IRS program”, doesn’t mention that the amnesty encouraged many who were unaware of the FBAR reporting requirements to file forms that require taxpayers to show the largest amount in all financial accounts during every tax year. The fines for not reporting were as high as 50% of any unannounced holdings.
The Fbar requirement was designed as an anti-terrorism tool, to catch money launderers, and is not overseen by the IRS itself.
American Citizens Abroad has been actively working to inform taxpayers about these obligations, but discussions on their website and town hall meetings organized by ACA have made it clear that several IRS filing requirements have been little known and poorly understood by the public.