An American-born Campbell River senior – a Canadian citizen for 40 years – fears he and other ex-patriots are about to become the victims of a mean-spirited money grab by Uncle Sam.
Paul, 65, has asked that his identify be protected, such is his fear of the international reach of the U.S. Internal Revenue Service (IRS).
The IRS recently announced that it is poised to waive potentially massive penalties for Americans living abroad who have failed to comply with U.S. tax reporting regulations.
Paul says: “It may sound like an amnesty, but it is just a teaser.” And, he warned other American-born Canadians – approximately 200 in this region – that they are still considered to be American citizens regardless of the fact that they think they have renounced their U.S. citizenship.
“Once I showed my Canadian passport at the border and the U.S. border guard told me ‘you are a U.S. citizen until we tell you you’re not.’”
Now, Paul is afraid to visit his family in the States for fear he will be arrested.
Fears of a looming U.S. tax crackdown has caused a wave of anxiety amongst tens of thousands of American-born Canadians who stopped filing U.S. returns many years ago because they were paying Canadian tax.
Unlike most countries, the United States requires its citizens to file annual tax returns regardless of where they live and work. Every year, Americans must also report all their foreign bank, brokerage, mutual fund and pension accounts. By 2014, Canadian financial institutions will have to identify accounts held by U.S. citizens to the IRS.
The U.S. Ambassador to Canada David Jacobson says: “We had an obligation to make our situation clear. What they have done is clarify what’s going to happen with innocent folks who didn’t know their obligations and are now going to try to comply with the law.”
But, Jacobson acknowledges the penalties for not filing can be “draconian,” even for “typical” Americans in Canada who owe nothing because Canadian taxes are typically higher.
Failure to file “Foreign Bank Account Reports” with the IRS can result in penalties of $10,000 (U.S.) for every account for every year that there was no filing. These fines can quickly reach hundreds of thousands of dollars. In some extreme cases, the IRS can seize up to half the contents of accounts.
The IRS claims U.S. citizens who were unaware of the bank account reporting requirement can file previous reports now, along with a statement explaining why they’re late. No penalty will be imposed if the IRS determines that there is reasonable cause.
But, Paul says this is a smokescreen. “The IRS assessment regarding my ignorance of the rules and my culpability will be partly based on my level of education. The IRS will determine if I was smart enough to know the rules and then decide whether I should be fined or not.”
Paul added that should he attempt to go to court in the U.S. to prove he is no longer an American citizen, that ordeal will cost him about $10,000.
In a recent letter to Paul, MP John Duncan said the federal government has expressed “strong objections” to the U.S. requirement that banks around the world report on accounts held by U.S. citizens. “The Canada Revenue Agency will not have a role in enforcement or the collection of these penalties,” he wrote.
Paul said this assurance has done little to lessen his anxiety. “I still feel confused, angry and beaten up.”