Should "accidental American" comply with US tax laws?

[bazinga42]

I guess I"m just looking for opinions/discussions/advice.

Background: I was born in the U.S. to an American father and Canadian mother. They split up and I moved to Canada with my mother as a child. The U.S. defines me as a U.S. citizen by virtue of my birth. Canada defines me as a Canadian citizen by lineage and application (ie. I have a citizenship card and am a full citizen of Canada). I identify myself fully as being Canadian. I hold a Canadian passport, a Canadian SIN, I vote in Canadian elections, I pay my Canadian taxes, etc. I don't have a US passport, I don't have a US Social Security Number (SSN), I'm not allowed to vote in US elections and I have never filed or paid taxes in the US.

I recently saw some information on my investment firm's website about "American Persons" and a relatively new law called FATCA. It is an entirely American law, but apparently Canada has signed an agreement that it will share information with the IRS to help them find "American Persons" and give them account information relating to those persons. Now, the intent of the law is clear: to find Americans that are dodging taxes by hiding money in foreign accounts. Technically, according to them, I fall into that category, though I doubt I'm who they are looking for.

It turns out that the US is one of only two countries in the world that tax their citizens regardless of where they live/work. The other is some African nation I have trouble pronouncing. When that African nation asked Canada to hand over information about its citizens (who were also Canadian citizens), Canada told them to go pound sand, even threatening to close their embassy if they didn't back down. When the American government does the same thing... of course Canada says, "you betcha!".

So, according to America, I am American. According to America, I therefore have to file taxes every year. And technically, I have been breaking their law every year for the past 20 years or so since I first started working.

So far, I am completely under the radar. I don't think the US government knows I exist, per se. If I attempt to be a good little American and do what they want, I will very much be on the radar and I could be opening up a whole can of worms I don't want to eat. It is unlikely I actually OWE any taxes - as per tax treaties between Canada and the USA - but by not filing it is possible I could be penalized or even jailed (not likely) and, technically, those penalties could amount to $10,000 PER ACCOUNT (and I have several) PER YEAR that I didn't file whatever an FBAR is - that's like $1M in penalties! Ok, I'm sure that they are reasonable people (isn't the IRS reasonable?) and they'd understand my story and I PROBABLY wouldn't owe or be penalized at all... but even then, I'd have to file taxe returns in TWO countries for the rest of my life! What a hassle! It is tough enough doing it for one country! I am self employed and my tax returns aren't trivial. Plus, if I sell my personal residence for a profit, or win a lottery, or get an inheritance... those are all things that are taxed in the US that aren't taxed here, so I'd have to pay my high Canadian taxes AND pay in the US on those otherwise non-taxable gains! Further, I lose my TFSA benefit, as those aren't recognized in the US so I'd pay taxes on any gains in there.

Now, I ask again... should I "play it safe" and abide by this foreign government's requirements and get on the IRS's radar and face potential penalties and, at the very least, a lifetime of annual headaches? Or should I "don't ask don't tell" and continue to fly under the radar? Some would say I'm breaking the law and ignoring it won't make the problem go away... but does the law really apply? I mean, it is illegal to spit on the sidewalk in Korea but it isn't illegal to do that here (it is gross, but that's not my point) so would anyone expect themselves to turn themselves in to Korean authorities if they did it? Even if they were Korean citizens?? Of course not.

Someone might suggest I renounce my US citizenship. Ha! You'd think it would be so easy. I looked into that, and you have to catch up with the taxes anyway just to do that; I'd be on their radar; AND they say you can't renounce for reasons of avoiding tax laws! So I'd have to make up some "legitimate" reason... and if I'm going to lie anyway, I may as well do it by avoiding them. Plus, there is a bill in the US before Congress right now that may, in the future, prevent anyone that has renounced citizenship from ever entering the USA. That's not right! I'm Canadian, and I should be able to travel as any Canadian can with a Canadian passport! If I could make it that my US citizenship "never happened", I would. I have no desire to ever move or work there or whatever might be perceived as a benefit to having that citizenship. But if renouncing it makes me at a disadvantage to any other Canadian, I don't want to do that.

I really don't understand why my government isn't telling this foreign government to take a hike. As a Canadian citizen, I expect my government to protect my interests better than that.

But... maybe... maybe I should just "fix it", take my lumps and move on.

Note: There is, apparently, an "amnesty program" in place right now for "American persons" who come forward voluntarily and file 3 years of taxes and provide 6 years of banking data. So if I attempt to fly under the radar and "get caught" (I hesitate to use that term because that implies I'm doing something wrong!), that amnesty wouldn't exist and there is more potential for penalties - though I suspect the odds are still low given no taxes are actually owed. On the other hand, of course, coming forward voluntarily opens my financial life up to these people that I'm not sure really have any business seeing! Doing so also violates, I believe, the rights of my wife who is fully Canadian but would have her (joint) accounts exposed to scrutiny of a foreign government.


another note: According to our government's website on the matter, if there ever were a penalty assessed by the Americans due to information my bank shares via FATCA, Canada would not assist in collection. But, of course, at that point I could never go to the US without fear of being arrested. Also according to that page, there seems to be ways of staying under the radar. Interestingly enough, our government gives some pretty good hints in this regard: eg. hold accounts at small credit unions; keep individual accounts < $50k; and/or don't let the bank know I'm "an American Person" because they aren't required to ask... they are just required to report if they find out a person is "an American Person".

[Bsuds]

I don't have a US passport, I don't have a US Social Security Number (SSN), I'm not allowed to vote in US elections and I have never filed or paid taxes in the US.

I think this says it all. Do you think they will start checking to see where people are who were born there but never lived there?

What does it say on your Birth Certificate as to where you were born? That might be the only kicker but I don't think I've ever been asked that going into the States. Only where are you from.

[Randall T]

This IRS form http://www.irs.gov/pub/irs-pdf/f8840.pdf is something people spending time in the US now have to be aware of due to new agreements with Canada and the US. It essentially declares where your "closer connection" is. I'm not sure if this would help in your case, but there may be a more appropriate form for you. Form 8840 is something that snowbirds need to file or they may get a very nasty surprise as they cross the border into the States from now on.

[Smurf]

I have filed the 8840 for years now, but I know lots that don't and they could get a huge surprise. My guess would be that it wouldn't help s_mack. I don't think it is a form for someone that is technically an American citizen. I would hate to give you any information as I do not know for sure and would not want to cause you any problems.

[Mike6921]

Just give up your american citizenship...

[bazinga42]

Do you think they will start checking to see where people are who were born there but never lived there?

Well, that's the new law and how all this started... my investment firm asking me if I was born in the USA. While Canada says they aren't required to ask that question, they have. And once I say "yes", they are obligated to pass that info on via this FATCA law. So whether or not they choose to go after every fish or only big fish, I can't say. I'd rather not be in the pond to find out.

What does it say on your Birth Certificate as to where you were born?

That was a funny question LOL. Of course my birth certificate says where I was born. Did you mean "Passport"? That too says the city (oddly not the state) and country.

That might be the only kicker but I don't think I've ever been asked that going into the States. Only where are you from.

I've been to the states hundreds of times and where i was born has never been an issue. Unrelated to this financial problem: technically, a US citizen MUST carry a US passport when exiting the country. So technically I'm potentially in trouble every time I go there and want to leave. That is a law... I have seen it... yet I've interacted perhaps with as many as a thousand border officials and that has not once even been mentioned. I've read about others that get warnings but nothing more. I only found out about THAT "issue" a couple years ago when I had (lost) an argument with some guy on a forum that said it was the case. I didn't believe him, but he proved it by citing the law. Why they are lax about that law, I have no idea... and whether or not my case with this FATCA/FBAR thing would be handled similarly, I have no idea either.

Just give up your american citizenship...

As I mentioned in my (long) post:

Someone might suggest I renounce my US citizenship. Ha! You'd think it would be so easy. I looked into that, and you have to catch up with the taxes anyway just to do that; I'd be on their radar; AND they say you can't renounce for reasons of avoiding tax laws!

So really, I'm not even sure that's an option at all, but I'm quite sure it isn't a simple one.


HOWEVER, I was reading through some more stuff this morning. According to some blogger on this issue, I may have already inadvertently given up my citizenship! I have to follow up with the actual laws, rather than trusting some random Internet source, but he suggests that there are some situations where Americans can de-facto renounce their citizenship by certain actions. Some are obvious (treasonous acts) but some are fairly innocculus. One that may apply to me: a US citizen who is also a citizen of a 2nd country, and who voluntarily gains employment with that 2nd country's government or "political subsidiary" will have been deemed to have renounced their US citizenship.

Over a decade ago I worked for an Industry Canada program. But I'm not sure it applies because my cheques were written and signed by a university, which administered the program for BC. So technically my employer was the university, but my bosses were government persons so does that count as a "political subsidiary"? Beats me... but perhaps an "ace in the hole" I can carry with me is knowledge of that law and belief that I had renounced my citizenship by action those years ago if I'm ever "caught".

Or perhaps that's grasping at straws.



This whole situation may turn out to be no big deal... or it could be a huge deal. It is, in no way, simple.

[Bsuds]

It looks like a slippery slope so they say. I'm just glad I did not apply for dual citizenship when in the US Navy.
Could have caused me problems like you are having now.

[Mike6921]

interesting... what if you become a member of a candian political party? does that counts the same as working for the government?

[bazinga42]

interesting... what if you become a member of a Canadian political party? does that counts the same as working for the government?

Well, that is interesting... another provision is if I swore an oath to Canada. But doing it now doesn't technically help with regards to anything in the past. It would really only help if I could keep it in my back pocket that I did so at some point in the past (and I didn't). And I say, "in my back pocket" because I do not WISH to renounce my citizenship if I don't have to, because of upcoming potential legislation that would prevent me from travelling to the US. As a Canadian citizen with a Canadian passport, I feel I should be as mobile as the rest of you, no? So I only want this "I think I renounced over a decade ago" up my sleeve in the event this proverbial poop hits the fan. Which, I hope, won't happen if I can continue flying under the radar.

Google FATCA Canada and you'll find that up to a million Canadians are in my shoes. It really is a distressing situation. There is a couple of people that have launched legal action against our own government to put an end to this but I have no idea how that will turn out (probably with a couple of lawyers nice and fat since they say it is costing $100k a MONTH in legal fees).

This potentially is a really big deal. Sure, for those of us that are innocently caught up in it, but really for all Canadians. I mean, how in the world is it OK for our government to just hand over our personal information to a foreign government simply because THEY say "its the law". Since when do we have to abide by foreign laws? Do our women (here) have to cover their faces arms and legs because that's the law in Saudi Arabia? Of course not! That's THEIR law, not OUR law. We have to respect their law when we're there, but it doesn't mean squat here. Yet the Americans say Canadian citizens are breaking their laws... WHILE IN CANADA... and our government signs on? WTH?

And while you could argue, "yeah but this is different buddy, you're a citizen of theirs". Only according to them! Every country defines its citizens differently. America is actually in the minority with granting/assigning citizenship automatically based on birth. Any country can define their citizens however they want. This may sound silly, but Russia could up and say, "OK we need more cash. All people living anywhere in the world that have blue eyes are hear-by Russian citizens and must pay taxes". A little less silly... some countries (Scotland, I think?) will grant citizenship if you have a great-grand parent that was a citizen. Others (Isreal) do it based on your religious affiliation! And all that is fine, but their laws ONLY apply to those citizens (and/or other people as they see fit) when they are physically in that land (or at least a resident there. I'm neither).

I get WHY they are wanting to do this. I don't get why we're allowing it.


Sorry for ranting. This is really stressing me out.

[LANDM]

Why not get professional advice from a good accountant?

[bazinga42]

Why not get professional advice from a good accountant?

Cost.

And I shouldn't have to.

To me, that's akin to someone paying for a lawyer to defend a frivolous lawsuit. OK, at least in that case, once you prove it is frivolous the courts can make the wrongful party pay your costs. Here, I'd be out the cash for nothing I've done wrong.

You're right that it may come to that. But for now, I guess all I'm looking for is freebie advice/comments. Am I expecting anyone on this random forum to actually fix any of this for me? Of course not. Am I looking for a sympathetic ear? Perhaps. Am I trying to get people to know about this crazy situation? Yeah... they should, whether or not it personally/directly affects them.

[MattJ]

Why not call/email the IRS yourself, explain the situation, and ask?

[bazinga42]

Why not call/email the IRS yourself, explain the situation, and ask?

Ask what?

I understand the IRS's position. It is wrong, but I understand it. From their perspective, the situation is clear: I'm a US citizen and I'm responsible to file my taxes. I didn't know that until recently, but that's no excuse. I also am already aware that they have an amnesty program for me to "come to compliance" without penalty (unless I owe funds, but I don't). So I already know what I "have to do" if my wish is to give into a foreign government's demands.

And if all I had to do was go onto some website once a year and click "Here I am. I understand my responsibilities. No, I don't owe any taxes this year"... heck, I'd do it (even though I still think it is none of their bloody business!). But it isn't even close to being that simple. It is hard enough filing Canadian taxes. Having to understand some foreign government's tax system and filling out their paperwork and paying postage, etc as well? Their forms, as I understand it, are even more onnerous than ours. Factor in that I am self employed and its a huge nightmare.

According to one site I found during my research, the suggestion is that if I paid a Canadian accountant to do it for me, it would cost me 15 thousands dollars per year in accounting fees! And that was for a small business owner without taking into account investments.



Anyway, it is possible this discussion has run its course. Don't feel you have to find some resolution for me. The questions are largely rhetorical because there really is no "answer". I think I know what course of action I'll personally take. But feel free to let anyone you know that may have "close" American ties that they could be in for a world of hurt and that they should watch their step, especially when answering questions their bank may (or may not) ask them.

[animal lover1]

I am in EXACTLY the same position as you. You DO have to deal with it or you will eventually face repercussions. There are accountants here in Kelowna that deal with this exact problem (pm me and I can give you the gentlemens name). I had to spend a cpl hour with him and a total of $1200 to get my past 5 yrs IRS return and FBARs (which are essentially a declaration of interest in bank accounts).

Renouncing your US citizenship does NOT help-the IRS still has the right to penalize/freeze your Canadian accts as a former US citizen by birth.

It sounds scary, and very well COULD be if not dealt with. You could, quite literally, be arrested at the border for tax evasion if you do not file with the IRS. Tax reciprocity agreements mean you probably dont have to pay US tax, but you still have to file every year.

There are also some VERY MAJOR issues with mutual fund ownership by CAN/US citizens that need to be studied as the US views them VERY differently.

Anyway, pm me if you want the US/CAN tax accountants info.

[animal lover1]

And I do understand your frustration. My family and I have been dealing with it for almost 2 years, and finally decided to relent and just comply.

OUR gov't is well aware of the issue. Mr Canaan has had MANY personal conversations with my family. He assured us, repeatedly, that we would NOT have to deal with this, then voted to pass the legislation a couple years ago. Two faced and cowardly as he was, it is NOW law.

Call Ron Canaan and talk to him about it-he knows the issue, but does not have the guts to stand up.