The Internal Revenue Service has reportedly backed away from plans to heavily penalize U.S. citizens and dual citizens living in Canada who may not have paid all of their taxes.
The plans to assess heavy penalties against taxpayers had been causing consternation north of the border. They stemmed from the Foreign Account Tax Compliance Act, or FATCA, which was included last year as part of the HIRE Act (see FATCA Isn’t Just for Fat Cats).
The law requires foreign financial institutions to report directly to the IRS information about the financial accounts held by U.S. taxpayers and the foreign entities in which U.S. taxpayers hold a substantial financial interest. U.S. citizens with bank accounts in other countries have long been required to file reports of foreign bank accounts, or FBARs. But the IRS has been stepping up its enforcement in recent years, particularly with Swiss banks, pressuring them to disclose information on their U.S. account holders.
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In May, Canadian Finance Minister Jim Flaherty complained about the U.S.’s new requirements for Canadian banks to disclose the financial information of dual U.S. and Canadian citizens and other Canadians, pointing to privacy concerns (see Canadian Finance Minister Criticizes U.S. Tax Crackdown).
But U.S. Ambassador to Canada David Jacobson told the Globe and Mail on Thursday that the IRS now plans to be more lenient. “What the IRS is saying here is that if … you don’t owe taxes to the U.S. and you file your return and they show you don’t owe taxes, there aren’t going to be any penalties for filing late,” he said.
An IRS spokesperson confirmed the change in policy on Thursday, telling the Windsor Star, “There has been a lot of speculation about draconian penalties for coming into compliance. For this reason we are looking at putting out information in the near future about how the current law and rules work with respect to late-filed income tax returns. We believe this will significantly allay concerns.”
Flaherty welcomed the news, saying in a statement quoted by the Vancouver Sun, “This situation is the cause of great anxiety for many dual-citizen Canadians. We share their concerns and have raised them directly with the U.S. government. We have been working closely with them on a common-sense solution and appreciate their engagement. U.S. Ambassador Jacobson has been particularly helpful.”
The IRS has not yet officially issued any guidance, but is expected to soon produce a document laying out ways to reduce the burden on taxpayers, although the agency is limited to some degree because there has not been a change in the FATCA provisions by Congress.
4 Comments
This may not be anything special, and just a restatement of existing statutes...
This is what Roy Berger from Moodys tax had to say here...
http://www.moodystax.com/blog/33-us-taxation-services/166-tax-penalty-relief-for-american-citizens-residing-in-canada-one-new-concession-however-other-relief-is-already-available.html
The Globe article cites 3 points of relief for Canadians with US filing obligations. Only one of these points is really worth commentary, the other two points are simply restatements of existing law:
Point 1: Penalty relief for Canadians participating in OVDI. This is potentially great news, though we'll need to see how this relief will be administered.
Point 2: No late filing penalties for untimely returns if no tax is owed. This is simply a restatment of existing law. check out 6651(a)(1).
Point 3: No FBAR penalty if "reasonable cause" is shown. Again, this is simply a restatement of existing law. check out 31 USC 5321(a)(5).
I'm glad to see some movement on these issues however, there seems to be little new news in the announcement.
Posted by: Just Me | December 5, 2011 9:46 PM
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I understand that when you become U.S. citizen, you swear allegiance to one country only which is U.S.A. You renounce your old citizenship and uphold the U.S.law. Why allow dual citizenship?
Posted by: Unknown | December 5, 2011 3:29 PM
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The policy shift will come in the form of new guidance from the IRS, expected to be issued before the end of December. U.S. officials said the statement will make it clear that:
- (1040) If a U.S. citizen files tax returns late and owes no taxes, there are no penalties for failure to file.
- (FBAR) 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.
- (OVDI) Individuals who took part in earlier amnesty programs this year and in 2009 can reapply and get back penalties already paid.
Source: http://tinyurl.com/6q843wy
Posted by: duediligence | December 5, 2011 11:48 AM
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The quote from the U.S. Ambassador refers to U.S. INCOME TAXES and the penalties for late filing of U.S.income taxes. I do not believe it should be interpreted to refer to the penalties for late filing of the required FBAR (Foreign Bank and Financial Accounts Report) Form 90-22.1 This may be giving people a false sense of security, since Form 90-22.1 is not an income tax form and there is no tax computed on it. One owes a penalty for not timely filing Form 90-22.1.
The IRS response refers only to late-filed INCOME TAX returns.
Posted by: taxsolutionspc | December 5, 2011 9:18 AM
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