Death, Taxes, and the IRS

calculator and income statement

Benjamin Franklin once observed that “in this world, nothing is certain except death and taxes”, but recent developments with the Foreign Account Tax Compliance Act (“FATCA”) have led to considerably less tax certainty for U.S. citizens resident in Canada.

Under U.S. law, all U.S. citizens form part of the U.S. tax base, even if their connection to the U.S. is tenuous or non-existent. While FATCA does not change this state of affairs, it does create a new requirement for financial institutions outside the U.S. to actively gather bank account information for U.S. citizens and provide this information to the Internal Revenue Service (“IRS”). While FATCA technically requires banks outside the U.S. to report directly to the IRS, an intergovernmental agreement (“IGA”) between Canada and the U.S., which became effective July 1, 2014, allows Canadian financial institutions to instead report to the Canada Revenue Agency (“CRA”), which in turn forwards the account information to the IRS.

While Canadian-U.S. dual citizens with non-U.S. accounts exceeding $10,000 in aggregate are already required to annually file FBAR” (Foreign Bank Account Report) forms, FATCA will result in the IRS receiving a lot more information about who exactly is required to file such forms, leading to increased concerns about the application of potentially onerous penalties under U.S. law reserved for U.S. citizens who fail to make required tax filings.

THE DEADLINE UNDER THE IGA FOR THE CRA TO PROVIDE INFORMATION COLLECTED FROM CANADIAN FINANCIAL INSTITUTIONS ON ACCOUNTS OF U.S. CITIZENS IN CANADA TO THE IRS WAS SEPTEMBER 30, 2015, AND THE CRA HAS NOW REPORTEDLY COMPLIED WITH THIS DEADLINE.

In a September 25, 2015 Federal Court of Appeal Affidavit, Sue Murray of the CRA’s Compliance Programs Branch commented on the information to be provided to the IRS as follows: “I have reviewed the information which has been provided by Canadian financial institutions and is to be sent to the IRS. The package consists of approximately 155,000 information slips. Each slip represents one account and one account holder”.

In light of the fact that the IRS now has access to a lot more information about U.S. citizens with bank account holdings in Canada that may require FBAR compliance, it is a particularly good time for U.S. citizens residing in Canada to speak to a qualified tax accountant about the very specific U.S. tax filing requirements that may apply to them. While there is a cost to complying with the U.S. filing requirements, a qualified accountant can provide crucial advice about how to best ensure compliance and minimize risk of incurring penalties under U.S. tax laws.