It has been disclosed by the American Embassy in Ottawa that the United States
Internal Revenue Service (IRS) will shortly announce an easing of its foreign
account reporting rules for US citizens living in Canada.
Under the IRS's Foreign Bank Account Report (FBAR) rules, any US person (not
necessarily a US resident) who has a financial interest in or signature authority,
or other authority, over any financial account in a foreign country, if the
aggregate value of these accounts exceeds USD10,000 at any time during the calendar
year, is required to file a return.
The FBAR is considered by the IRS as a tool to help the US government to identify
persons who may be using foreign financial accounts to circumvent US law. Investigators
use FBARs to help identify or trace funds used for illicit purposes or to identify
unreported income maintained or generated abroad.
Canadian Finance Minister Jim Flaherty had, in an open letter to the media
written in September this year, pointed out the difficulty which the FBAR rules
caused to the many dual US-Canadian citizens and their relatives living in Canada,
the majority of whom, he said, hold only distant links with the US and were,
therefore, unaware of the disclosure rules.
"Because they work and pay taxes in Canada, they generally do not owe
any taxes in the United States in any event. Their only transgression is failing
to file the IRS paperwork they were never aware they were required to file,"
he observed. He believed that, as these individuals are "not high rollers
with offshore bank accounts", they are rather "people who have made
innocent errors of omission that deserve to be looked upon with leniency".
The prospect of having to comply with such regulations will impact on the lives
of Canadian people, according to Flaherty. He added that 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".
In reply, the US’s Canadian Embassy has indicated that the IRS is about
to issue a revised regulation that will exempt from late-filing penalties those
US citizens living in Canada who were unaware of the FBAR rules, or have another
reasonable explanation for non-filing, and who owe no US taxes.
Cathy McLeod, Parliamentary Secretary to the Canadian Minister of National
Revenue, following a question in the House of Commons, replied that the government
was “happy to report that the US has agreed to show leniency. It will
waive penalties for many and allow potential refunds of penalties already paid.
More details will follow in the coming weeks.”
LAWANDTAX-NEWS.COM
