Friday, August 26, 2011

The long, long arm of the Internal Revenue Service!

Hi Clare,

I wanted to present a book that is available for your review – Justice For None by Jessica James. Let me know if this book interests you and I will gladly ship a copy right away.

Many believe the American justice system protects the law-abiders from law-breakers by convicting and incarcerating the wrong doers. The vehicle to accomplish this is the trial by way of judge and or jury. However, that vehicle has rusted exposing gapping holes while running on empty. Apparently, unintended consequences have created a cancer, the silent invisible killer.

The courts support and are maintained by convictions, not exonerations. Winning is paramount, not truth or justice witnessed by organizations as the Innocence Project or the Justice Project continually quantifying and exposing shameful situations. Emphasizing convictions instead of truth has incarcerated over 2.5 million within America, more than any record-keeping nation on the face of the earth. The myth of increased convictions to decrease crime rates has been shoved down the throats of Americans every way possible while statistics bear otherwise.

Justice For None is one story. A raid on an organization of like-minded individuals and related companies called the ‘largest crackdown in the history of the U.S. Internal Revenue Service.’ You decide if justice was served.

Thanks, Ginny

Ginny Grimsley
National Print Campaign Manager

News and Experts
1127 Grove Street · Clearwater, Florida 33755
Phone: 727-443-7115 EXT 207
Dear Ginny,

Thank you so very much for the complementary copy of the book which arrived yesterday - most kind and thoughtful of you. We'll have a read and share our thoughts.

The issue of the Internal Revenue Service's long, long arm has received some attention in Canada recently because of the HIRE Act (Hiring Incentives to Restore Employment Act) passed by Congress last March the repercussions of which are only now stating to be felt here. Long story short, if an American citizen has immigrated to another country, even though it may have been several years ago and the individual has never worked in the United States, nevertheless, they are required to file a annual tax return with the IRS otherwise the penalities can be quite severe.

Ottawa-based law firm Tierney Stauffer provides a nicely worded explanation of HIRE in layperson language reproduced below.

Interestingly, at the recently concluded Canadian Bar Association's annual convention a longtime simmering dispute finally surfaced between the Federal Court of Canada and the Tax Court of Canada for jurisdiction/administration of the Income Tax Act. It seems the latter is seeking exclusive responsibility suggesting the former has been subtly attempting to "muscle in" on what it views as its purview.

The equivalent of your IRS here is The Canada Revenue Agency (formerly Revenue Canada). Our favourite story?

In April of this year we dutifully filed our income tax return on time receiving a rebate a couple months later. Subsequently, a Notice of Re-Assessment arrived which included an interest payment of less than $14 ($13.67). So off we went to the local CRA office to argue our case in full realization we'd lose.

We found ourselves on the telephone with a Canadian Revenue Agency employee in Vancouver. After providing our Social Insurance Number it was "click, click" and the gentleman was staring at our return. In vain we tried to argue:

(a) it was the CRA that made the mistake otherwise there would have been no need for a re-assessment because we never subsequently filed any additional information

(b) charging interest for a period of time during which we were unaware we were under re-assessment was tantamount to Mafia-style loan sharking which is against the law

The gentleman noted this situation is covered in the Canada Revenue Agency General Income Tax and Benefit Guide everyone receives well in advance of the filing deadline. He went on to note, "The Income Tax must be set up so the government makes money." Upon hearing that we were unable to stifle a good laugh. The CRA agent could not understand what we found funny so we had to explain we never expected to win - you never do with the CRA.

Clare L. Pieuk


The story had a happy ending because once the arithmetic was done we still had some of the rebate minus $13.67 in loan sharking interest.
Tax Obligations of U.S. Citizens Living in Canada

March 28, 2011

It is the eve of April and Canadians are looking forward to warmer weather but, at the same time, feeling less than enthusiastic at the prospect of fulfilling their seasonal fiscal duty; that is preparing and filing their annual tax returns before the April 30th deadline. Similarly, American citizens, U.S. residents and U.S. green card holders also view April as “tax-season” and their deadline to file their tax returns with the IRS is April 15.

Contrary to the Canadian tax system which is based on residency, the United States tax system is based on one’s citizenship as well as residence. Under the U.S. tax laws all U.S. Citizens regardless of their place of residence, U.S. residents or green card holders, have a statutory obligation to file their tax returns in the United States.

Filing Deadlines

U S citizens, residents and U S green card holders must report all of their worldwide income from all sources no later than April 15th of the year following the taxation year. U S persons living outside the United States must also comply with the filing requirements but are granted an automatic two-month extension. Therefore, a U.S. citizen living in Canada must file his or her U S tax return by June 15th.

All U S citizens living in Canada must file their U.S. tax returns every year regardless of whether any taxes are due.

Even if a U S person owes no tax in the United States, he or she should file a return, if only to preserve all available tax credits.

Failing to maintain filings may trigger unfortunate issues such as denying renewal of that person’s passport or delaying entry to the United States until that person’s tax record is updated.

RRSPs, RIFFs and Penalties

RRSPs (Registered Retirement Savings Plans) and RIIFs (Registered Retirement Income Funds)are an area where there is a clear difference between the Canadian and U S reporting requirements.

Under U S tax law a U S citizen or resident owning a Canadian RRSP or RRIF must report any income and gain earned within his or her RRSP or RRIF on a yearly basis; not when the income is withdrawn as is the case under Canadian tax laws. To avoid double-taxation the Canada-U S Tax Treaty allows for an election in the U S citizen’s tax return to defer recognition of the income earned and gains until such income or gain is withdrawn from the subject RRSP or RRIF.

However, to take advantage of that election the U S person must file his or her tax return on time and failure to do so may result in losing the right to make that and other similarly important elections.

Estate and Gift Tax

Upon death, the United States levies a tax on the fair market value of the world-wide property of a U S citizen, U S residents or non-resident aliens if they own property in the United States. Consequently, any U S citizen living in Canada will be subject to the U.S. estate tax and ought to consider such in their estate planning (Canadians should consider the estate tax before acquiring U S property). There is a basic exemption available to U S citizens that may result in the estate being exempt from the estate tax but the prudent approach is always to seek professional advice on the subject.

One can see that, aside from the issue of estate tax, dealing with a deceased U S person’s taxes upon their death can be a nightmare for estate trustees if the deceased failed to file his or her U S tax returns in previous years. This will inevitably result in an onerous estate administration for the estate trustee and may have disastrous results for the beneficiaries. Also, an omission of the estate trustees to consider the U S estate tax and failure to ensure the deceased’s tax record is in order may result in the estate trustee being personally liable for any taxes owed.

To avoid such dire consequences on death, U S persons must maintain orderly and up to date tax files.

The HIRE Act

In light of the UBS banking scandal in the United States, Congress passed the Hiring Incentives to Restore Employment Act (HIRE). HIRE requires foreign banks and other financial institutions to report all U S persons’ bank and financial accounts to the IRS. HIRE also provides that foreign entities such as corporations, partnerships and trusts must report U.S. persons’ ownership or beneficial interests.

HIRE appears to provide overreaching powers to the IRS since it essentially implements a system that “forces” the foreign financial institution or entity to submit to the IRS’s jurisdiction. However, Canadian financial institutions and other entities will likely comply with HIRE and report U.S. persons’ bank and financial accounts to the IRS. This may complicate the U S persons’ income tax filing requirements since their information will have to mirror the data submitted by the Canadian institutions or entities.

Although the impact of the HIRE exceeds the scope of this newsletter, those involved in Canada-U S dealings and taxes must be informed.

Relinquishing U S Citizenship

Considering all of the onerous reporting obligations, the idea of simply relinquishing one’s U S citizenship may seem tempting. However, to no one’s surprise, the U S government has created onerous rules aimed at dissuading the relinquishment of U S citizenship for tax purposes.

To successfully relinquish your U S citizenship, one must first comply with all requirements of the U S State Department as well as completing and filing all required forms with the IRS; notably Form 8854 and ensure all tax returns are up to date.

Also, it is likely the U S person will be deemed to have disposed of all their worldwide assets at fair market value and incur taxes on the deemed disposition; something to consider before starting the process.

It is also possible that taxes may still be owed after one relinquishes his or her U S citizenship. Those rules are complex and ought to be discussed with a tax professional.

The expatriate tax will also apply if the relinquishing person is present in the U S for more than 30 days in any calendar year during the 10 years following the date that person relinquished his or her citizenship. Note that the expatriate tax only applies if it is greater than the amount of tax that would otherwise be imposed if you were taxed as a non-resident alien.

As one can clearly see, although tempting, relinquishing one’s U S citizenship may not be worth the trouble involved.


U S tax filing obligations are often misunderstood or simply ignored by U S citizens living in Canada. Ignoring or delaying the filing requirements places one at tremendous risk. The consequences of being held liable for failure to file a tax return in the U S will result in additional taxes, penalties and interest to be paid as well as other unforeseeable consequences.

If you are a U S citizen living in Canada, we highly recommend you seek professional tax advice as to your U S tax duties and obligations and make every effort required to meet all deadlines for filings.

Sébastien Desmarais
Tierney Stauffer LLP

This article is provided as an information resource and is not intended to replace advice from a quaified legal professional and should not be relied upon to make decisions. In all cases, contact your legal professional for advice on any matter referenced in this document before making decisions.


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