American tax compliance regime getting tougher
David Christianson, BA, CFP, R.F.P., TEP
Read this column if you or someone you know was born in the US, holds a green card (work permit), travel to the US for an extended period in the winter, or have another close connection to America.
The American Internal Revenue Service (IRS) is more interested in you than ever.
We have written in the past about the need for US citizens living in Canada to file their American non-resident tax return, and for Canadian snowbirds to file IRS form 8840, establishing that they have a closer connection to Canada and therefore do not need to file a US return.
Today’s column moves from the reminder and suggestion made in the past, toward an urgent appeal to you to begin complying with the IRS requirements now, rather than risk having them approach you first. The penalties and extra tax (when they deny your currently available credits and exemptions) can be horrendous.
Here are reasons why compliance has become more imperative than ever.
On March 18, 2010, President Obama signed into law the HIRE Act, ostensibly aimed at job creation. However, one of the ways to pay for the $18 billion cost is to tighten the reporting requirements for "US persons" with interests in foreign accounts.
You guessed it – an American citizen living in Canada is a "US person". A Canadian citizen with a green card, or one who spends more than 183 days per year in the US, also becomes a "US person" for tax purposes.
Shocking to me is the fact that Canadian financial institutions are now going to be compelled to report all the personal information of any "US persons" holding accounts with them. Starting in 2013, your bank or investment firm (if it intends to do business with any "US person") will have to ask every account holder if they have a connection to the US and, if they do, report their information to the IRS.
If a person refuses to answer the question or refuses to provide information ("a recalcitrant account holder"), then the bank will be required to withhold 30% of any investment earnings on the accounts and hold that for the IRS.
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David Christianson is a fee-for-service financial planner and portfolio manager, whose team at Wellington West Total Wealth Management Inc. provides comprehensive financial advice and management. You can e-mail him at dchristianson@wellwest.ca or visit his website at www.davidchristianson.com.