I personally think that the folks who try to run and hide are going to get it. The works — fines, possible criminal prosecution and possible deportation from the host country. And it’s so easy to find us. Victoria
A lawyer who presented to a group on the topic of U.S. taxation of Canadian residents recently offered up the colorful phrase full ostrich to describe noncompliant persons whose strategy remains that of keeping on keeping on.
A Globe and Mail poll from fall 2011 showed over half of 3233 responders “planning to deal with the IRS cross-border tax crackdown” by opting for “Nothing, how will they find me?”
In the short term, that approach will continue to work. It may even work in the longer term for Canadian-resident U.S. citizens who (1) do not have a U.S. place of birth (2) are prepared to avoid U.S. jurisdiction by never entering the United States, whether intentionally or accidentally, and/or (3) manage never to reveal a U.S. connection to institutions that hold their financial accounts.
But a pair of pliers is already in view. One of the jaws is passport; one of the jaws is dealing with the financial institutions in a globalized economy. As far as many insular residents of the United States are concerned, this tool of torture and extraction does not even exist. But extraterritorial U.S. citizens are forced to live in a far different world.
Anecdotal evidence continues to amass that border scrutiny is happening now and that financial institutions are taking an interest in the citizenship status of their customers. In the past ten days we have report of at least these three incidents:
outragec on March 1 — “I called my investment firm yesterday to advise that I no longer wished to invest in any US funds. They asked me if I was a US citizen.”
CanuckDoc on February 25 — “I just had my yearly meeting with the advisor of the investment account I have had for over 25 years. She asked me if I was a US citizen, which she has never done before. She says she is now required to ask all her clients.”
Broken man on a Halifax pier on February 22 — “Was asked specifically at pre-clearance at Pearson (once they’d established that I was a USC born and still living in Canada) today whether I’d been filing tax returns.”
The Isaac Brock Society 
I think that a Full-Ostrich-Minnow (I’m not sure what such an animal would look like, cross a mermaid with a dinosaur maybe) with the nationality of their country of residence is still in a good position, as long as they don’t visit the US (depending upon local data protection and civil rights legislation in their country of residence). When/if they are finally caught in their country of residence, they can throw the book at their accuser. This is better for the cause than trying to come “clean” with the IRS, which inevitably means pleading some sort of “mea culpa” which is inconsistant with the strong convictions of some who reject US double-taxation policy as unfair, unconstitutional, violation of international legal principles and fairness, etc. If one comes forward now and the situation worsens (repeal of FEIE, or even FTC) they will be in even worse shape in the future.
By the way, it is my position that a repeal of the FEIE and/or FTC would be reasonable grounds in the global sense for a currently compliant individual to cease to become compliant. If the FEIE is repealed, many compliant people won’t be able to pay their bills anymore.
I’m certain that many tax professionals are looking greedily at Full Ostriches as a potential market segment in which to pursue their professional activities.
Reblogged this on Stop Unconstitutional Double Taxation.
I have to say I disagree with a lot points in this entry. Why not say Canadian citizens who have some form of residual US citizenship. It seems to me saying US Citizen resident in Canada is almost IRS talking points. I know who the lawyer in question is and I have nothing against him but through self admission knows he nothing about countervailing Canadian law which is unfortunate because I get the impression he is actually someone with contacts at the IRS. Perhaps the IRS needs to be discussing the issue more with someone like Joe Arvay.
I agree generally with both Tim and Jeff: those who are blissfully ignoring the issue in many respects are better off than those who have tried to come into compliance and those who stay up late at night in fear. That’s why I think Isaac Brock is helpful. The more people who avoid the OVDI the better. The more who can stand up to and resist rude border guards who say they are United States citizens, “Until we tell you you’re not,” the better.
I have my compliance issues because I only became a Canadian in 2011. But if I had been a Canadian before that, I wouldn’t even bother filing my US taxes at all. I live in Canada, I pay taxes here. The US is like some scary stalker, that I’m better off not knowing about–the monster in the closet that can make threats but can’t really hurt me (unless I actually own assets in the United States).
Sure FATCA is coming. But (1) full implementation keeps getting put off; (2) it is far less scary now than when it was first announced; (3) it remains to be seen what various governments will do to fight for their residents. Canada, for one, has taken a great stance. I’m glad that I am here, and not somewhere like Panama. And finally, I’m glad I’m here and not in the United States, because there is going to be great suffering in the USA when the world banks and the world markets reject the world’s reserve currency.
@Petros: good points. But the Ostrich has to lay his eggs carefully.
Under the laws of Canada, it is utterly legal for foreign-born Canadian citizens who reside here to earn money, bank, and invest in Canada. Foreign-born Canadians are obligated to comply with Canadian taxes. They have no additional obligation under Canadian law to any other foreign state, regardless of their original place of birth.
However, the unusual laws of one foreign state allege that these actions are potentially criminal, if those Canadian citizens also happened to born in that foreign state. Because this is based strictly on jus soli (as opposed to income earned or assets located in that foreign state) it appears to many in Canada to be an egregious claim based on a concept of indentured serfdom and tribute.
Canadian legal experts and the government of Canada have repeatedly affirmed that this foreign state has no power or mechanism to collect its revenues from Canadian citizens in Canada. Moreover, likely anticipating failure, the foreign state has not made any apparent attempt to actually do so in our courts.
In consideration of the above, why would lawyer advise a Canadian citizen client to provide any kind of written confession or volunteer any personal information to a foreign state? Especially when they have not been accused directly and personally by that state, and the foreign state has no power to enforce its unusual revenue laws on their Canadian assets.
This is not an “ostrich” approach; it is simply refusing to respond based on fear alone, and relying on the jurisprudence of Canada. If there is fight to be fought over the earnings and assets of Canadian citizens, it likely will ultimately be fought in Canadian courts, because that’s where these individuals and their assets are located.
May I suggest that those harassed by Canada banks and investments move their money offshore, just like those in the US do.
These are secret banking, non-reporting jurisdictions. I can provide some leads if interested.
Was the lawyer touting for business?
Victoria is concerned about fines, criminal prosecution, and deportation. Not gonna happen for minnows. Especially in the true north strong and free where the gov’t has said they will not help collect fines for Canadians in canada.
Outragec and Doc could say “no I’m not’ or if uncomfortable with that could say ‘you don’t need to know’ The regs. haven’t been finalized yet and won’t be for a few years. Accounts under 1 million and RSPs will probably be AOK.
“I am a Canadian citizen.”
End of story.
One million Canadian permanent residents or Canadian citizens people extradited or placed in US jails? Including Elizabeth May and Margaret Wente? Get real please.
Good comments from many angles. Brock reacts bodily to a probe motivated mainly by a desire to juxtapose the pithy comment of an information professional with a theme perceivable in three recent incidents.
I certainly was not out to advance IRS talking points or to help fatten the purse of an alarmist “professional.” It’s all about teasing out the practicalities of all of the options.
For Canadian citizens, the big stumbling block is the border to the south, and the feasibility of a full ostrich ultimately being certain of never — and never needing or wanting to — cross that border again.
Or always being prepared to accept the uncertainty of potential consequences for crossing the border. The linkage of State to IRS/Treasury through passport control seems destined to do nothing but metastasize.
Not to cross for travel, not to cross for shopping, not to cross for friends or family, not to cross for geographic convenience, not to cross for specialized medical care, not to cross for the accident of a diverted airline flight. That last one may be the worst one?
This must be what it’s like to have a mentally disturbed neighbor. You want to remain on friendly terms but you really can’t cause they’re crazy.
We live in a very peaceful subdivision with about 1,000 homes near the countryside. Several streets away from us lives a very strange family that harrassed everyone including children on a daily basis. Eventually all the nice neighbors on that street moved away while the crazy still remains. Fortunately we never have to run into them.
Not to cross for travel, not to cross for shopping, not to cross for friends or family, not to cross for geographic convenience, not to cross for specialized medical care, not to cross for the accident of a diverted airline flight. That last one may be the worst one?
EVEN IF this happened, are they going to throw the cuffs on you?
@Joe Smith
I do know of someone who was on an Air Canada flight from Toronto to Winnipeg that was diverted into Grand Forks North Dakota due to weather. They stayed on the ground for two hours without anyone getting off the plane and later after refueling took off again for Winnipeg. It does happen and I can’t say I know all the details. There are also cases I have heard of of Domestic US flights getting diverted into Canadian airports. There was also a case I heard of an unbelievable bad auto accident on the 401 outside of Windsor where the unconcious driver was medflighted to Detroit(right to the hospital’s helipad). Given the safety related issues(or in some cases life and death) that occur in these cases neither Canada or the US historically has gotten that picky about immigration formalities. I would also say that on a day to basis the local US customs offices in places like Buffalo, Detroit, Grand Forks I suspect take a more benign view of the law in these cases than is perhaps the official policy coming out of DC. Perhaps pressure could be applied on the two Senators from Alaska whose state would be affected above average if Canada get picky in return about these incidents.
If you want to check out the Airliners.NET forums. They have several discussion threads that have opened over the years over these types of incidents.
Here is a link to a story about the flight in question. There some additional safety issues due to the weather conditions at the time that created a fuss.
http://www.winnipegfreepress.com/local/air-canada-defends-refuelling-decision-calls-it-unusual-78300652.html
I just booked a flight on a Canadian airline to New York in August to visit relatives. I am going to travel with my Canadian passport (which I’ve done many times with no problems when driving over the border.)
In the meantime I am filing 3 years with the IRS and booking an appointment to renounce. I know I won’t get a CLN in time for August, but if I’m questioned as to why I am not traveling with a US passport I am going to say that if anything happens I want help from the Canadian embassy to get back to Canada where I am a citizen and which has been my home for over 40 years. (I have heard that Canada expects Canadians to travel with a Canadian passport.) Maybe they will refuse to let me enter the US. What penalties are there for not having a US passport to enter the US if you were born in the US?
@somerfugl
I really don’t think at this point there are any penalties. You might get asked the question – “why are you not entering the U.S on a U.S.passport” or a comment that you should be travelling on a U.S passport.
I travelled by plane to the U.S. twice in 2011, once to New York and once to Washington, DC. I was not even asked, nor was it commented on that I was using a Canadian passport. If I had been, I would have replied that I was not entitled to a U.S. passport as I had relinquished that citizenship 40 years ago.
I am curious as to why you are filing only 3 years of tax returns prior to renouncing. I thought that 5 or 6 years were required when renouncing. (5 plus a 1040NR for the year of renouncing).
@somergugl, all… i doubt you have anything to worry about because so far you seem to be a minnow, or less than 1 milllion in your accounts.
@all – do you REALLY think if you have money, people can’t find out? I learned a couple of years ago when my wife was in an lawsuit, and she’s FAR FROM having a lot of money. The other side got copies of tax reports from the local equivalent to the IRS. A lawyer obviously made a male judge VERY happy 🙂 Who knows what was done. I still can’t figure out, even tilll today.
Sure, the judge SHOULD HAVE ruled a breach of privacy, but he didn’t. That’s life. That’s why like I keep sayng on here, if you make a lot of money, the best thing is to have ditched US citizenship last year, or as soon as posible. If you make a lot, they will bribe the bank attendants or tax collection authorities.
The US bullsh*t bribery laws apply to people, but I doubt they apply to the IRS or US Treas. So my point is.. don’t lie. It’s futile.
Since they have limited resources, I bet people with less than 1-2 million have anything to worry about. Check it out for yourself. And last of all, don’t **keep*** anything in YOUR name.
Stephen, Tim, or anyone can scream at me all they like to! Sorry, but it’s true given the litigious environment today. I think this is universal.
@all, I am thinking about crossing the border by car with my son, he has a Canadian Passport and I have a US Passport, now I am wondering how this is going to look, that I am US with US Passport and he with the Canadian Passport. Is this going to look strange?? Do you think I will have any problems? Now my problem or difficulty maybe getting back into Canada, my Perm. Resident Card has expired, but I have other info when I landed 35 years ago.. I called the Canadian Border and she said you maybe pulled over and have to go inside and explain. I just don’t know what I am in for. I am not 100% I will go or not, still sitting on the fence.
I think they will wonder why he does not have a US Passport..
any advise, will be appreciated..
@tiger: I consulted with a tax accountant (Canadian but specializes in US tax issues) who said I could probably get by with filing 3 years since my income is so low. Beyond 3 years I was self-employed and he said I don’t want to go there as filing for self employment (even for a low-income, tiny business) is very complex. I am filing my own taxes, but had the consultation to get some advice. I’m hoping that the IRS is so busy that they’ll take one look at my forms and not bother asking for more. When I renounce I hope they just ask if I’ve filed and not get picky with how many years.
@geeez
I don’t doubt there are a lot of ways to find information. I know in some of those GAO reports I linked to earlier there was some discussion of the IRS in the case of Canada contracting with a private credit reporting bureau and this was back in the 1990s. One of the key things in my mind is to keep the Canadian governments feet to the fire. Unfortionately for a lot of different reasons I don’t think in many other countries it is realistic for the government to put up a lot of resistance in this area(I would include a lot of the EU in this group).
Wouldn’t hurt to get another opinion. Three years might work if you are carrying on with US citizenship, but might not if you are in fact renouncing. Good luck.
@calgary411: The accountant I consulted didn’t guarantee 3 years would work. He said it’s worth a try to avoid getting into my self-employed years. If the 3 years don’t work I may have to wait another 2 years to renounce, although I’d like to renounce before FACTA comes into effect. I can’t afford accountant’s fees to file for the years of self- employment and it’s too complicated to do myself. ( Maybe I’d be able to wait only a year before renouncing. If my 3 years go through, then I can say I’m clear with the IRS and get away with this. I’ve heard the IRS is so backlogged they may not want to bother with minnows like me. Who knows?? ) Anyway, I refuse to get a US passport.
If I am correct, if you renounce now in the year 2012, Form 8854 is not due until June of 2013. That should be enough time to have filed five years of taxes and be able to answer yes to the question of meeting your obligations. I have not seen any official document that says you have to file taxes before you renounce. If there is I would like to know, and would be interested in what other people think of renouncing before doing five years of taxes.
@somerfugl: You may qualify to relinquish, rather than renounce. That is worth checking out.
@somerfugl
TrueNorth mentioned Form 8854.That could be the form that causes the problem for you, if you only file 3 years of tax returns. If I understand the form correctly, you have to attest to having filed 5 years of tax returns.
It’s all so absurd. Don’t, don’t get a US passport!!
The best to you, somerfugal
@Tiger, True North, Blaze, and calgary 411. Thanks for the information and advice. There is a lot of to think about, and as you say calgary411 it’s all so absurd!
@saddened123
Do not do it.
Visit a nice place in Canada instead, get Canadian citizenship, and you and your son pledge unallegiance to the USA every morning. You will be better off for it.
@saddened123, @somerfugl
I was born in the US but have lived in Canada since 1965 and have only ever had a Canadian passport. I traveled from NB to ON by car three weeks ago and intentionally went through the US to see what would happen at the border.
I gave my Canadian passport to the agent and he asked if I also had a US passport. I replied that I did not and had only ever had a Canadian passport. He wished me a nice day and that was it. That is not to say that things will tighten up over time, however!
@TrueNorth: My understanding is also that, if one relinquishes now in 2012 he can wait until June 30th 2013 to file 8854. I greatly appreciate confirmation from more experienced members in this forum?
But I believe, one must still file for five years (2007 to 2011) of taxes and part of 2011 until the date of relinquishment. But it may reduce one year FBAR, since FBAR statue is only for six years. If one files 8854 now he needs to file FBAR from 2006. But he waits until 2013 he needs to file FBAR from 2007.
Also I like to find which one is safer? Filing five year taxes before relinquishing or after relinquishing? What are the pros and cons?
@JoeSmith, it is not for pleasure BELIEVE ME if I told you the reason I was going you would really think I am nuts..
@saddened123, if your child is a minor and you’re traveling without the other parent your circumstances raise alot of red flags. I’m thinking at a minimum you may not be allowed entry into the US even though you have a US passport due to the increasing number of child abductions. In the worst case you may be held for questioning.
@all. Just a quick update. My investment counselor did seem to accept that I was a Canadian citizen, when I explained the ‘prior-to-1986’ thing, as well as the US supreme court justice decision (terrazzo??) that said they couldn’t retroactively reclaim citizenship. I did not have to offer any proof or anything else. He seemed willing to accept that I knew more than he did on the whole thing. He was very up on taxes, but not the reporting or US citizenship issues. However, that’s now, who knows what will happen in 2014….