Attention: OVDI penalty may be collectable in Canada

Please note the following comment by Michael J. Miller:

3. Re: collection in Canada, I’m not sure what would possess a person to sign a closing agreement with the IRS if s/he did not intend to pay, so I’m not sure when it would be relevant. Having said that, if you signed a closing agreement providing for a 20% or 25% (or other) miscellaneous penalty, ostensibly under Title 26, then in my view it would be reasonable for the US to ask (and for Canada to agree) to treat it as a tax penalty.

If you ask me, our government has done a lot to assure Canadians and residents of Canada protection from FBAR penalties. But to enter an OVDI program and agree to penalties voluntarily is perhaps something that the Canadian government won’t or can’t protect you from. Please do not enter an OVDI program without taking into consider the possibility that the government of Canada will not protect you from the penalties. Credit goes to RenounceUScitizenship for pointing this possible problem. Thanks.


9 thoughts on “Attention: OVDI penalty may be collectable in Canada

  1. if you don’t sign 906, the ovdi in lieu penalty will have to become FBAR penalty –that would be under title 31 — so it would be a different kind collection.

  2. @Petros

    I would point out in the case of Canadian citizens I still don’t believe under the terms of tax treaty and its Canadian implementation “act” I still don’t believe CRA has any legal authority or desire to collect penalties under Title 26. Remember the United States Senate has for many decades(1940s) refused to allow the IRS to collect penalties on US Citizens imposed under the Income Tax Act(Canada) so it is purely reciprocal. Now I think it is more likely that the IRS could attempt to enter the Canadian court system as they last attempted to do in 1967 and challenge the so called “revenue rule” and find a sympathetic judge in Canada under the circumstances(I don’t really think it is all that likely the Supreme Court of Canada would overturn existing precedent although there might be judge or two sympathetic such as Ian Binnie). Again I think it is good idea all in all to stay out of these programs.

    I should note I forgot that Ian Binnie has already retired from the Supreme Court of Canada. I should also note the Supreme Court of Canada has a way of sticking to long standing precedence at the end of the day even when SCOC observers believe for years ahead of time the court is willing to change its position such as in the National Securities Regulator case.

  3. I probably should have not impugned former Justice Binnie in quite the way I did. Back several years there several legal papers published in the aftermath of a case called Pasqatino discussing whether both the US and Canadian courts should move away from past precedence regarding the “revenue rule”. According to one of papers which I don’t have in front of me they analysed the different speeches and papers written by all of then justices of Supreme Court of Canada and mentioned that if another revenue rule case was appealed all the way to the SCOC again that perhaps Justice Binnie would be one justice sympathetic to that arguement. In general legal scholars are not actually very good predictors of which way the SCOC or the US Supreme Court will rule. See the recent National Securities Regulator case here in Canada or the new healthcare law in the US or the recent US tax case Jack Townsend has on his blog.

    A couple of additional points to make. The “revenue rule” goes back long before 1967 all the way back to nineteenth century England or even earlier thus is part of legal precedence both in the United States and the British Commonwealth of which where a part of. However in the past few years but before all of the issues discussed here came to light many tax and legal scholars actually think that it is wrong that the US and Canada refuse to collect taxes each others taxes on each others citizens and this only due to stubborness of the US Senate which refuses to ratify tax treaties that allow the IRS to collect foreign taxes on US Citizens. The issue of allowing the US government direct access to Canadian courts and vice versa I would say is still controversial. Remember all of this is 2008 era discussion pre FATCA pre FBAR pre Isaac Brock Society.

    The Pasqatino case has very little direct relevance here although I mentioned it as has Jack Townsend. Pasqatino was a US Citizen living in the US prosecuted by the US for running a tobacco smuggling operation sending illegal tobacco across the St Lawrence River into Canada on speedboats. However his lawyers did fight the case all the way to the US Supreme Court on the basis the US Government was trying to enforce Canadian law which the US Supreme Court rejected.

  4. I’m not a lawyer, but it seems that if you actually went as far as signing a closing agreement, it wouldn’t be unreasonable for the IRS to take it to a Canadian civil court for enforcement (the Tax Notes article notwithstanding.) It’s a contract, your part of it was signed in Canada, etc.


    That’s the issue. Foreign governments do have access to CDN courts in some circumstances. Let’s say the US Embassy in Ottawa needs new carpets signs a contract with a Canadian carpet installation company and pays upfront. If the Canadian company refuses to do the work after signing a contract and taking the embassies money they can most definately be sued in Canadian court. It is open question either way whether a closing agreement is actually is actually a civil judgement or contract.

  6. Which brings us full circle back to “I’m not sure what would possess a person to sign a closing agreement with the IRS if s/he did not intend to pay,” 🙂

    I guess, buyers remorse would be the answer. They spent too much time reading Isaac Brock after they made that fatal mistake! 🙂

Comments are closed.