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Part 2: Be careful what you “Fix For” – Mr. Kentera meets Mr. #FBAR in the “Twilight Zone”

Introduction …

This post is one more of a collection of FBAR posts on this blog. The most recent FBAR posts are here and here.

The “unfiled FBAR” continues to be a problem for certain Homeland Americans with “offshore accounts” and all Americans abroad,  who continue to “commit personal finance abroad”.

The above tweet references a recent post which discussed how to “fix past compliance problems“. The introduction included:

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US Taxation of the Australian Superannuation? – No, #DontMessWithTheSuper!

I recently engaged in a discussion with people who are worried that they might be “U.S. Persons” living in Australia. Their primary concern (and understandably so) is the possible U.S. taxation of their Australian Superannuations. For many, the “Super” is considered to be their most important retirement planning asset.

In a FATCA world, where  possible “USness” is now an issue, one must consider whether U.S. tax laws, effectively disable a group of Australians from effective retirement planning. But, hey! Even Americans should have the right to plan for retirement? Shouldn’t they?

There have been a number of recent articles attempting to understand the possible U.S. taxability of the Australian Super. I don’t know whether this is good or bad.

Most of these articles (what would you expect?) attempt to analyze the issue from the perspective of U.S. law – specifically the Internal Revenue Code. Rightly or wrongly, this approach assumes that the USA has the right to impose taxation on the retirement plans created by other nations. I don’t believe that this should be assumed!

In any event, what follows is a presentation that I created to discuss this issue. It is NOT intended to be a legal analysis. (If you want trouble, call up a lawyer!) It is intended to be a “contextual” and “common sense” analysis. Sooner or later, all laws (if they are to survive) must move towards “common sense”.

My message to residents of Australia is this:

Your Superannuation is far too important to be left in the hands of the tax professionals!

You will find “my thoughts” by clicking on the following:

The Australia Superannuation For Dummies

Feel free to leave “your thoughts” as comments to this post.

John Richardson

“It’s better in the Bahamas – Combining your renunciation with a vacation

For years I have seen the slogan “It’s better in the Bahamas”. It’s a great place to vacation. It’s a short flight from Toronto. It’s relatively inexpensive to visit. It’s was the home of one Sir John Templeton (one of the most famous renunciants of U.S. citizenship). And when it comes to “renouncing U.S. citizenship”, it might be “Better in the Bahamas“, because you can schedule a renunciation appointment on a predictable date!

What follows are some recent reports about the renunciation process in Nassau, Bahamas.

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Be careful what you “fix for”! A Holiday Gift: What to do about the unfiled #FBAR

As 2016 comes to an end …

I suspect that history will show that that the growth in renunciations of U.S. citizenship (and abandonment of Green Cards) continued in 2016. Absent a change in the way that the United States treats its “U.S. Persons Abroad”, I suspect that the growth in renunciations of U.S. citizenship will continue.

The purpose of this post and a short summary …

This blog post will hopefully encourage those with U.S. tax issues to consider whether they can deal with minor/unintentional FBAR violations as a “stand alone single problem”. There may be no need to escalate and expand one single problem into a multi-dimensional full blown tax problem that may end up with unintended and unanticipated costly professional fees as well as undue time spent!  Read on and learn why.  Keeping a calm head is most important, even if it is most difficult to do in the face of the scary situation of not being in compliance with the U.S. tax and regulatory regime.

This post consists of the following six parts:

Part 1 – Problems, more problems and the expansion of problems

Part 2 – Looking For Mr. FBAR

Part 3 – It often begins with a chance meeting with Mr. FBAR

Part 4 – How the compliance problems of “Homeland Americans” (particularly Green Card holders) differ from the compliance problems of “Americans Abroad”

Part 5 – Focusing specifically on the problem of FBAR non-compliance

Part 6 – Dealing with the tax professionals: Beware of how they can expand the number of problems

 

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Determining Tax Residency in Canada: Deemed resident vs. factual resident

Let’s begin with the law as stated in the Income Tax Act of Canada …

Taxation in Canada is governed by the Income Tax Act of Canada. Sections 1 and 2 of the Act read in part as follows:

Short Title

1 This Act may be cited as the Income Tax Act.

PART I Income Tax

DIVISION A Liability for Tax

2 (1) An income tax shall be paid, as required by this Act, on the taxable income for each taxation year of every person resident in Canada at any time in the year.

(This does NOT say that ONLY those “resident in Canada” are required to pay Canadian tax. In fact there are circumstances under which nonresidents of Canada are also required to pay different kinds of Canadian tax.)

Searching for the meaning of “resident in Canada” …

Tax Residency” is becoming an increasingly important topic. Every country has its own rules for determining who is and who is not a “tax resident” of that country. The advent of the OCED CRS (“Common Reporting Standard”) has made the determination of “tax residence” increasingly important.

At the risk of oversimplification, a determination of “tax residency” can be based on a “deeming provision” or decided by a determination “based on the facts”. Some countries base “tax residency” on both “deeming provisions” and a “facts and circumstances” test.

Tax Residency in Canada – “Deemed residence” or “ordinary residence based on the facts” …

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Tax residency vs. physical presence: The four questions you must ask before making a country your home

An introduction to “tax residency” …

Most people equate residency with physical presence. They assume that where you are physically presence determines where you live. They further assume that where you live is where you pay your taxes. Conclusion: The country where you live is the country where you must be “tax resident”. Not necessarily!

There is no necessary correlation between where one lives and where one is a “tax resident”. In fact, “residency for tax purposes” may be only minimally related to “residency for immigration (where you live) purposes”. It is possible for people to live in only one country and be a tax resident of multiple countries. The most obvious example is “U.S. citizens residing outside the United States”.

The concept of “tax residency” is fundamental to all systems of taxation. The fundamental question, at the root of all tax systems is:

“what kind of connection to a country is required to assume tax jurisdiction over an “individual”, over “property” or over an “entity”?”

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How to get a US Social Security Number in Canada – A step by step guide

 

Why do some Canadians wish to have a U.S. Social Security number?

Many Canadians are in the process of coming into U.S. tax compliance. One might ask:

Why would a Canadian citizen residing in Canada wish to come into U.S tax compliance?

There are two reasons why Canadian citizen/residents file U.S. tax returns:

1. They have learned that they are U.S. citizens or learned about U.S. “citizenship taxation” (perhaps encouraged by a FATCA letter or their local CPA) and they wish to file U.S. taxes; and/or

2. They have learned that they are U.S. citizens and wish to come into U.S tax compliance to “renounce U.S. citizenship” and avoid “covered expatriate” status (particularly important if they wish to take advantage of the “dual citizenship” exemption to the S. 877A Exit Tax).

Regardless of the motivation, one must do considerable work for the privilege of filing U.S. taxes.

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Citizenship-based reporting: Russia’s “citizenship reporting” requirements – will the United States be next?

Prologue – A law firm perspective …

As reported by Chelco Vat:

The law does not make dual citizenship illegal; it is merely a reporting requirement.

Federal Law No. 142-FZ on Amendment of Articles 6 and 30 of the Federal Law on Russian Federation Citizenship and Individual Regulations of the Russian Federation, which took effect on 4 August 2014, makes it a criminal offence for Russian nationals to conceal dual citizenship or long-term residence abroad.

Hmmmm … ONLY a reporting requirement you say …

The perspective of an individual subject to the citizenship-reporting requirement …

The above tweet references an article in the New York Times discussing Russia’s law that requires all Russians with a second foreign citizenship report that foreign citizenship to the Government.
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Citizenship-based reporting: Mr. #FBAR as a role model for President Putin and the Russian government

 

It has been widely reported that American actor Steven Seagal has joined American boxer Roy Jones in becoming a citizen of Russia. By becoming Russian citizens, Mr. Seagal and Mr. Jones are now subject to Russia’s Currency laws, which include the requirement to report their non-Russian bank accounts to the Kremlin. Messrs Seagal and Jones may admire Russia. That said, it’s clear that the Kremlin admires the U.S. Treasury in general and Mr. FBAR – America’s most important citizen – in particular.

Citizenship-based reporting: Mr. FBAR as a role model for President Putin and the Russian government …

 

Although Russia has “residence-based taxation” it has “citizenship-based reporting”.
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False Form 8854 used as part of “willful” #FBAR prosecution

The primary story is of a U.S. professor who pleaded guilty to an FBAR violation and was subjected to a 100 million FBAR penalty.  Notably the “tax loss” was 10 million dollars and the FBAR penalty was 100 million dollars. It appears that Mr. FBAR is becoming an important tool in the arsenal used by the United States Treasury.

The more interesting (for the purposes of expatriation) was the role that a “false Form 8854 “Expatriation Statement”) may have played in the guilty plea.

The story has been reported at the following two sources:

and on Jack Townsend’s blog

What is most  interesting is the description from the Department of Justice site which includes:

Horsky directed the activities in his Horsky Holdings and other accounts maintained at the Zurich-based bank, despite the fact that it was readily apparent, in communications with employees of the bank, that Horsky was a resident of the United States.  Bank representatives routinely sent emails to Horsky recognizing that he was residing in the United States.  Beginning in at least 2011, Horsky caused another individual to have signature authority over his Zurich-based bank accounts, and this individual assumed the responsibility of providing instructions as to the management of the accounts at Horsky’s direction.  This arrangement was intended to conceal Horsky’s interest in and control over these accounts from the IRS. 

In 2013, the individual who had nominal control over Horsky’s accounts at the Zurich-based bank conspired with Horsky to relinquish the individual’s U.S. citizenship, in part to ensure that Horsky’s control of the offshore accounts would not be reported to the IRS.  In 2014, this individual filed with the IRS a false Form 8854 (Initial Annual Expatriation Statement) that failed to disclose his net worth on the date of expatriation, failed to disclose his ownership of foreign assets, and falsely certified under penalties of perjury that he was in compliance with his tax obligations for the five preceding tax years.

Horsky also willfully filed false 2008 through 2014 individual income tax returns which failed to disclose his income from, and beneficial interest in and control over, his Zurich-based bank accounts.  Horsky agreed that for purposes of sentencing, his criminal conduct resulted in a tax loss of at least $10 million.  In addition, Horsky failed to file Reports of Foreign Bank and Financial Accounts (FBARs) up and through 2011, and also filed false FBARs for 2012 and 2013.

The point is that the false Form 8854 (used primarily to provide information about whether one is a “covered expatriate” and to calculate the Exit Tax) was used as evidence of part of a conspiracy to evade taxes. This is an interesting use of the Form 8854,  which is primarily an “information return”.

Obviously this a “general interest” post with extremely unusual circumstances. But, it is an example of how associations with others, in the  “Wide and Wonderful World of U.S. Tax Forms” can become a problem.

This is also a reminder the “information returns” DO matter!