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June 9, 2016


Dual US-Canadian citizens may have banking data sent to IRS

A strange story involving a Canadian baby who also has U.S. citizenship, her bank, the Canadian Revenue Agency and the IRS raises legal issues that will be important to other U.S. citizens living in Canada (and in other countries) with (and without) dual citizenship. iPolitics reported in April that a baby girl in Canada not yet a year old received a letter from her Canadian bank asking for documentation because she may be a “U.S. person” whose account is subject to Canada-U.S. bank record-sharing requirements.

FATCA U.S.-Canada IGA reporting requirements

Specifically, the baby’s Canadian bank must report information about certain accounts of U.S. persons to the CRA – the Canadian equivalent of the IRS – which in turn will send the data to the IRS under a U.S.-Canada agreement pursuant to the U.S. Foreign Account Tax Compliance Act, known as FATCA. FATCA Intergovernmental Agreements or IGAs have been entered into with many countries as part of a U.S. push to uncover foreign accounts of U.S. taxpayers potentially being used to hide income, with the goal of ultimately taxing that income.

In reality, many foreign account holders have no intention of dodging tax responsibilities, but may have no idea they even have those duties.

The baby in the recent story was born in the U.S. to a Canadian father and a mother with dual U.S.-Canada citizenship, making the baby also a dual citizen. The parents moved to Canada with their daughter and opened the account in question for her to deposit money from a great-grandparent, using the baby’s U.S. birth certificate for identification. The American birth certificate apparently triggered flags that the account might belong to a U.S. person under the IGA reporting requirement.

Controversy in Canada

The mother objects to the idea of her daughter having to eventually pay taxes to the IRS on Canadian earnings when she will be fully functioning as a Canadian resident and citizen with no benefits of U.S. citizenship. The mother is not the only Canadian questioning the fairness of the cross-border reach of FATCA.

There are many stories in the media of Canadians who strongly oppose the FATCA IGA with the U.S., seeing it as an aggressive imposition of U.S. power over Canadian banks. Some Canadians allege that it is a violation of Canadian constitutional privacy protections.

Some people caught up in situations like that of the baby in this story have even given up their U.S. citizenship. (Anyone considering this should speak with an attorney about the pros and cons of such an action.)

Foreign account reporting duties

American taxpayers in the U.S. and abroad have legal responsibilities to report offshore accounts over a certain amount on their tax returns and in FBAR filings with the IRS, meaning Foreign Bank Account Report forms. The IRS has made offshore account reporting enforcement a priority in recent years, imposing huge civil penalties for violations and even potential criminal prosecution in serious cases.

It is extremely important that anyone who might have such liability speak with an experienced U.S. tax attorney to understand whether reporting or filings have been missed or will be due as well as whether money is owed to the IRS. Legal counsel can advise the client about the pros and cons of available options, which may include certain IRS offshore voluntary disclosure initiatives with favorable terms.

If an individual is facing an IRS audit or investigation or even active prosecution, legal representation as soon as possible may be crucial to help minimize financial losses and legal ramifications. A lawyer can communicate on the client’s behalf with authorities and advocate vigorously for the client’s interests.

The lawyers at Brown, P.C., in Dallas-Fort Worth, Texas, represent clients in offshore account matters across the country and around the globe.

Offshore Accounts/International Tax Disputes