Thursday, October 27, 2011

TIGTA Report on IRS Offshore Accounts Initiative Administration (10/27/11)

TIGTA has a new report on the IRS's administration of the offshore account initiatives.  The full report, titled The 2009 Offshore Voluntary Disclosure Initiative Increased Taxpayer Compliance, But Some Improvements are Needed (TIGTA Report 2011-30-118  9/21/11), is here.  Here are  the "Highlights:"
Final Report issued on September 21, 2011
Highlights of Reference Number: 2011-30-118 to the Internal Revenue Service Deputy Commissioner for Services and Enforcement.
Taxpayers with undisclosed foreign accounts or assets who do not submit a voluntary disclosure run the risk of detection by the Internal Revenue Service (IRS). If caught, these taxpayers face the imposition of substantial penalties, including the fraud and foreign information return penalties, as well as an increased risk of criminal prosecution. By making an offshore voluntary disclosure, taxpayers can become compliant, avoid substantial civil penalties, and generally eliminate the risk of criminal prosecution.
This audit was initiated to determine whether the IRS’s voluntary disclosure practices were effective, especially with the high volume of cases received, and to determine whether all cases have been appropriately assigned and worked. The audit is included in our Fiscal Year 2011 Annual Audit Plan and addresses the major management challenge of Globalization.
The IRS’s voluntary disclosure practices were effective, and cases were being appropriately assigned and verified even with the unusually high volume of disclosure requests received and accepted. However, some improvements are needed.
Our review of 60 closed voluntary disclosure cases showed that 18 cases had no evidence of the taxpayers reconciling the unreported income in their offshore accounts to their amended or newly filed delinquent tax returns. In 28 cases, information from the taxpayers’ financial accounts and promoters either was not captured or was incorrectly transcribed on the data collection system used for current and subsequent data mining efforts. In 31 cases, voluntary disclosure agreements were not printed on IRS watermarked paper or initialed by revenue agents on each page to ensure no alterations to the original document were made by taxpayers.
TIGTA recommended that the Commissioner, Large Business and International Division, implement a requirement for taxpayers to provide a detailed reconciliation of unreported income. The Commissioner, Large Business and International Division, and the Commissioner, Small Business/Self-Employed Division, should develop a quality review process to ensure all data relating to voluntary disclosures are properly transcribed for future data mining and require revenue agents to initial each page of the voluntary disclosure agreement before submitting it to taxpayers for their signature.
In their response to the report, IRS management agreed with two of the three recommendations. Management stated that a reconciliation of all unreported taxpayer income from offshore accounts is already a requirement of the 2011 Offshore Voluntary Disclosure Initiative. In addition, management plans to implement procedures to conduct a 100 percent review of inputs to the E-Trak Offshore Voluntary Disclosure Program system. However, management disagreed with our recommendation to require revenue agents to initial each page of the voluntary disclosure agreement before submitting it to taxpayers for their signature.


  1. There are no details on treatment met on minnows.


    Looks like FATCA is running against headwinds.
    Good job to the ACA.

  3. who in the IRS do you think are going to talk about the minnows and be on their side?

  4. You know, I don't find much in this report very enlightening. The term "effective" is either misleading, or so narrowly defined by the audit “terms of references” so as not to be meaningful. If it takes them 2 years to process a Minnow OVDP like me, how "effective" can that be? Also, they only reviewed 60 closed cases and drew their conclusions on effectiveness from that? 60, out of 18,000 OVDP cases? Come on. That is a pretty small sampling.

    Also, and more importantly, there is no statistical analysis, as to whether or not the participants in the 60 closed cases fit the target profile of this program in the first place. I would have thought that for any meaningful analysis this would be an important criteria for an “effective” program. Actually, more broadly speaking, before you could assert “effectiveness”, you would want to do a statistical look at the entire population of disclosures, and assess whether or not there was a high percentage of participants that fit the target profile. This report is silent on that. What is the Minnow to Whale ratio for all 18,000 OVDP disclosures? That is a very important issue, I would think. At a minimum you would want to know that percentage before you put an "effective" stamp on anything.

    Finally, I am some what surprised about the concerns of the reconciliation process. For that kind of detailed reconciliation, you would have had to have done a full civil audit. Is that what they were expecting for every OVDP? Apparently. That is a very expensive process, which obviously doesn't include any “cost versus benefit” analysis. This is the opposite of what Scott D. Michel and Mark E. Matthews said should have been the emphasis in their special look back at the OVDP / OVDI which Jack blogged about on Oct 24th, here...

    They said, and I agree,

    " ...this could have been done without requiring revenue agents to process each return by performing a detailed audit report and flyspecked calculations, and then issuing complex audit reports and closing agreements.

    That scrutiny is unnecessary in a rough-justice VDP when the taxpayer, under the guidance of a tax practitioner, has voluntarily acknowledged the non-compliance. The odds of a taxpayer deliberately committing new acts of evasion during a voluntary disclosure are remote. Spot-checks alone would be more than enough to keep the applicants honest."


    “The system could have been designed and could have captured 95 percent or more of what came in during the programs. One lesson from the OVDI experience is that the Service should consider a more sensible approach that measures the costs and benefits of any given disclosure system. While spending $100 million to get 100 percent compliance in a program is admirable, if spending $20 million gets you 95 percent of the way there, that is something worth considering” End of quote

    Finally, the recommendation that an examiner initial each page of the 906 agreement, is darn petty and insignificant. This leads me to the conclusion that not much effort was put into this audit. If that is the best they can come up with, why bother?! In this, I would agree with the IRS rejection of that recommendation.

    This report is many things, but as an audit of “effectiveness”, it tells us nothing. I think it totally misses the point. However, without the original "terms of reference" used to perform the audit, I may not adequately understand the bureaucratic purpose of this report. Maybe it has met the internal IRS need to check some box, but as far as telling me anything, it is practically useless. Some other readers might find something more insightful then I did.

  5. To Just Me,

    It is refreshing to see such an honest and upright person like yourself analyze this OVD situation, which is essentially an agreement between thieves.

    The IRS thief should not plunder abroad, and the tax-cheat thief should pay his taxes.

    So you have this situation of thieves trying to outfight each other, with non-thieves caught in the middle.

    No real thief would turn himself in. If he did so, he would no longer be a thief (tax-cheat).

    The number one question asked of Swiss bankers is how to renounce US citizenship, not how to pay the IRS.

    This is why I venture that over 90% of the OVD members are minnows (non-thieves) who were intimidated into giving up their money, by a thief, to a thief.

    A real thief would know how to fight back, and would fight back.

  6. @ Just Me

    From your earlier posts you indicated you were in NZ. So am I.

    I am an (ex)GC holder in the 2009 VDP; haven't closed case yet. I'm looking at picking this up with the NZ govt and my initial discussions with a NZ govt rep is that they aren't aware of the whole nightmare. Did you talk to any govt reps?

    It helps my explanation if there are other NZers in the mix like yourself. You know of NZers in this situation? I think the fact that the Canadian govt has woken up to the issue is helpful to our cause.

    Let me know your thoughts.

  7. To M...
    Thanks for your comments. You make good points about thieves. I like your analogy. I am afraid it is truer than I would have believed prior to my VD experience.

    To Moby... I have not spoken to any NZ government official, nor have I spoken to any other NZ US expats on the issue. In the very small community I live, there are only 2 US citizens, and they are not NZ resident. They are swallows. They are aware of FATCA and the IRS efforts, but I do not know them well enough to know their individual situations. I have been back in the States the past 6 months, spending a lot of my time trying to get this OVDP closed with the help of the TAS, so haven't had any other discussions with US expats. I wonder how big the population is in NZ. It is not nearly as big as in Canada, of course, so that means it may not get the same attention as it does there. Don’t know of any blogs for US expats in NZ, do you?

    I do know that some NZ government officials must be aware of FATCA. I assume you have seen this from September “”

    At least the Finance Minister Peter Dunne is aware of FATCA, but may not be aware of the whole OVDI issues, like they are in Canada. It would be good if Peter was talking with Canada’s Flaherty. Maybe there was some discussion in Perth this past week, where Australia is hosting 54 nations at the Commonwealth Heads of Government Meeting. Maybe you could send Peter, or any of the NZ government officials that you are talking with, this article from the Globe and Mail which surely you have seen.

    One final comment about the so called "effectiveness" of the OVDP.

    When your target was those US Tax payers hiding funds “offshore”, ( you would want to know if you were effective in reaching those evaders with this OVDP. So, you would think that at a minimum, the audit would attempt to break disclosers into two categories of filers to see how many participants were actually resident in the US, (the targets) and how many were resident (expats) in other countries. That would tell you something about how effective your program was, and if it was reaching your target audience.

    Also, "an effectiveness audit" should tell you something about back taxes collected versus penalties levied. A serious audit would look at the total VD collections which Shulman trumpets as a “success” to determine the difference between actual back taxes collected and accuracy penalties on the one hand and penalties related to the FBAR on the other. This would give you a better gauge of “effective” tax compliance going forward. If what you collected was mostly penalties, then the marginal value of the tax benefit going forward should be questioned. The IRS spent a lot of money to collect this revenue, so a real business analysis would better tell you how effective you really were. Is this a one off benefit derived mostly from penalties, or is it going to result in a significant reoccurring tax stream? Of course, since I don’t know the split between these classes of revenue, it is hard to analyze that effectiveness. This report was silent, so how would we know?

    Again, I am pretty sure none of these issues were in the audit’s “terms of reference”. I have to think that this was by design. Someone else (GAO?) would have to come in with a much broader mandate to really audit the VD programs to determine the “real effectiveness” by looking at the full range of benefits versus all the direct and indirect cost (to conclude unintended consequential cost) of this entire enterprise. Sadly, it probably isn’t going to happen!

  8. Jack, Just Me and others:

    How much can I say without jeopardizing my OVDI case?

    Just Me has been an inspiration and I have written my Congressperson on the OVD programs with recommendations as suggested at the beginning and end of the ACA position paper on the FBAR. See

    My Congressperson has responded and wants to have further discussions on OVD issues. As I know that they listen/react more when a constituent can relate a personal experience, I am wondering about the extent of personal information I can reveal without hurting my OVDI case. I have had no contact from an examiner. I believe that the time to act is ASAP, but I am fearful that speaking with my Congressional representative could hurt me in some way.

    I do not fear criminal prosecution. I am interested in getting views on how much I can reveal about my situation in order to see what my Congressperson is willing to do. I have legal counsel, but costs have been higher than anticipated, so I would like to get ideas here, if possible.

    I have not even started with the politicians and journalists in my country of residence yet, but yes, that is in the cards.

  9. To Anon5% @ October 30, 2011 4:13 PM

    It is difficult for me to assess how much you could say to the Congressperson. I would say generally that it would not hurt you to tell the truth to the Congressperson provided that that truth is consistent with the disclosures you made to the IRS. I think there is institutional pressure within the IRS not to take retribution because of a constituent's complaints to a Congress person. So, in a sense, the IRS may have to go out of its way to treat you fairly if they hear of your complaint to the Congress person.

    I know this is not specific, but since you do have a lawyer, I strongly recommend that you vet what you are want to do with your lawyer. The lawyer presumably will know the nuances of your particular facts and is better situated to assess the risks.

    Jack Townsend

  10. It is great to see Canadian, possibly NZ govt and other
    govt's waking up to this nightmare at IRS street.
    I have not seen a single word from the Govt of India.

  11. Thank you, Jack. Just to be clear, my interest in speaking with the Congressperson is to achieve accountability for OVD in a better way than the TIGTA report did. In that sense, I am interested in general accountability in OVD programs with respect to the over the top FBAR penalties. The potential penalties in my case could give the Congressperson some context.

    I do not expect anything more. I view myself as a lamb led to the slaughter because I chose to respect the IRS wish that no one quietly disclose. Contacting my Congressperson and other politicians in the US and abroad is the only way I feel that I can speak from my grave.

    It is to the credit of the IRS that they came up with the 5% penalty for overseas residents, but it is unclear yet how this will be applied. In any case, 5% is still a great amount to pay for owning accounts required to lead a normal life and retirement savings accounts. The 20% accuracy penalty was painful enough.

    As I am in OVDI, I understand opting out may be the only way where some nuance can come into my case and that discussion I will have with my lawyer.

    What the TIGTA report does not address and I am requesting that my Congressperson take action on is to have an OVD review which:

    1) determines how many participants in the OVDP and OVDI are Americans resident overseas vs. US residents
    2) determine what proportion of the total revenue collected by the IRS relates to a) unpaid taxes b) accuracy penalty on unpaid taxes c) penalty based on asset values for not filing of the FBAR and other reports
    3) Assesses the number of hours used by IRS personnel per case and their cost effectiveness.

    I credit American Citizens Abroad for the formulation of the first two of these requests.

  12. To Anon 5%

    Regarding your question that Jack has answered. I concur with him and the caveats he expressed.

    Personally speaking, I would not worry about revealing the details of your situation with a Congressman. While I was in the middle of my OVDP, I had written my 2 Senators and my Representative. I had quite a lot of dialog with the Congressman's aide, and a lot of sympathy. Ultimately there was 'no joy' or follow up when the aide who was the most interested in my case left. It was passed off to another aide for follow up, but there was none.

    From the Senators, I had just gotten standard, non specific form letters, thanking me for my letter…la de dah. It wasn’t until my second letter writing effort a year and a half later, that I got personally directed responses. By then I was appealing the absurdity of the OVDP penalty being assessed to them as well as to Shulman again. They sent me a form for me to sign and authorize them to contact the IRS on my behalf. After follow up phone calls, I learned that they were going to contact the TAS. By this time, I already had made contact with the TAS myself, and had a case Officer assigned. Since a TAO had already been issued, I thanked them, and declined any further assistance as I thought it might just confuse the issue.

    Anyway, that is my experience, and I would say, if your Congressman has a real interest, I would go for it. Frankly, I can't see the harm, but ultimately Jack is right when he says... your "lawyer presumably will know the nuances of your particular facts and is better situated to assess the risks."

  13. 'It is to the credit of the IRS that they came up with the 5% penalty for overseas residents, but it is unclear yet how this will be applied. '

    No, the 5% penalty is very harsh for almost all long term expats. A long term expat has a great portion of their net worth in 'foreign accounts', so a 5% penalty hits far harder than even a 25% penalty for say a person who has a small portion of their net wealth offshore. Besides, its unfair since such expats have little to no tax due (those in high tax countries like Canada and EU). I am NOT an expat, and even I find this way too harsh. [ I exclude people who have been filing US returns, but not including foreign income or indulging in evasion]

    About TIGTA, its not a part of the IRS and is reasonably independent and critical at times of the IRS. Its main brief is not specifically to look at how taxpayers are treated, but to look at general administration, fraud and abuse.

  14. M,

    Have you ever heard the phrase that it takes a thief to catch a thief :)?

  15. "Have you ever heard the phrase that it takes a thief to catch a thief :)? "

    I really like the movie "catch me if you can", i wonder if IRS is willing to hire our 120,000 cheats to catch all those in hiding ?

  16. To Anon 5%

    If you do talk to Congressperson you can present my use case also in case it differs with yours.
    I have been living in US for 13 years now and just got my green card couple of months go. I live with my wife and have no kids. I have been the only one providing income for both us. Both of our families are back in India. We have been contemplating of returning back to India for few years now. As part of the preparation I opened accounts back home in 2008 and started wire transferring my savings(already paid taxes here) every year. Till date I have approximately sent 150K (which is almost 40% or so of my total savings). My brother in law has invested most of that amount in stocks. Yearly income from divdends and interests has been approx $500. I did not realize I had to pay tax on this income so did not click checkbox for schedule B and did not report this income. I for sure did not know anything about FBAR until OVDI 2011 was over. I still have to contact lawyer and apparently that is going to be expensive too. But from what I understand penalties are really high and will pretty much wipe away most of my savings. I do realize that I made mistakes and certainly don't mind paying penalties on income earned. But penalties based on highest balance is a killer. I really think even if made mistakes, I don't deserve such high penalties. I know will go back to India in a year or so to be close with our families. How much ligter my wallet will be when I do I am not sure. I certainly do not want to go with any bad memories/feelings of USA. Good luck to all.

  17. @Anon who commented on October 31, 2011 12:35 PM

    I hear you and feel sorry that you have to go through this. It is unfortunate that the laws are not know to many immigrants. In fact, I'm sure there are quite a few who are still unaware that they have to pay taxes on after-taxed savings. I sometimes wonder, what is the purpose to having tax treaties between countries when common people like us have to suffer.

    I was fortunate to realize this and took part in OVDI 2011. But I still don't know what will happen.

    As far as your case is concerned, I would highly recommend contacting a lawyer and work on closing your tax issue. Maybe there is still a possibility that you can get into OVDI thru lawyer-IRS intervention.

    Good luck.

  18. You might be interested into this recent letter
    to Commissioner Shulman

    written by ACA in response to all the press in Canada about U.S.Ambassador David Jacobson’s comments to the Canadian Club of Ottawa. It is reported that he said...

    “The United States isn’t out to get honest “grandmas” who don’t owe anything to the Internal Revenue Service… My message is to sit tight. We are not unreasonable. We are not unsympathetic. We are not irresponsible. The IRS is exploring ways to accommodate the roughly one million dual Canadian-American citizens living here.”

    So, the response should be interesting.

    Given Recommendation 8 in the Michel and Matthews Report and the accommodations mentioned by the US Ambassador to Canada, David Jacobson (References 1,2,3 below), what is your view that the IRS could be considering a more lenient policy for overseas filers who have omitted filing certain forms?  How is the general tax practitioner community viewing this possibility?  How could it be possible that only Canadians would be accommodated?
    In our small, but increasingly US tax aware overseas community, we were quite concerned when we read the Canadian newspaper articles on accommodation of Canadian citizens.  We hope that there will be accommodation, but that this accommodation is applicable to all non-US resident citizens/persons worldwide, regardless of other nationality, or country lived in. In the country in which we reside, the taxes we pay are as much, or possibly more, than Canadians pay and there are 10s of thousands of overseas US citizens here, including grandmothers.
    We read with satisfaction the American Citizens Abroad (ACA) letter to the Honorable Douglas Schulman (Reference 4 below).  These were our concerns exactly and it was good to see that ACA voiced them to him. Considering that the Honorable Mr. Schulman has not deigned to answer another letter sent by ACA (listen to the “Switzerland in Sound Interview on FATCA” file on their website) and that the ACA has been in touch with thousands of US citizens in more than 90 countries, the hubris of the Honorable Mr. Schulman in ignoring a constituency this large is astounding.
    One practitioner has stated that he does not expect the IRS to give any more concessions to nonresident citizens living abroad (Reference5 below-paragraph 10). If this is the prevalent view in the practitioner community, we wonder about the veracity of the Ambassador’s statements. 
    We have always understood that, in terms of citizenship, all Americans are treated equally as Americans and that citizenship in another country is of no regard in the eyes of the US.  Yes, for tax filing, there have been some concessions to Canada that are not available to other countries (Form 8891 filing for RRSPs), but ultimately, residents of other countries are not different. For the most part, we are law abiding, tax compliant citizens in our countries.  The fear we experience of IRS confiscation of our hard earned retirement savings for a foot fault is the same worldwide. 

  20. A tax-amnesty program is designed to bring in taxes. Less than the full amount owed, but more than zero.

    This is how OVD programs are meant to work. Why don't people respect the IRS program? It is not meant for immigrants or expats current with their taxes to expunge their imagined liability for not filing FBARs.

    I don't understand why people who don't owe taxes to begin with would join a program to pay taxes.

    This is an error of tax preparation 101. You don't file more forms than necessary. You don't burden the IRS with garbage. If you don't respect the IRS, why would you expect it to respect you?

    The American ambassador gets it. Most people get it. I don't understand why some people don't get it.

    Because they don't want to break laws? But did you write that law? Did you sign off on it? If not, why obey it? Particularly if it is malicious in nature, usurious, etc.

    If the law is bad, one should write congress, petition to have it changed, etc, not obey it. In fact, one has to purposely disobey it in order to have it changed via the courts.

    Does the law even apply to you? In spirit as well as in form? Where is the common sense here?

    Lambs were being led to slaughter here and there was no one telling them that they in fact do not have to file FBAR. Until now, the ambassador said it.

    And instead of answering with a halleluiah, "the ambassador said it is ok to sit tight", ACA is using his common sense advice to beat up on the IRS. I disagree with this.

    An interesting case from my tax textbook: $9000 in interest income from China. Reported on Schedule A as income, tax credit form filed, but no FBAR!

    This 2011 textbook "Fundamentals of Taxation" (for EA and CPA preparation) does NOT mention FBAR. If most CPAs and EAs skip it, why should not the lay immigrant or American abroad skip it as well.

    Why pick a fight with the IRS? Why not leave sleeping dogs lie?

    I say leave the fighting to the lawyers, or high net worth individuals, to battle it out with Congress and the IRS.

  21. "It is not meant for immigrants or expats current with their taxes to expunge their imagined liability for not filing FBARs." -- Why is this not mentioned on IRS web site? There it clearly says that quiet disclosures are NOT the way to go. Even Indian community was advised to through OVDI and OPT OUT, they were not told to do a QD. And then no one mentions what will be the FBAR penalties in QD? There is too much uncertainty. That is why some immigrants applied.

  22. Hot from Reuters:

    Is the Swiss Government trying to propose a deal that it thinks might satisfy the US, or is it responding to an USGOV offer? Seems like the former to me, but does anyone have a view?

  23. I was born on an airforce base in Florida in 1964. I became a Canadian citizen in 1966. I have never worked in the US or lived there. I just found out that I'm supposed to file taxes in the US. Who's responsibility was it to tell me? The accountant? The US itself? I'd never heard of such a thing and now I'm treated like a criminal?

    So, I've gone to an accountant and it's going to cost me $5,000 to file 5years worth of returns. The banks are charging me for generating all the statements I need, the accountant saids that I will owe the US taxes because I 'm in a terrible job position. I say "What?" I day trade stocks and so all of my income is considered "passive investment
    income" and so I'm taxed 100% in the US. This is on top of the tax that I've already paid in Canada. So I'm getting double taxed! I'm no longer eligible to hold a Tax Free Saving account and I must stop trading immediately. My rights as a Canadian to have a Tax free savings account and an RRSP are gone just like that. So are dividends, interest, and capital gains. So, my life savings are going to the US and I've lost my way of making a living. I've gone from a self-employed Canadian Taxpayer to a broke, unemployed American. Don't even get me started on my Retirement Savings Fund or my children's Education Fund. The US is extorting all of my money and what is Canada doing about it? This is unbelievable! I can't sleep, eat or drive a car safely. What should I do? Do I file or do I hide? This is so unjust we have to get organized people and tell the US to stuff it! My peace of mind is gone and I'm just a single Mom.

  24. "Because they don't want to break laws? But did you write that law? Did you sign off on it? If not, why obey it? Particularly if it is malicious in nature, usurious, etc."

    I like that. Why obey a law which is outright usurious.

  25. M: I saw the threats in the 1040 booklet for my 2009 taxes and decided never ever to file an FBAR, but instead, to lose my American citizenship a.s.a.p., and never ever co-operate with the IRS again. Guess what? The IRS sent a letter now asking where my 2009 tax return is, and I just received it this week. If I don't respond, I suppose they will just assess me a penalty and tax--even though I can't owe anything with Canadian rates. I've decided to drop off the face of the map. No more academic conferences in the Us, no more expensive holidays in Hawaii, no more investments or real estate purchases in the US. If my Dad wants to leave something in the will, it goes to my brother and sisters (I have yet still to convince him of this). I am now a Canadian and I don't give a damn about the IRS. I wish all my compatriots would do the same: stop complying. The information that you give them will be used against you. So stop giving them information. Take your money out of the FATCA banks, RBC, TD, Scotia, CIBC, and put it in a credit union. I suffer; may be I'll never be able to go to the US again. I've considered that I may have to avoid US airspace as well, just in case of emergency landing.

    Anyway, the ambassador Jacobson was lying about the US being reasonable. If they were, then the IRS wouldn't have sent me the damn letter threatening me. They would have reasonably concluded that we are all just wasting our time, because I'll never ever pay any tax to the US. I just don't make enough for it to ever matter. If the IRS was reasonable, then they would stop trying to get Canadian resident to file. There is no tax to collect here in the first place--from the vast majority--unless you want to abolish the US-Canada tax treaty.

  26. '"It is not meant for immigrants or expats current with their taxes to expunge their imagined liability for not filing FBARs." -- Why is this not mentioned on IRS web site? '

    It does say on the IRS site that anyone who has reported all income and paid all taxes can file FBARs directly, no need to join OVDI.

  27. 'I day trade stocks and so all of my income is considered "passive investment
    income" and so I'm taxed 100% in the US.'

    This is not correct, AFAIK. A day trader is considered to be a business:

  28. 'I day trade stocks and so all of my income is considered "passive investment
    income" and so I'm taxed 100% in the US.'

    Ok this is complicated since it is a question of two different tax systems. Canada allows an individual to treat stock trading, under certain circumstances, as capital gains, and the rules are somewhat ad hoc (the tests for when it counts as income instead of capital gains are: (1) frequent trading; (2) use of leverage; (3) full time trader; (4) specialized knowledge. This lady, then, probably qualifies to treat all of her trades as capital gains and hence, is subject to tax on only half of her earnings. But the US may treat this income from trading as all income, therefore subject 100% to tax.

    This is why it is necessary just simply to renounce US citizenship if you are living outside the US and you are an investor like me. No one can deal with two different sets of capricious and confiscatory rules. It completely ruins the ROI.

    But what shocks me about this lady's situation is that she claims that she is paying in two countries, but the Canada US tax treaty is explicitly designed to avoid double taxation. Whatever she paid in Canada counts as a dollar for dollar credit against the US. Here expensive accountants should know how to minimize her taxes.

    Canada needs to step in and stop this crap. This lady is Canadian, receives no benefit from her US citizenship, and this extra-territorial taxation is a violation of all her fundamental rights, you know, the kind that the American Revolution was fought over -- no taxation without representation - that sort of fundamental right!!! People should get a grip and figure out that the IRS is a criminal organization that needs to be shunned by all people permanently residing outside the United States. To co-operate with them is like a lamb who sticks out its neck to be slaughtered.

  29. Thank you for your support Poser.

    If I want to renounce which I do with all my heart I will have to file 5 years of taxes and give the IRS all of my personal banking information which I'm terrified they'll use against me in the future. The US is broke and they're barging their way into Canadian's private banking so that they can write laws to siphon the wealth out of Canada. This is the scariest sci-fi movie I've ever seen. I don't believe Credit Unions are exempt from FATCA either.

  30. Poser, I understand that renouncing citizenship eliminates future IRS tax and FATCA obligations, but I don't see how whether or not you renounce affects past obligations.

  31. Anonymous Nov 9, 2011, 10:10:
    I am not going to worry about past obligations because (1) I owe no tax; (2) The Canadian government has said that they will not collect FBAR fines or file penalties; (3) I am no longer a citizen of the US; (4) All my assets are outside the US.

  32. Poser...
    You might want to weigh in with an answer for a gentlemen on this blog. He is a Canadian, asking what the risks are for FBAR filings. Some interesting comments already posted.

  33. Hi Just me:

    I am participating over there. You can perhaps guess which one I am and if you figure it out, I'd be happy for you to contact me there.


  34. A news Story on the US Expats in Canada giving up their citizenship has been carried on NPR stations last Friday.

    It was done on PRI's program, The World, which is produced in conjunction with BBC. This is a first, I think, on any NPR stations. Encourage you to go to the web site. Listen to the story and post some comments there. CA Free is all alone in their comment postings... Here is the link..


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