It is not clear, however, whether US expats living in other countries may also expect soon to enjoy a reprieve from the harsh penalties the US has recently begun levying on those who failed to file tax returns, pay back taxes owed, or report to the IRS on any foreign bank accounts they have held during their time overseas.
New rules on how American expats and dual citizens living in Canada will be treated by the IRS will be announced within weeks by the IRS, the Globe and Mail quotes US ambassador to Canada David Jacobson as saying.
Jacobson has been “swamped with complaints from anxious Canadians” since the IRS stepped up its crackdown on expatriates, the paper notes.
Importantly, the G&M article says that those Americans living in Canada who have already come forward and paid back taxes as well as penalties may receive a refund for their penalty payments.
“What the IRS is saying here is that if … you don’t owe taxes to the US, and you file your return and they show you don’t owe taxes, there aren’t going to be any penalties for having filed late,” the Globe and Mail quotes Jacobson as saying.
It continues: "Even Mr Jacobson acknowledged the penalties for not filing can be ‘draconian,’ even for ‘typical’ Americans in Canada who owe nothing beccause Canadian taxes are typically higher…’Our intention was not to abscond with some innocent grandmothers’ savings,’ he said."
Amnesty for expats predicted
David Treitel, tax director at London-based US Tax & Financial Services Ltd, which looks after expatriate Americans, predicted in a recent article in a US tax journal that the IRS might be contemplating a tax amnesty “aimed at Americans living overseas”, citing the fact that such amnesties typically net “huge amounts of money” for tax authorities.
In his article, Treitel noted that the US raised more than $2.7bn from the tax “amnesties” it ran during 2009 and 2011, which were aimed at American citizens who held undisclosed assets outside the US but which did not specifically target expatriates.
Treitel sees the case for a tax amnesty aimed at expatriates in the fact that although as many as 7 million Americans are reported to be living overseas, “just 462,340 [are] filing [tax] returns from foreign addresses”.
“Somewhere, somehow there appear to be large numbers of US citizens living abroad who aren’t filing all required income tax and information returns,” Treitel said.
“In 2014, FATCA [the Foreign Account Tax Compliance Act] will provide names and addresses of many such people to the IRS.”
Signed into law by US President Barack Obama in 2010, FATCA is a package of measures which oblige non-US financial institutions to report to the US IRS on the income of accounts held by US citizens. As the compliance costs of the legislation began to become apparent, many institutions, especially foreign banks and other entities with only a handful of American clients, have begun asking them to close their accounts rather than go to the expense of gearing up to meet the onerous disclosure requirements.
Last month, at a conference in Milan, experts cited a figure of as much as $100m per multi-national bank as the one-off cost of implementing the systems necessary to comply with FATCA, according to Reuters.
American Citizens Abroad, meanwhile, which represents US expats, is promoting a petition-signing campaign on its website aimed at getting FATCA repealed, arguing that it "will have a devastating impact on the US economy, US financial markets, American businesses operating abroad and American citizens everywhere".
As reported, Canada’s finance minister in September publicly criticised the US tax authorities for their aggressive pursuit of Canadians with dual citizenships, as part of the IRS’s ongoing crackdown on overseas tax evasion.
‘Unfair’ to favour Canadian expats
James Sellon, managing partner of Maseco Private Wealth, another firm specialising in looking after American expatriates, says he believes that the IRS would find it difficult to treat expatriate Americans living in Canada differently from those living in other countries – meaning that if the Globe and Mail report is true, thousands of American expats around the world may soon breathe a little easier.
“It would be unfair for one class of American citizens to be treated one way and others to be treated in a different way,” he observes.
“It has to be a matter of ‘are you living outside of the US’ rather than ‘are you living in certain countries’.”
Like Treitel, Sellon also believes it is highly likely that the US is reconsidering its currently harsh stance with respect to American expats, particularly those who have failed to file FBARs (foreign bank account reports), as the comments of the Canadian ambassador to the Globe and Mail appear to suggest.
That’s because the little-known-till-recently FBAR rule is currently “catching innocent bystanders” who had not been aware that they needed to file such reports, rather than the tax evaders the legislation was intended to identify, he explains – and not just in Canada.
“If they were really going to continue penalising everyone living abroad who has not been filing FBARs, then the numbers would be so huge and they would catch so many people unaware that it would just be ridiculous,”Sellon says.
