The U.S. Internal Revenue Service’s announcement last week that it is extending its tax amnesty program for American citizens living abroad is more a reminder of the unfairness of U.S. tax laws than it is a welcome relief. As many as a million Canadians – not to mention millions more people around the world with dormant U.S. citizenship – are liable for taxes and penalties that are patently unjust.
The U.S., unlike other countries, demands that its citizens file income taxes and make annual declarations of holdings in foreign banks, regardless of circumstances. Even a Canadian who was born in Florida 50 years ago while his or her parents were on an ill-timed one-week vacation, and who has never since lived or worked in the U.S., is as obliged to report to the IRS every April.
Many millions of people around the globe are U.S. tax delinquents, even if they don’t owe a penny in back taxes, thanks to fair and sensible international tax treaties. They have never paid U.S. income tax, either because they were unaware they should, or because the IRS simply didn’t seem to care.
That changed in 2009 when American legislators, grasping for cash in the wake of the 2008 financial collapse, sent the IRS on a mission to collect what it could. The IRS has since pulled in $6.5-million in back taxes and penalties.
The U.S. also passed a law obliging foreign-owned banks to inform the IRS of any account holders who have American citizenship, a move that has sparked international privacy concerns. Canadian banks will start informing the Canadian Revenue Agency of accounts held by American citizens as of July 1, and the CRA will pass that on to the IRS as of next year. Ottawa negotiated exemptions for most registered saving plans, such as RRSPs and tax-free savings accounts, but the IRS will very soon have a pipeline into the personal banking information of tens of thousands of Canadians.
The United States is being invasive and unreasonable, and damaging its relationship with some of its most devoted allies.