Douglas Shulman, commissioner of the U.S. Internal Revenue Service, calls it the “last, best chance” to come clean.
And by midnight Friday, it will gone.
What Mr. Shulman is referring to is the 2011 Offshore Voluntary Disclosure Initiative, or OVDI. It’s an amnesty program for U.S. citizens, who have not been reporting their “foreign” investments to the IRS, as required under U.S. law.
Amnesty doesn’t come cheap. Anyone who comes forward by the deadline will have to pay any back taxes owing, plus interest, and a penalty of up to 25 per cent on all of their bank and investment accounts worth more than $10,000 (U.S.). That includes RRSPs, RESPs, pensions and brokerage accounts.
The penalty, which may be lower for accounts totalling less than $75,000, applies to the highest balance between 2003 and 2010.
The amnesty is part of a larger campaign by the IRS to crack down on Americans who hide money offshore to avoid paying U.S. taxes. It has particular resonance for as many as a million Canadians. That’s because Canada is home to more dual U.S. citizens than any other country. Many have lived, worked and paid taxes in Canada for their entire working lives.
The United States, unlike virtually every other countries, requires Americans to continue reporting their worldwide income to the IRS, regardless where they live and work.
It’s perfectly legal, of course, for Americans to hold accounts in other countries. But the IRS requires annual disclosure, and failure to do so amounts to tax evasion.
The thorny issue for Americans in Canada is that many assumed they had renounced their U.S. citizenship – along with any obligations to the IRS – when they became Canadian.
That isn’t the case. Americans remain Americans until they formally renounce their citizenship – a process that, like the amnesty, requires full disclosure to the IRS.
Others may not even know they are Americans. For example, anyone born in the U.S. to Canadian parents is almost certainly an American. Children of dual U.S.-Canadians living in Canada are also Americans.
Since 2009, when the amnesty was first offered, fewer than 20,000 individuals have taken advantage of it. The IRS has yet to tally up the number of people signing up for this latest program. There are millions of Americans living outside the U.S., and accountants in Canada report being flooded with inquiries about the amnesty as the deadline neared.
Hiding from the IRS is getting harder all the time. A new U.S. law, set to kick in 2014, will require all foreign financial institutions to report accounts held by Americans to the IRS. The IRS hopes that it can match up the annual foreign bank account disclosures with reports from banks, and thereby identify evaders.
Ottawa has protested to the Obama administration that the law goes too far and may violate Canadian banking and privacy laws.
But the U.S. appears determined to press on. Many Canadian financial institutions are already starting to track customers they believe may have ties to the U.S.
That could leave many Americans living here in the uneasy position of either hiding their U.S. roots from their Canadian financial institutions, or being found later by the IRS.