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tax crackdown

An Internal Revenue Services office in New York.Lucas Jackson/Reuters

A global amnesty program for people afoul of their U.S. tax obligations has so far netted only 12,000 people and $500-million (U.S.).

The amnesty, which expired earlier this month, allowed individuals with offshore bank accounts to come clean with the U.S. Internal Revenue Service as long as they paid their back taxes plus penalties.

U.S. officials would not say how many of the amnesty seekers live in Canada or have bank accounts here.

"We don't have any more granular data than just the counts of the voluntary disclosures," IRS spokesman Dean Patterson said. "There's nothing beyond what we've released."

An estimated one million Americans and dual Canadian-U.S. citizens live in Canada – many of whom do not annually report their income and their foreign accounts to the IRS, as required, according to numerous tax experts.

IRS commissioner Doug Shulman, however, hailed the figures as a sign the U.S. agency is making huge strides in finding offshore tax cheats.

"By any measure, we are in the middle of an unprecedented period for our global tax enforcement efforts," Mr. Shulman said in a statement. "We have pierced international bank secrecy laws, and we are making a serious dent in offshore tax evasion."

Many Canadians, including Finance Minister Jim Flaherty, see the crackdown as a heavy-handed and misguided attack on law-abiding Canadians, who already face high rates of taxation.

Mr. Flaherty launched a blistering attack last week on the IRS, saying it's spreading "unnecessary stress and fear" among a large number of dual Canadian-U.S. citizens. He made the remarks in a letter intended for publication in The New York Times, The Wall Street Journal and The Washington Post.

Mr. Flaherty insisted Canada isn't a tax haven, but rather home to many law-abiding citizens "who made innocent errors of omission that deserve to be looked up on with leniency."

Accountants say many of their clients, who are dual citizens, opted not to seek the amnesty because the penalties are far too steep.

"Nobody knows what to do with people who missed the deadline," said Kevyn Nightingale, a cross-border tax specialist at MNP LLP in Toronto. "These are not people who lived or worked in the U.S. They rarely owe any U.S. tax. All they missed was filing some paper."

Under the program, individuals face having 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 registered retirement savings plans, registered education savings plans, 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 $500-million collected so far by the IRS under the current amnesty does not include penalties.

Combined with a 2009 amnesty, the IRS said it has now collected $2.7-billion from 30,000 individuals. But it's a small fraction of the $100-billion a year the IRS's Mr. Shulman has suggested may be leaking from the U.S. Treasury though foreign tax havens.