When my friend Brian told me the American tax police were after him, I thought he must be nuts. Brian is a worrier. He gets a little paranoid sometimes. "We haven't filed a U.S. tax return in 20 years," he said. "Now our accountant says we have to – or else."
Brian and his wife are from the States. He took out Canadian citizenship years ago. They've lived and worked in Canada for decades. They have no U.S. income or assets. They are 100-per-cent tax compliant – in Canada.
"Forget about it," I advised. "What could they possibly do to you?"
We're about to find out.
I'm on the IRS hit list, too. I came here at 13, and I've been a citizen since 1979. I don't have a U.S. passport or any U.S. earnings. But the IRS wants to confiscate a large chunk of my retirement savings. Many of my friends are in the same fix. They send me e-mails saying things like, "Have you filled out the FBAR [Report of Foreign Bank and Financial Accounts]yet?" The amnesty deadline has come and gone, and we still have no idea what to do.
"It's not the back taxes that will kill you," Brian told me. "It's the penalties." It turns out the IRS can fine you for every unreported bank account, mutual fund and RRSP – at a rate of $10,000 per offence per year. It can also confiscate as much as 25 per cent of the maximum amount you've held in each account. This is so absurd it can't possibly be true. But it is.
The Americans have an unusual view of citizenship. Once an American, always an American, even if you left the U.S. the day you were born. The U.S. is the only country that requires its citizens to file a tax return and report their worldwide income, no matter where they live and what other citizenship they hold. Nobody can explain why the IRS has suddenly decided to enforce this law, which is aimed at money-launderers with offshore bank accounts. I guess the Americans need the money.
Naturally, my friends and I are outraged. It's confiscatory and extraterritorial. It's taxation without representation. It's also a clear violation of privacy laws. (By 2014, Canadian financial institutions will be required to disclose your name if you were born in the U.S.) So why comply? Because if you don't, they can refuse to let you into the U.S.
You can understand why I'm curled up in the fetal position. "I'm not going to do it," I told my husband. "You have to do it, " he said. "If you don't, someone will rat you out and you'll never be able to visit your sister again."
He had a point. So I called our accountant. "Do I have to do it?" I wailed. "I can't advise you," he said. He told me that I might be able to get off the hook for only a few thousand dollars. "Can they come after me for more?" I asked. "Yes," he said. "Nobody knows what they'll do."
One person who's off the hook is my brother. He was 11 when we moved to Canada. At 17, he got a draft notice. So he renounced his citizenship (after a long lecture from a consular official). I suppose I could renounce, too – but they won't let you do that until you've filed your back tax returns.
As many as a million U.S.-born residents of Canada are caught in this Kafkaesque nightmare. Finance Minister Jim Flaherty has written an indignant letter to leading U.S. newspapers. All of us are getting wildly conflicting professional advice. At first, Brian and his wife, who are by no means wealthy, decided to come clean. But when they were told they'd be on the hook for $250,000, they changed their minds.
"Don't write about this," my husband warned me. "You'll just make yourself a target."