Here's another article about how the IRS tax rules are making life difficult for many Americans abroad.
Next up are soon to be effective rules requiring Canadian financial institutions to report accounts of US citizens – the so-called FATCA filing requirements. In effect, Canadian financial institutions are being deputized to help enforce US tax laws, at considerable cost to such institutions and ultimately their customers. FBAR or FATCA – take your pick. Without some reprieve from the US government, Canadians and Canadian financial institutions could be in for a tough ride.
As I've written about before here on this blog, the IRS taxes based on citizenship and not residency. I believe the only other country that does this is Eritrea. This is why I have to file taxes for two countries every year. Although this requirement is written in the US passport, it's in small print, and doesn't give many details. I've never had a border guard remind me of this requirement, nor have I been reminded when going to renew a US passport. Instead, I learned about this by spending too much time on expat message boards.
However, there are many US citizens abroad who had no idea they needed to file a tax return with the IRS every year, and report their foreign bank accounts to the US treasury. The IRS wants people to get into compliance, but there are penalties to be paid in many cases. And now in 2014, FATCA is supposed to come into effect. My understanding is that many Canadian banks have already agreed to go along with it or face withholding on U.S.-source interest and dividends, gross proceeds from the disposition of U.S. securities, and pass-through payments.
Have you or anyone you know been affected by this?
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