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FATCA, the Foreign Account Tax Compliance Act, requires individuals to report the value of specified foreign assets if they exceed certain thresholds (which are different for those residing in the US and those living abroad). As of July 1, 2014, foreign financial institutions are required to report on the accounts of their American clients or be penalized with a 30% withholding on certain US payments. The requirement of the banks to furnish information on the accounts of those who may never have even set foot in the US is what has sparked this lawsuit. The lawsuit is being supported by the Alliance for the Defence of Canadian Sovereignty and is being brought forth by noted Vancouver constitutional lawyer Joe Arvay.
Plaintiff Gwen Deegan, who was born in the US but hasn’t lived there since she was 5 years old, explained why she felt the need to take legal action in this article: “This is an infringement on Canadians of US origin by our Canadian government. It’s literally a betrayal and I feel we can’t just sit idly by and let it happen.”
Deegan and her co-plaintiff Ginny Hillis are still considered US persons, despite the fact that neither have even held a US passport. In the lawsuit, the two are alleging that their rights and liberties are being violated. In a sense, it’s their right to be ‘secure against unreasonable search and seizure’ that is being infringed upon. This is based on the notion that their personal bank account information will be sent to the CRA (Canada Revenue Agency), which will in turn pass that information along to the IRS without having the opportunity to dispute the information being disclosed.
Both women are married to Canadian citizens and hold joint bank accounts, which triggers a US FBAR reporting requirement. FBAR (Foreign Bank Account Report) must be filed if a foreign bank account has a balance of $10,000 or more at any point during the year. Despite the fact that their husbands are not US citizens, their ownership in the account means the account must be reported. This is a perceived violation of privacy for the citizens of Canada.
Deegan and Hillis are far from the only Canadians in an uproar. There are over a million Americans living in Canada and there has been an outcrying of despair over the FATCA regulations and the possible financial ramifications. In fact, according to this article, there are more lawsuits in the works. Upset with what they see as the Conservative government caving into pressure from the US government in its global quest to root out tax “cheats,” a group of Canadian citizens this week launched a lawsuit in Federal Court alleging the legislation is unconstitutional.
While the solution may seem simple–i.e. renounce your US citizenship–it isn’t always that easy. The process involves formal paperwork, having your name posted on the internet, filing five years of past US tax returns (if you weren’t compliant) and a possible exit tax if your income meets certain thresholds. In addition, some Canadians (and other US expats) were caught in a legislative change that reinstated their US citizenship without their knowledge. A US Supreme Court ruling in the 1980’s led to a change in citizenship law which actually reinstated the citizenship of many people who had declared a formal commitment to citizenship in another country prior to then. There was no notification to those individuals of the change in citizenship. As one woman explains: “They (US lawmakers) gave all of us our citizenship back – without asking us if we wanted it, or telling us that they did it. I didn’t find out that I was once again considered a USA citizen until I applied for my Nexus card.”
The discontent in Canada and around the world may very well increase as the FATCA rollout continues and US expats realize the full impact. But in the meantime, it is important for all US citizens to understand FATCA reporting requirements and what personal information will be transmitted to the US government. You may not yet be able to change this process, but being aware of the regulations and reporting requirements will help keep in you in good standing with the US. If you are behind on your US expat tax filings, it’s important to get caught up before the IRS comes calling. You can avoid all penalties by filing under the Streamlined Filing Procedures, which was recently amended to make it easier for expats to become compliant.
To learn more about FATCA and its possible impact on you as a US expat, simply click here to find more articles on our blog!
When you live in the US, tax day is simple: April 15th! When you move abroad, it’s not so straightforward! Learn about all the expat deadlines and extensions you need to know to file.