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A Calgary woman’s developmentally disabled son is caught in a U.S. tax quagmire that she fears may cost him the money she spent years setting aside for his financial future.
“He’s entrapped,” said Carol Tapanila, the 70-year-old mother. “There’s no way out. He is entrapped into U.S. citizenship.”
Her 40-year-old son was born in a Calgary hospital, but automatically received U.S. citizenship because both his parents were American. That simple fact may soon create financial woes for the Tapanila family.
Starting in July, a new U.S. tax law, the Foreign Account Tax Compliance Act (FATCA), goes into effect. It requires banks around the world to sift through client accounts to find anyone with U.S. connections and send that information to the U.S. Internal Revenue Service.
- Canadian banks to be compelled to share clients’ info with U.S.
- FATCA under fire from tax experts and Canadians
The law is aimed at Americans who are hiding offshore accounts, but the information sharing is likely to unearth many unsuspecting Canadians with U.S. citizenship, like Tapanila’s son, who didn’t realize they were required to file U.S. taxes.
Tax law expert Allison Christians calls the Tapanila case “ridiculous” and a “classic example of why the law is unjust.”
The law “was intended to find rich American tax cheats hiding out in Switzerland,” said Christians, who teaches tax law at McGill University, but it “will now punish poor, disabled Americans living in other countries, who are only American by birth.”
These so-called “accidental Americans” also include an Ottawa woman who was born in the U.S. to Canadian parents and moved back north at one year of age.
This woman, who asked to remain anonymous, said her husband is livid that their joint account information will soon be shared with U.S. tax authorities.
Both fear that FATCA will reveal her U.S. citizenship and saddle them with hefty penalties for failing to file U.S. tax returns that will eat into their retirement savings.
“It’s stressful. I think about this every day,” said the woman. “It’s like a big weight over your head that never really goes away, and I’m starting to wonder when and if it’s ever going to go away?”
In advance of the law taking effect, more than a dozen countries have inked intergovernmental information-sharing agreements with the U.S.
These arrangements allow either for banks to hand over information directly to the Internal Revenue Service, or indirectly via their national tax agencies.
Canada is currently in negotiations with the U.S. The banking industry notes that FATCA will affect many Canadians indirectly because of the extra costs of industry compliance.
“We have to comply with FATCA,” said Marion Wrobel, vice-president of policy and operations at the Canadian Bankers Association. “While we don’t like it and we’ve lobbied against it, FATCA is going to be a reality.”
If banks refuse to comply, they face severe financial penalties — a 30 per cent withholding tax on all American-sourced income or sales of American-based assets.
But financial institutions also face costs to comply. Some estimate the manpower and administrative systems required to find clients with U.S. connections could cost up to $100 million per institution, said Wrobel.
“It is expensive, and as far as we see it, it adds nothing,” said Wrobel. “It doesn’t make the banks any safer or sounder.”
Thousands on legal advice
For Tapanila, the financial burden has already been costly. She spent thousands of dollars seeking legal advice on how to renounce her son’s U.S. citizenship. Under the law, a parent, guardian and trustee cannot renounce on someone’s behalf.
‘I wanted my son to have something when I was gone from this Earth.’– Carol Tapanila
She refuses to file U.S. taxes for her son, fearful that it would chip away at the funds she’s stashed in a Registered Disability Savings Plan (RDSP) and a Tax Free Savings Account (TFSA).
“I see no common sense in it,” she says. “Put me in jail. I don’t care. But I’m not going to do that.”
RDSPs as well as TFSAs are considered “offshore trusts” by U.S. tax authorities. That makes any gains from these plans — which include contributions from Tapanila and matching ones from the government — taxable by the IRS.
The CBA’s Wrobel said that, based on his talks with the federal government, he’s hopeful that the U.S.-Canada agreement will include exemptions for registered savings accounts.
That would provide some relief, but Tapanila notes that the cost of filing U.S. taxes every year could actually be the largest drain on her savings.
Accounting firms estimate that personal tax filings can cost from $500 to $5,000 a year because of the complexity of U.S. tax law.
“I wanted my son to have something when I was gone from this Earth and so I was a saver,” said Tapanila. “And now I don’t want the U.S. to take one penny that should go to my children.
“I want my hard-earned Canadian money that I’ve saved to go to my children, not to the U.S. or some compliance tax lawyers year after year after year after year.”
I Generally speaking, government always grows — it never shrinks — whether times are good or bad.
II In each area it purports to “assist”, government attempts to replace individual decision-making with central planning.
III In order to implement its grand central plans and solidify its power, government must take from one citizen to give to another; this is, in effect, lawful theft.
IV No matter how many times central planning fails, the self-appointed masterminds in government assert that “this time is different” and that with only a few tweaks and more money, their delusional plans will succeed.
V Because it uses funds confiscated from taxpayers, self-restraint is no obstacle to government’s ambitions.
VI Its fundamental misunderstanding of human nature notwithstanding, government must claim to grant “rights”, which require it steal the labors of one citizen to give to another (such as food, shelter, employment, and health care).
VII No matter how widespread the harm it causes, government will never provide an honest and historical accounting — a report card — of its failures.
VIII As more individuals and families are harmed by the failures of central planning, government must find suitable scapegoats, must lie to do so, and therefore must also repress dissent.
IX In order to build its network of redistribution and grow a culture of dependency on its services, government must inevitably undermine the family unit, religion, and the notion of God-given rights in order to cow, bribe, or intimidate its citizens.
X As government grows ever more powerful, it must also become increasingly oppressive through compulsion and force. To do otherwise would mean government must shrink, and this it cannot do.
Any of these characteristics recognizable?
- Why Central-Planning Won’t Work (itmakessenseblog.com)
- The Joy of Central Planning (tfmetalsreport.com)
- “Stealth Socialism” (adask.wordpress.com)
- James Scott and Friedrich von Hayek: Hoisted from the Archives from October 24, 2007 (delong.typepad.com)
- Why we need an ecosocialist revolution (climateandcapitalism.com)
- Forget global warming!? Earth undergoing global COOLING since 2002! Climate Scientist Dr. Judith Curry: ‘Attention in the public debate seems to be moving away from the 15-17 year ‘pause’ to the cooling since 2002′ (climatedepot.com)
- From global warming to fluoride: Why do people deny science? (salon.com)