Wednesday, September 21, 2011
Then one day the IRS decides to go after wealthy Americans hiding undeclared income in offshore accounts. You're technically American, but wealthy? Definitely not. But you get caught in the sweep all the same. There's a grace period, but you actually have to know about it to take advantage of it. You do become aware of it, but a week after it ends. You begin to get a little worried.
So you dig further and your life falls apart.
You find out your three bank-accounts are considered a tax-shelters by the IRS meaning you pay three times the penalties than if you had just one bank account. Your 'foreign' scholarships are considered taxable income, made worse because if you've had over $10 000 in any account, or in aggregate across all accounts, at any given time, you're in deeper trouble. Scholarships are lump-sum payments meant to last the whole year meaning that for a brief time in a given year, you've crossed that particular penalty line.
You find yourself on the hook for tens of thousands of dollars in penalties alone, even before they work out whether you owe the US government any taxes. In just a couple of days you go from financially secure, life is looking bright, to the very real likelihood of declaring personal bankruptcy.
It is likely a stretch to hope that Jim Flaherty might find some diplomatic channel to resolve an issue that is likely impacting thousands of Canadians and others holding dual citizenship.