CBT, tax treaties, and the saving clause: interesting article

Iota, I'm sorry if it came across as offensive. I really meant no offense by it at all.

I was thinking of an article I read a little while back where an example of a hypothetical Canadian granny was used to say the IRS wasn't going to screw innocent people over.

@Anchor

"All those criminals with $10,000 in foreign accounts?"

You hit the nail on the head. If FBAR had anything to do with catching tax cheats - or terrorists or whatever is being claimed lately - it would not require reporting of anyone who has overseas accounts with a total value of over $10,000. FBAR is about penalty fines and about control.

I was thinking of an article I read a little while back where an example of a hypothetical Canadian granny was used to say the IRS wasn't going to screw innocent people over.

Sounds like you've been reading some of the fallout from an ill-advised speech the American Ambassador to Canada made in 2011.  He probably was trying to sound reassuring but he didn't succeed.

There are two particular problems with the operation of ... [the CBT] rules here in Canada. First, there are so many dual citizens, typically by birth, probably more than a million. So this issue is much more common here than in any other country in the world.

Second, the penalties -- at least in a theoretical sense -- can be quite severe.

So you could have a situation where some 70-year-old grandma:

was born in the US;
moved back to Canada as a young child;
never earned any money in the US;
has no assets in the US; and
dutifully paid all of her taxes in Canada.
She didn't file a US return because she didn't think she had to. And because she didn't owe any US taxes. Nonetheless, grandma could be theoretically subject to serious penalties. To my knowledge we have never gone after a grandma in those circumstances.

But there has been a lot of press about this lately and people are worried that we will come after them.

When I read all of this I was concerned. So last week I called the Commissioner of the United States Internal Revenue Service to see what we could do. I explained the problem to him.

The result is that both he and I are sympathetic to the concerns. We are going to work together to see if we can't find a way to accommodate grandma -- and others -- here in Canada. But we have to figure out a way to do it without letting the person who is trying to evade taxes in the Cayman Islands off the hook

See how he invents this figure of a frail old woman, who "didn't file a US return because she didn't think she had to"?  And refers to her with a diminutive to show she doesn't really have anything to be concerned about, and is just being silly in a sweet little old lady kind of way?

Jacobson's remarks have since been the Chinese whispers route, and his caricature has been revised, redrawn, had fresh dialogue invented for it, and generally been used by a lot of people to illustrate a variety of often contradictory views about what the IRS might or might not do.  In the end, nobody knows for sure.  An organization that relies on threat and menace doesn't want people to feel quite sure.  It's not a good situation, it really isn't.

e author=iota link=topic=86192.msg1128988#msg1128988 date=1444419660]
  An organization that relies on threat and menace doesn't want people to feel quite sure.  It's not a good situation, it really isn't.
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Very good point. Whatever their intention it seems to be in their interest to be seen to be as scary as possible.

And you are right, it was an article about Jacobson's remarks that I recalled.

I realize that from now on I've got to become more accurate when doing my FBAR reporting as from 2017 UK banks are going to be feeding the US with details of balances and interest. I'm always very accurate with interest reporting to the IRS but with FBAR I simply record my monthly statements ending balances and report the highest of those.

From now on I will look at the monthly statements and note the highest daily balance and then report the highest daily balances of the year for each account.

This year I had a small inheritance paid into my checking account and moved same day into my savings account.  The daily balance on the monthly statement in the checking account doesn't show the maximum value of the account that day so would the bank, HSBC, report the daily ending balance to the US or the highest balance during the day, which it will have been at for several hours?

There are no penalties for over reporting the amount in a bank account. Since FBAR has nothing to do with tax (supposedly), adding an extra $100, $200, or whatever is not a problem. It may seem counter intuitive to make sums larger, but in this case, it doesn't hurt.

If the balance were $150,000, and only $149,900 were reported, it probably wouldn't be the end of the earth. For normal accounts, it's the details of the account (where, account number, etc.) itself that are of interest.

........as from 2017 UK banks are going to be feeding the US with details of balances and interest.

Consider looking at it from the other direction. You're also ratting on the bank when you file an FBAR or 8938. Enjoy the fact the banks fear your reporting as well! Well, except when the banks take the easy way out and close all US Person accounts.

The daily balance on the monthly statement in the checking account doesn't show the maximum value of the account that day so would the bank, HSBC, report the daily ending balance to the US or the highest balance during the day, which it will have been at for several hours?

'Some say' it's second by second, 'some say' daily balance, 'some say' end of month balance. IMHO, that's a line by line that yields the highest balance at any time during the year. Or, simply do as you understand what the instructions for FBAR request.

On an aside note, HSBC are now starting the electronic searches, looking for US indicia on older accounts. Notification and request for a Form W-9 comes in a 8 page letter. And yes, each page is about the request. The recipient, if a US Person, is directed to the IRS site to download the W-9, and is required to hand deliver it to the bank with an additional signed page indicating "the information is to the best of your knowledge". HSBC also urges recipients to go to an HSBC UK site where a great amount of detail is given, along with work sheets for computation of time spent in the US (the 3 year test for presence), guidance for determining if you are a US Person (a very tricky area for the bank to be advising on), and more.



   

Thanks for the detailed response.  I will continue to assume that the US will allow some flexibility in differing amounts reported by myself and the banks once bank reporting starts.

I have assumed that HSBC already have me down as a US resident since they have had nothing except US addresses on my accounts for the last 26 years and have received forms (R85 etc) to show I pay US taxes and don't reside in the USA so they pay my interest gross. However if they do request a W-9 then it looks like a simple form to complete.  Of course next May we'll be changing our address to a UK address when we move so at that point they may ask more questions.

This will be the first year for me to do taxes from the UK......uggg. Not looking forward to it. Guess I can put it off for another couple of months (not wisely).

This will be the first year for me to do taxes from the UK......uggg. Not looking forward to it. Guess I can put it off for another couple of months (not wisely).

I look forward to your reports on how you manage. I'm exactly 1 year behind you.

I realize that from now on I've got to become more accurate when doing my FBAR reporting as from 2017 UK banks are going to be feeding the US with details of balances and interest. I'm always very accurate with interest reporting to the IRS but with FBAR I simply record my monthly statements ending balances and report the highest of those.

From now on I will look at the monthly statements and note the highest daily balance and then report the highest daily balances of the year for each account.

This year I had a small inheritance paid into my checking account and moved same day into my savings account.  The daily balance on the monthly statement in the checking account doesn't show the maximum value of the account that day so would the bank, HSBC, report the daily ending balance to the US or the highest balance during the day, which it will have been at for several hours?

FFIs report the closing 12/31 balance I believe - so the FFI reporting will often report a very different (but never lower) number than an FBAR or 8938 for each account reported by the FFI.

Accounts exempt from FATCA reporting such as ISAs and some pension plans may feature on FBARs and/or 8938s, but would not be included in FATCA reporting by the FFI.

FFIs report the closing 12/31 balance I believe - so the FFI reporting will often report a very different (but never lower) number than an FBAR or 8938 for each account reported by the FFI.

Could you explain why it would never be lower?  My savings accounts regularly get raided in December.

FFIs report the closing 12/31 balance I believe - so the FFI reporting will often report a very different (but never lower) number than an FBAR or 8938 for each account reported by the FFI.

That is good to hear

Could you explain why it would never be lower?  My savings accounts regularly get raided in December.

You have to report the highest balances your accounts during the year, so I agree with you that the yearly ending balances of my accounts are almost always lower than at some other earlier date that year.

If you had £100 at the beginning of the year and never touched the money at all, you'd report £100 (in US$). The bank would also report £100 (also in US$).

If you added £50 and had £150 at some stage, but took out £75 leaving £75 in the account at 12/31 you'd report £150. The bank would report £75.  I think my English was a bit rubbish earlier in the thread...

Going back to my first example, you'd report £100 using the Treasury official rate as no other rate is permitted on an FBAR.  Who knows what rate the FFI will use!

Even if the balance never changes by a penny, I think the FFI will inevitably report a different number because of exchange rates, unless the account is denominated in US$.

Thanks, guya

Thanks, guya

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