Tax compliance act a bully-boy move by U.S. government

‘A court challenge is being prepared’Tim Harper

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Last week, when national holidays meant cross-border expressions of friendship and neighbourly bonhomie, the Stephen Harper Conservatives officially gave the U.S. the gift that will keep on giving.

They have allowed Uncle Sam to reach across the border and grab what they can from hundreds of thousands who have made Canada their home, are Canadian citizens, and have pledged loyalty and affection to their adopted land.

It is a tax treaty, unusually enshrined in Canadian law through an omnibus budget bill, which rudely views as cheats not only Americans living in this country, but dual citizens, Canadians who have returned after holding U.S. green cards, those with American spouses, and even so-called “border babies” who never actually lived south of the borders.

The Foreign Account Tax Compliance Act (FATCA) is a typical bully-boy move by the U.S. government, which, unlike most other countries, compels its citizens to pay taxes regardless of where they live.

The American reach is worldwide, with more than 70,000 financial institutions in more than 80 countries complying with Washington’s wishes, but only in Canada are expatriates fighting back.

A court challenge is being prepared that will likely focus on Ottawa’s willing move to breach the privacy of its own citizens and discriminate against citizens based on their ethnic origin.

Stephen Kish, a dual U.S.-Canadian citizen, often has competing loyalties, but this year those divided loyalties are eclipsed by his anger at the government of the country in which he has lived for almost four decades.

“My adopted country … how could it turn against us?” he says. “That hurts a lot.

“I had a generic hope that no government would ever do this, that no government that respects itself as a separate entity would cede its rights to a foreign government.

Kish, a professor of psychiatry and pharmacology at the University of Toronto, was born in Seattle, but first crossed the border into Canada in 1970, settling here permanently in 1977.

Kish is also now the chair of the Alliance for the Defence of Canadian Sovereignty, a group established to raise money needed to launch the court challenge.

He’s not there yet, and he knows he is fighting the ultimate battle, taking on the machinery of not only official Ottawa, but, by extension, the massive machine of the U.S. government.

Taxes and death remain the certainties. Court challenges to the former may be quixotic.

Allies are few, including here at home, where Liberal and NDP pushback was meek.

Kentucky Republican Sen. Rand Paul has introduced a bill to repeal FATCA, the Republican National Committee passed a resolution calling for its repeal, and the Republicans Overseas group has signalled its own court challenges.

But they may all be swimming against a tide of more zealous campaigns against tax scofflaws in the U.S.

Last week, the U.S. journalism organization Politico reported that the U.S. treasury fails to collect about $400 billion in taxes each year, and there is bipartisan support for such measures as denying passports to those owing more than $50,000 in back taxes, a more intrusive look at the size of mortgages (to determine whether people qualify for the mortgage interest deduction), penalties on tax preparers who allow clients to improperly claim expenses, outsourcing collection to private debt collectors, and even seizing Medicare payments to doctors.

Some moneyed celebrities have renounced their U.S. citizenship in protest, but renouncing the IRS is far more difficult. You have to have years of full compliance before it will cut the cord.

Ottawa had a weak negotiating position because Washington threatened tough penalties on large banks that did not comply, but Kish still expected Ottawa could call the U.S. bluff and refuse to agree to such a breach of sovereignty.

As it rolls out FATCA, Washington has pulled in its fangs somewhat, waiving some penalties, expanding an amnesty for expats and allowing them to certify that they had not “wilfully” failed to file tax returns.

By next May, large Canadian financial institutions will begin reporting information to the Canada Revenue Agency, which will in turn pass that information on to the IRS by that autumn.

There could still be hundreds of thousands of people in this country who are unaware they could be targeted under this program.

They can be excused. They believed they were playing by the rules.

Tim Harper is a national affairs writer with Torstar Syndication Services.