Mad As Hell And Not Going To Take It Anymore

Mad As Hell And Not Going To Take It Anymore: Two Brave Women Sue Canadian Government Over Controversial FATCA Deal

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Is Ottawa violating Canadians’ constitutional rights to help the U.S. collect taxes? According to two Ontario women, it is.

Two women are suing the Canadian government over a controversial deal in which Canada has agreed to share the tax information of U.S. persons who are Canadian residents with the IRS.

On its face, the deal may seem to be nothing extraordinary. In practice, however, the costs to privacy, autonomy, and Canadian sovereignty of complying with the United States’ Foreign Account Tax Compliance Act (FATCA) are sweeping. At America’s behest, Canada must share tax information even about Canadians who have never lived a day of their lives in the United States, never worked in the United States, and never owed the IRS a single penny. Merely having dual U.S. citizenship — for example because one was born on U.S. soil to Canadian parents — is enough to trigger the mandatory sharing of private financial information.

Most Canadians believe that FATCA goes too far and are seething that their government has so willingly stepped up to help.

Gwen Deegan is a graphic designer from Toronto. Ginny Hillis is a retired lawyer from Windsor. Each filed a statement of claim in the Federal Court of Canada that accuses the Canadian government of overstepping its constitutional powers by agreeing to comply with a new U.S. law called the Foreign Account Tax Compliance Act (FATCA).

Under the Canada-U.S. agreement, which took effect on July 1, the Canada Revenue Agency (CRA) must provide tax information to the Internal Revenue Service concerning Americans and dual U.S.-Canadian citizens who reside in Canada. That number is estimated to be nearly one million. Canadian financial institutions must search their records for accounts held by clients who meet the definition of “U.S. person” under the law, then supply this information to the CRA so that it can be furnished to the IRS.

While this seems fundamentally unfair from a general fairness perspective, that is not all that the women are hanging their hats on. Indeed, there is a strong constitutional underpinning to Deegan and Hillis’ complaint. The women allege that the deal violates the Charter of Rights and Freedoms for three primary reasons:

(1) first, it exposes them to potential U.S. criminal penalties without a hearing;

(2) second, it infringes on their right to be secure against unreasonable search and seizure by virtue of allowing their financial information to be seized without a warrant; and

(3) third, it violates their equal protection rights by treating two groups of similarly situated people differently. Very simply, it discriminates between those defined as “U.S. persons” and everyone else.

The second argument is particularly compelling in light of the fact that the contents of their bank accounts may now be disseminated by their banks to the CRA and by the CRA to the IRS, without Deegan and Hillis ever knowing about it, let alone having a chance to challenge the disclosure. To make matters worse, there is no requirement whatsoever for a warrant or judicial determination of whether the account holder is actually a “U.S. person,” and meaningful restrictions on how the acquired information can be used are lacking.

What’s most ironic about Deegan’s and Hillis’s situations is that both women are married to Canadians with whom they hold several joint financial accounts. A rhetorical question posed by the Canadian national media is: “Why should the husbands of these women, who are not ‘U.S. persons,’ also be subject to having their private financial information disclosed to a foreign government? Don’t Canada’s constitutional guarantees of liberty, security of the person, and freedom from unreasonable search and seizure protect these men as well?”

In explaining why she initiated the court challenge, Ms. Deegan said, “This is an infringement on Canadians of U.S. origin by our Canadian government. It’s literally a betrayal and I feel we can’t just sit idly by and let it happen.”

The United States taxes “U.S. persons” on their worldwide income, regardless of where the person lives in the world and where the income was earned. For example, a U.S. person could earn his living as Santa’s helper in the North Pole or as an anthropologist in the Congo and still have to report his income to the U.S. Treasury. FATCA requires financial institutions outside of the U.S. to collect the financial information of U.S. persons and submit it to U.S. authorities. Banks that fail to supply the information are penalized.

In addition to the alleged Charter violations, Ms. Deegan and Ms. Hillis claim the Canada-U.S. deal violates the division of federal and provincial powers because according to the Constitution Act, provinces have exclusive control over matters involving privacy and property rights.

Ms. Deegan was born in Washington State in 1962 to a Canadian and a U.S. citizen. She moved to Canada in 1967. She has neither worked nor lived in the U.S. since she was five years old and she has never had a U.S. passport.

“I’ve been a Canadian all my life. And for them to say that now, all of a sudden, they’re just going to hand me over to a foreign government to let them plunder my retirement savings is absurd. And I refuse to let them do this without a fight,” Ms. Deegan said. “All I can do is fight the Canadian government and what they’ve done to capitulate to the United States and this absolutely absurd law.”

Ms. Hillis was born in the U.S. in 1946 to two Canadian citizens. She moved to Canada with her family in 1951. She hasn’t lived in the U.S. since and doesn’t have a U.S. passport.

“I felt very strongly that I needed to be involved on behalf of the possible one million others in Canada in my situation,” Ms. Hillis told the National Post.

In addition to her specific personal circumstances, the issues of sovereignty, privacy, and search and seizure raised in the legal claim “were of too much importance for me to take a passive role,” she said.

In an article published in the National Post, Marni Soupcoff summed up the issue like this:

“Taxes — governments will go to extraordinary lengths to collect them, and will often lose sight of the constitutional checks on their own power in the process. That the Canadian government has done so for the benefit of another country’s coffers, rather than its own, not only compounds the constitutional violations at issue; it adds insult to injury. Canadians are having their rights infringed to satisfy a foreign entity’s overreaching greed.”

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  1. Stuart Hadden
    2014-08-24 00:01:09

    Couldn't these women simply renounce their US Citizenship. Seems like they want to be able to have their cake and eat it too. If they want to retain their US Citizenship, they need to abide by US laws which apply to non-resident citizens. They probably want to retain their US Citizenship in the event they wish to return to the US someday, and I do not blame them for wishing to retain this option.

    1. pemiki1
      2014-08-28 14:04:06

      State Department to hike renunciation fees 422% to US$2,350; says “no public benefit” in respecting human right to change nationality . And the narrative that will come out of this fee raise is not likely to focus on "cost recovery" at US consulates around the world but on what is going to be perceived as a punitive act on the part of the US government. It looks like they are so embarrassed by the renunciation numbers and the lines to renounce at the US consulates that they are looking for ways to reduce or slow down the demand. Think about that. Has the state of US citizenship in the world really come to the point where the US government thinks that Americans have to be actively discouraged from renouncing? That is what people are likely to take away from this news. That the United States is trying to keep it's citizens captive by finding quasi-legal methods to interfere with their right to expatriate under international law. There is no way for a “middle class” U.S. person abroad to BOTH: 1. Comply with U.S. tax and reporting obligations; and 2. Participate in normal financial planning, retirement saving, and generally live a productive life. Compliance with the first makes the second impossible. Compliance with U.S. tax law is complex and carries huge risks of mistakes. Bottom line for Americans abroad: retaining U.S. citizenship is a theoretical option but not a practical option. Yes, in theory they can live with the costs, the threats of penalties, the invasive paperwork, FATCA Hunt, etc. (which are well documented on he blogs). In practice they can’t. The biggest cost of being a U.S. citizen abroad is the time required to think about the U.S. imposed requirements of living outside the U.S. And, come to think of it, Americans abroad must also comply with the tax rules in their country of residence. The Truth is: If U.S. citizens abroad want a normal life where their opportunities in life are not restricted by the place of their birth, they must divest themselves of U.S. citizenship. U.S. policies are forcing people to renounce their U.S. citizenship. It’s like “constructive dismissal” in an employment situation. If an employer wants to “fire someone” they can either “fire them directly” or “create conditions that make it impossible for the person to stay. The U.S. has created conditions which make remaining a tax compliant U.S. citizen abroad (unless you are very very rich or very very poor) impossible. Expats are not advocating for a disregard of the law on the basis of a whim or just out of a general dislike for the law. I would say that the overwhelming majority of expats are current with the tax laws of their country of residence. What expats object to is the extraterritorial imposition of U. S. tax law which has the consequence of making their lives abroad illegal or at the least very unpleasant. Expats actually have many rational arguments against C.B.T. while the U.S.'s arguments for it are irrational. The arguments for C.B.T. fit into a few self serving categories that don't constitute proof. They are: a. The law is the law b. Fair share obligations c. Patriotism e. You are a tax evader Who do you think you would have a fiduciary responsibility to? Your family and the community around you or some foreign government? How would you like to live under a system that alienates you from yourself? Only Americans abroad have to live such a sad existence. Expats are not a part of U.S. society in any meaningful or legal way. They have no representation because they are not part of a Congressional district. They can't receive any benefits because the Constitution and international laws regarding sovereignty do not allow Congress to spend money overseas on their behalf for the kinds of benefits that a homelander receives. If it comes down to a choice between self preservation and conformity to a law that results in your own destruction then which choice should a sane person make? If today's expats are to be accused of picking and choosing then the same can be said of its much beloved founding fathers. The same arguments that America, and you, are aiming at expats were also made by the King of England against the rebellious colonists. But a big difference is that expats are not on American territory whereas the American colonists were actually on British soil. By America's own standards this actually puts expats in a superior position compared to the rebellious colonists. The US is trying to 'skim' tax off ex-pats who get nothing in return. The US doesn't contribute to another country's infrastructure, health care or other public services. So the US deserves zero from ex-pats. Homelanders are blind to the fact that on 1 July 2014 their freedom to 'cash out' of the US was taken away from them. But since only about 35% of Americans hold passports most wouldn't notice. FATCA is less about tax and more about the rights as a dual citizenship. The US has turned into a unilateral country who doesn't care about other countries opinions. How long do you think it's going to be before countries get sick of paying fines on their banks, open to economic sanctions because the US abuses its position, ex-pats being tracked via the world's financial systems, it goes on and on. The US is going to lose sole currency reserve status and it's only a question of time. That's the true reason FATCA was brought into law to handcuff people to the US tax system when that happens. Most ex-pats are everyday middle class people who don't want the IRS in their face while paying another country's taxes. Also if a country has a better tax deal like Dubai, why on earth should US ex-pats not be able to take advantage of that while abroad than having ignorant Senators like Chuck Grassley making absurd statements like 'why should an American in Paris pay the same taxes as an American in Peoria?' Answer : the US contributes nothing to France or ex-pats living abroad.

      1. pemiki1
        2014-08-28 14:10:39

        To put US$2,350 in perspective: As long as 3 years ago people were predicting it would become more difficult to renounce under these current conditions. This could be why the consulates slowed down their renunciation bookings — to take advantage of the up-coming price increase. 1. slowing down appointments 2. 2times fee raising 3. making it more difficult all around to relinquish or renounce State Department’s justification is pure nonsense. They are simply taking advantage of the increase in demand to renounce US citizenship. As the predicted price of future tax compliance goes up, the demand for CLNs will go up as people do the math, turn down the thermostat, tighten their belts, and figure out they can afford the CLN but cannot afford future compliance. State will respond to increasing CLN demand by making procedures more onerous, which will raise their own costs for CLN issuance; they will certainly pass those costs along to renunciants. CLNs are a new growth commodity and just beginning to enter a super cycle and I would not be surprised to see counterfeit CLNs start to pop up. Why is there still no fee for relinquishment, considering that they are much more costly to process than renunciations? That’s probably next. Relinquishment itself may even remain technically free, but the paperwork processing fee if you want a CLN will be $2,350. A new study by the National Bureau of Economic Research shows 50% of Americans would struggle to come up with $2,000 in a pinch, for example in the event of an unanticipated car or home repair, a large medical bill or legal expenses. Roughly 28% said they “certainly” would not be able to cope with an unexpected $2,000 bill if they had to come up with the money in 30 days, and another 22% said they “probably” would not be to able to cope. So what are you supposed to do if you are like those 50% of people and cannot afford to renounce, cannot afford the expense to relocate yourself and your non-U.S.-citizen spouse to the U.S., and cannot afford the expense for an accountant to file 3520s for you on a mandatory retirement account you cannot close?

  2. pemiki1
    2014-08-28 14:24:53

    “Probably true but then Congresscritters hardly pay any attention to those who WANT to stay US citizens.” I think given the choice, a great many of us would like to keep our US citizenship. I was kind of holding out that the State Department might somehow tilt in our direction, but it’s clear now that they too wish to wage war on us. This’ll be a game changer for many, but unfortunately a great many more will be unable to do anything about it now. It looks like our value is solely in our ability to pay. Remember Phil Hodgen’s words, “get out while the going’s semi-good”? The going’s gotten a lot less good today. I asked IRS tax law on their website about determining an expatriation date…their response: Due to the technical or complex nature of your inquiry we are unable to provide a response via this service. That’s just taking the mickey. There is nothing technical or complex about my request. They are simply under orders to make life difficult for taxpayers abroad. I got the same run-around when asking straightforward questions about how to fill out Form 8938. “We’re not allowed to answer questions about that.” Then please what is your job anyway? If I can’t get an answer from the IRS of all places, how am I supposed to be able to fill out these forms unless I am able to afford $2000+ per year for legal advice from a CPA ?

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