Earlier this year we wrote about how the long arm of the Internal Revenue Service can crimp the free movement of individuals. As that set of posts noted, what the State Department gives — that is, documentation of one’s U.S. citizenship — the IRS can take away if the individual owes more than $50,000 in taxes, interest and penalties. A passport could be also be revoked if a person is too delinquent on child support payments.
The long arm of the IRS also extends beyond the borders of Minnesota and the rest of the country courtesy of the Foreign Account Tax Compliance Act. For readers unfamiliar with it, FATCA is the law that gives the IRS leverage to pressure foreign banks to hand over information about money in accounts held by U.S. individuals. It’s supposed to help curb tax evasion. In many cases it triggers legal tax controversies.
As an example, consider the case of an infant girl in Canada. She was born in the U.S. just over eight months ago to a Canadian father and a mother with dual U.S-Canadian citizenship. As it happens a great grandmother gave the couple a small amount of money for the girl’s future.
The parents moved back to Canada and decided to put the money into a savings account for the child. Her Canadian citizenship papers hadn’t arrived yet, so they used the girl’s U.S. birth certificate for identification. Of course, that meant that she was entered into the bank records as a U.S. person, ostensibly subject to FATCA. Much to the parents’ chagrin, that means she’s now on track to having her information shared with the IRS unless the parents submit documentation attesting to the fact that the child isn’t a U.S. person.
To be clear, the parents say the amount their daughter got is small and tax law experts agree it’s not likely she will earn enough money to warrant paying anything to the IRS for years, but there still could be implications down the road. Efforts are underway to try to resolve this specific controversy and there are also legal challenges seeking to block further FATCA information sharing.
It’s easy to say that such things should just never happen. It’s clear, though, that they do. And when it happens, working with an attorney may be necessary to get things ironed out.
Source: ipolitics.ca, “Baby girl drawn into CRA-IRS information sharing controversy,” Elizabeth Thompson, April 14, 2016