Written by Max Reed The United States has two tools to get information on accounts held by its citizens: FATCA and FBAR. Lots of attention has been paid to FATCA...
By Max Reed and Charmaine Ko, US Tax Lawyers
Last May, the U.S. Department of Justice sued Jeffrey P. Pomerantz — a Canadian resident, US citizen — for over USD $860,300 in penalties and interest for failing to file his FBAR bank disclosure forms. This case is one of the first known instances of the enforcement of FBAR penalties against a US citizen living in Canada. US citizens who have bank accounts abroad are supposed to file an FBAR each year if they have over USD $10,000 in the aggregate in bank accounts outside the United States. The penalties for failing to file an FBAR are very harsh – ranging from USD $10,000 per account to the greater of $100,000 or 50% of the balance of the account if the violation was willful.
According to court documents, Mr. Pomerantz, a dual Canadian-US citizen, has lived in Vancouver since 2001 except for a brief period spent in California. The US government alleges that he owned two CIBC checking accounts and several businesses that have bank accounts that he did not report on his FBAR. Although Mr. Pomerantz has not formally been served with the documents, the DOJ has expended significant effort to track down Mr. Pomerantz including:
Extensive searching on the internet for his contact information;
Sending multiple notices by Fed-Ex to different addresses he has used;
Calling his phone number;
Calling his lawyer.
Recently, the DOJ made a court filing to try to move the case forward even if Mr. Pomerantz does not reply.
From the court documents, it is not entirely clear how Mr. Pomerantz’s failure to report these accounts was discovered. The IRS previously audited Mr. Pomerantz’s US tax return that he prepared himself. According to court documents, the audit resulted in more tax owing and penalties. Amongst the additional taxes, Mr. Pomerantz had allegedly not reported income from the sale of home furnishings and from the sale of a Toyota. A Tax Court case concerning the assessed additional tax is still ongoing. While the IRS audit began in 2010, the FBAR penalties in question were not assessed until May 2014 for tax year 2007 and March 2015 for tax years 2008 and 2009. It may then be that unreported accounts were discovered during the audit. This cannot be determined from the court documents.
There are several implications of the Pomerantz case for US citizens living in Canada:
It shows that the IRS scrutinizes US taxpayers who live in Canada;
It illustrates the risks associated with not properly filing a US tax return and/or FBAR forms;
Considering these risks, US citizens who have never filed a US tax return should get caught up on their US returns. Failing to file US returns could lead to expensive penalties, but also difficulty accessing the US. Under US immigration law, a US passport is required to enter the US. But a new law allows the US government to confiscate a US passport if a taxpayer owes over USD $50,000.
FATCA increases the risk to US citizens even further. Under FATCA, the IRS receives information on bank accounts held by US citizens in Canada from Canadian financial institutions. This makes it easy for them to determine whether or not a US citizen living in Canada has reported all bank accounts on an FBAR form and instigate penalties as appropriate.