Many Canadians have expressed frustration with U.S. tax policy of worldwide taxation of U.S. citizens.

Posted on April 17, 2014

The recent article published in The Globe and Mail, written by two academics** entitled

How the U.S. pulled off the great Canadian privacy giveaway

reflects the frustration of some Canadian academic leaders.  The article’s tone is set with its first paragraph:

• For the first time in Canadian history, our federal government is preparing to provide a foreign government with sensitive personal financial information about hundreds of thousands of Canadians. It is doing so to stave off threatened economic sanctions, and is getting nothing in return.

It seems to me the United States government is faced with a real dilemma regarding the foreign frustration with U.S. tax policy.  Do they correctly enforce the law as written?  Doing so, will clearly bring a host of tax penalties to be levied against dual national citizens living throughout the world.  Canada and Mexico are the two countries most affected.  Most of these penalties and tax assessments will, for all practical affects, be unenforceable in the international context.

Most of those dual citizens who will be affected, will be subject to a host of U.S. tax penalties, mostly related to failure to file information returns (e.g., FBARs, IRS Forms 8938, 5471, 3520, etc.) which carry a minimum of US$10,000 fine per violation.  On the other hand, if the IRS and Justice Department does not enforce the tax and “FBAR” law against all U.S. citizen taxpayers, including “benign” taxpayers, what will be the response of taxpayers who are not “benign” and have actively engaged in tax evasion and tax fraud?

This is a dilemma that the very law has created for U.S. tax administrators.

**Arthur Cockfield is a Professor with Queen’s University Faculty of Law. Allison Christians is the Heward Stikeman Chair in the Law of Taxation at McGill University Faculty of Law. This article draws from their submissions on FATCA to the Department of Finance, which are posted on the Internet.