The Internal Revenue Service has reportedly backed away from plans to heavily penalize U.S. citizens and dual citizens living in Canada who may not have paid all of their taxes.
The plans to assess heavy penalties against taxpayers had been causing consternation north of the border. They stemmed from the Foreign Account Tax Compliance Act, or FATCA, which was included last year as part of the HIRE Act (see
The law requires foreign financial institutions to report directly to the IRS information about the financial accounts held by U.S. taxpayers and the foreign entities in which U.S. taxpayers hold a substantial financial interest. U.S. citizens with bank accounts in other countries have long been required to file reports of foreign bank accounts, or FBARs. But the IRS has been stepping up its enforcement in recent years, particularly with Swiss banks, pressuring them to disclose information on their U.S. account holders.
In May, Canadian Finance Minister Jim Flaherty complained about the U.S.’s new requirements for Canadian banks to disclose the financial information of dual U.S. and Canadian citizens and other Canadians, pointing to privacy concerns (see
But U.S. Ambassador to Canada David Jacobson told the
An IRS spokesperson confirmed the change in policy on Thursday, telling the
Flaherty welcomed the news, saying in a statement quoted by the
The IRS has not yet officially issued any guidance, but is expected to soon produce a document laying out ways to reduce the burden on taxpayers, although the agency is limited to some degree because there has not been a change in the FATCA provisions by Congress.