Whistle Blower

Offshore Tax Evasion

For the past 6 years or so we have been exposed to plenty of news in the media on how the US government through its Internal Revenue Service (IRS) and the Treasury has been fighting offshore tax evasion.  One of the important administration tools in this war on tax cheats has been the Whistleblower Program, the program designed to encourage taxpayers to report on tax violations by others.

Strangely enough, despite of spending over $30 million on fighting international tax evasion, the Canada Revenue Agency (CRA) with its outreach and communication has not been as active or loud, as if such problem hardly exists here.

Canadian residents have a duty to report their income and pay taxes to the CRA. Some may have outright financial holdings abroad or possess structures with multiple offshore investments. It is not illegal to hold money or assets offshore for as long as their ownership is adequately disclosed and the tax is paid on related income.

And yes, it may be tempting to cheat the system to avoid paying extra tax.  It may even seem easy to do so by leaving out certain details on a tax return in hopes that they are outside of the Canadian borders.

Canadian Whistleblower Program: OTIP

If these thoughts ever crossed your mind, we are here to remind you that the Canadian system does too have mechanisms in place for catching and penalizing tax cheats, including through its own Whistleblower Program.

In 2014, the CRA adopted a mechanism known as the Offshore Tax Informant Program (OTIP). It was Canada’s response to an effort to fight global tax non-compliance along with all other developed nations in the G-20.  OTIP provides mechanisms to allocate rewards to anyone that can give information on those that aren’t reporting offshore wealth or paying taxes.  OTIP is focused on serious offenders that have over $100,000 CAD outstanding on their federal taxes. The program allows the informant to set up a contract with the CRA that will reward them between 5% and 15% of what is collected.

As of the end of January 2016, there has been 600 calls and 120 cases that came out of OTIP. Calls are offered in both French and English and anyone from around the world can participate in this program. Informants are advised to call OTIP if they feel they can benefit from this program. Calls are confidential as the program is meant to protect the identity of informants.

Sometime mistakes are made; you may have been misinformed of your reporting obligations, information on offshore investments may have been missed, income may have not been freely available by the reporting due date…  Next thing you know, you are an offshore tax delinquent.  Irrespective of the reasons, you are breaking the law and risk significant penalties if you are not taking action to resolve your tax obligations.  By coming forward voluntarily and paying taxes under the CRA voluntary disclosure program you may be able to get away with reduced penalties instead of facing much harsher consequences that could come from programs like OTIP.

Have More Questions

If you have questions about the above post, please let us know and we would be happy to help you. get-a-free-consultation

passport to be revoked

Obama and Republicans finally agreed on something in common: Passing the Fixing America’s Surface Transportation Act in order to continue the crackdown on tax evaders, aka Americans living abroad.

The FAST Act is a 5-year policy that enables the government to collect taxes to pay for transportation-related projects such as roads, bridges or rail networks. In the past, policy for transportation relied on financing from gas tax. However, cars are getting more efficient which has limited the amount of funding the government can generate. So, staring a $16 billion shortfall in the face, the government decided to add a mechanism to the Act that ensures the IRS can collect from a guaranteed 6 to 8 million Americans.

The mechanism they came up with? The ability for the State Department to deny, revoke or limit a passport for any American who is “seriously delinquent” in paying their taxes. FAST defines delinquent as anyone who owes $50,000 USD or more in unpaid taxes, including penalties and interest. (Individuals paying off debts in a timely manner or who have requested a hearing to contest a collection are exempted.)

Before FAST, the IRS could not disclose tax information to the State Department and, in turn, the State Department could not deny, revoke or limit a passport based on a citizen’s tax payments. Now, the IRS will be sharing tax information with the State Department and issuing a certificate that orders the State Department to deny, revoke or limit a passport so its holder can only travel back to the U.S.

Besides delinquency, Americans applying or renewing passports can expect fines if they owe a child support payment over $2,500 USD or any other type of federal debt or if they fail to provide their social security number.

FAST’s provision to deny or limit a passport is a harmful way for the IRS to ensure Americans living outside the U.S., particularly in Canada, for whom having a valid passport is critical, remain vigilant in filing their returns.

Reminder: US law requires US citizens, including dual nationals, to enter and depart the U.S. with proper US documentation to avoid being barred or delayed at the port of entry.

delinquent tax and citizenship

Posted on Oct. 15, 2015 on Taxnotes.com

Janice A. Flynn is an attorney with US Visa Solutions — Law Office of Janice A. Flynn.  In this article, the author discusses how tax law and immigration law intersect to affect U.S. citizens or lawful permanent residents living abroad who may not be up-to-date with their U.S. tax compliance.

* * * * *

U.S. taxpayers living outside the United States have been in the news a lot recently, whether because of the Foreign Account Tax Compliance Act, London Mayor Boris Johnson making U.S. citizens living in the United Kingdom aware that they are delinquent tax filers, or U.S. citizens renouncing their citizenship. This flood of information is bringing U.S. citizens and lawful permanent residents who may not be up-to-date with their U.S. tax compliance out of the woodwork. For those who did not know they had to file a U.S. tax return — and even for those who did know — this is creating a lot of fear around what will happen if they try to reenter the United States while owing U.S. tax.The Department of Homeland Security and its enforcement and customs collection arm, Customs and Border Protection (CBP), oversee the admission of people into, and deportation from, the United States. The IRS is responsible for collecting U.S. federal tax. CBP assists with the responsibility to collect customs duties but not to enforce U.S. tax compliance for individual taxpayers. The many U.S. agencies and departments all have specific responsibilities as set out by the Constitution and Congress, but the rules do not allow the agencies to share information as freely as one would think.

In general, the IRS may not share U.S. federal tax return information, except in specific circumstances as set out in section 6103. In particular, under section 6103(l)(14), the IRS, when requested, may disclose tax return information to CBP officers to ascertain “the correctness of any entry in audits as provided for in section 509 of the Tariff Act of 1930 or other actions to recover any loss of revenue or collecting duties, taxes, and fees determined to be due and owing under such audits.” Internal Revenue Manual section requires that a request made under that section:

  • be in writing and signed by the commissioner of CBP;
  • identify the particular taxpayer to whom the return relates;
  • identify the tax period or date to which the return information relates;
  • identify the particular items of return information to be disclosed; and
  • provide a need and use statement for each item requested.

The IRS must follow specific procedures if it wants CBP to stop and apprehend a person entering the United States at a land border, in an airport, or at a pre-clearance location outside the United States.1 IRS officers can request that taxpayers with a delinquent balance be entered into TECS, a database maintained by DHS that contains information about individuals and businesses suspected of, or involved in, violations of federal law. These taxpayers will be placed on a DHS lookout list, and DHS will advise the IRS when they travel into the United States for business, employment, or personal reasons. It is the responsibility of IRS employees to maintain the TECS database by requesting that the appropriate taxpayers be entered into TECS or deleted from it. IRS officers can also request information from TECS on a taxpayer’s previous travel to or from the United States.2Those who reside outside the United States, including U.S. citizens, and are not tax compliant often wonder what the U.S. government knows about them and what will happen if they enter the United States. Many may have only recently become aware that they needed to file and may be taking advantage of the streamlined disclosure program to get into compliance. Most delinquent tax filers need not be concerned because of the numerous requirements that must be met before the IRS can disclose taxpayer information to CBP and thereby put the taxpayer into the TECS database:3

1. The taxpayer must reside outside the United States, U.S. commonwealths, and U.S. territories or be about to depart to reside in a foreign country.

2. The taxpayer must not have voluntarily resolved the case by full payment or other action, including an installment agreement.

3. A notice of federal tax lien must have been filed for all balance due modules.

4. The total unpaid balance of assessment must equal or exceed $50,000 for international cases or $100,000 for U.S.-based cases. The dollar threshold may be lowered if the IRS agent makes that request and the agent’s group manager concurs that there are significant compliance issues.

5. The taxpayer cannot be in bankruptcy.

6. The IRS cannot have accepted an offer in compromise to settle the taxpayer’s liabilities.

7. The taxpayer’s case must be in status 26 or reported as currently not collectible with closing code 06, 03, or 12.

As the above list shows, the requirements to get a taxpayer on the TECS list are fairly onerous. The IRS must meet a heavy burden before it can ask CBP to apprehend or provide entry information about a U.S. taxpayer coming across the border.The IRS must promptly follow a procedure to have the taxpayer removed from the TECS database if the tax liability has been satisfied, the taxpayer dies, or the taxpayer enters into an arrangement with the IRS.4

Enforcement Through Denial of Passports

The IRS can direct the State Department to deny the issuance of U.S. passports to taxpayers whose delinquencies have escalated to criminal investigations.5 There have been various legislative attempts to extend the denial of passports to taxpayers who are seriously delinquent but not yet in criminal investigations; however, none of those proposals has passed. Most recently, in May Senate Finance Committee Chair Orrin G. Hatch, R-Utah, filed a substitute to the already passed H.R. 644, the Trade Facilitation and Trade Enforcement Act of 2015, that would direct the secretary of state to deny and revoke passports issued to U.S. citizens who are seriously delinquent — that is, those who owe more than $50,000 to the IRS. Both the Senate and the House have passed the act, but the two versions are awaiting reconciliation.Although a U.S. citizen is not required to provide a Social Security number on the application form for a U.S. passport (State Department Form DS-11), the State Department reports the failure to do so to the IRS, which may impose a $500 fine.6 The IRS allows the passport applicant 60 days (90 days if the applicant lives outside the United States) to respond to a notice requesting the person’s SSN. However, the IRS will not assess the penalty if it finds there was reasonable cause for the taxpayer’s inability to provide the information and that the failure was not a result of willful neglect. Also, section 6039E indicates that a person applying for a passport must provide a taxpayer identification number only if the person has one. Logically, if a U.S. passport applicant does not have a TIN, the applicant does not have to include one on the passport application form and would not be subject to the $500 fine.

Many “accidental U.S. citizens” who do not have an SSN are trying to obtain one because of FATCA. However, they are encountering delays of up to six months because of the extra documentation required for adults applying for an SSN for the first time.

Renunciation of Citizenship and Entry Issues

More and more people each year are choosing to renounce their U.S. citizenship, most likely to simplify their lives in light of the FATCA compliance requirements that became law in March 2010. A person who renounces U.S. citizenship must have citizenship in another country so as not to be rendered stateless. Further, once a person renounces, that person becomes subject to the same U.S. entry and excludability requirements as aliens. To be admissible into the United States, an alien must not have a criminal history concerning controlled substances or crimes involving moral turpitude. Those who plan to renounce and have a criminal history of this type should first seek legal advice.Assuming the person is otherwise admissible, the person who renounced may travel to the United States under a visitor visa. Also, under the State Department’s visa waiver program, nationals of some countries can visit the United States without a visa for the purpose of business or tourism. If an immigration officer questions a person’s U.S. citizenship, it is up to the former U.S. citizen to demonstrate that he has renounced. Therefore, former U.S. citizens should carry with them a copy of their certificate of loss of nationality (CLN). The final determination of renunciation is effective as of the date of the renunciation interview but is not official until the issuance of the CLN. Those who urgently need to travel to the United States should ask at the renunciation interview to keep their passports, as it can take several months to get the CLN.

The Immigration and Nationality Act provides that people who renounced their U.S. citizenship on or after September 30, 1996, for the purpose of U.S. tax avoidance, as determined by DHS, are inadmissible.7 The State Department, which oversees the process of renunciation, provides information to Treasury, which then coordinates with DHS. To date, there are no procedures implementing this law, and it is therefore unlikely to be enforced. But from an immigration law perspective, a person should be up-to-date with U.S. tax compliance before renouncing so as to avoid any potential claim of tax avoidance.


U.S. tax law and immigration law are increasingly crossing paths. It can be fascinating to watch how the U.S. government agencies work together (or do not) to fulfill their legal obligations. A firm understanding of how the U.S. government can enforce tax compliance at ports of entry or through the non-issuance of passports can allay the fears of those who wish to enter the country.


1See IRM section 5.1.18. Starting in 2015, there will be more pre-clearance locations outside the United States. For the list, see https://www.cbp.gov/border-security/ports-entry/operations/preclearance.2 IRM section

3 IRM section

4See IRM section

5 20 CFR section 51.60.

6See section 6039E.

7See Immigration and Nationality Act, section 212(a)(10)(E).

tax amnesty

Both US and Canadian tax systems are based on self-assessment when individuals voluntarily complete their income tax returns and make applicable disclosures. When a taxpayer has previously filed an incorrect or incomplete tax return or failed to disclose certain tax details, the taxpayer may under certain circumstances be permitted to come forward and voluntarily disclose past reporting errors or omissions in exchange for partially or completely reduced penalties and occasionally, interest. The relief is available under voluntary tax amnesty programs offered by the CRA and the IRS. Some of these programs are permanent while others are offered on a temporary basis with or without a definitive timeline.

A disclosure will not be considered to be voluntary where, prior to making the disclosure, a taxpayer was aware of, or had knowledge of the enforcement action set forth by the tax authorities with respect to the information disclosed. In addition, no partial or complete penalty abatement is available to a taxpayer who gets approached with respect to an error by the government body first.

Currently the IRS is administering several tax amnesty programs allowing American citizens, Green card holders and American residents to come forward with previous inaccuracies and omissions related to their foreign income, accounts and assets. These programs are called Offshore Voluntary Disclosure Program, Offshore Streamline Procedures and Domestic Streamlined Procedures.

We have experience assisting taxpayers who wish to come forward with US tax delinquent compliance from the time the IRS introduced the first offshore program in 2009.