1. law, govt and politics

Court File No.: T-1736-14
FEDERAL COURT
BETWEEN:
VIRGINIA HILLIS and GWENDOLYN LOUISE DEEGAN
PLAINTIFFS
and
THE ATTORNEY GENERAL OF CANADA and THE MINISTER OF
NATIONAL REVENUE
DEFENDANTS
MOTION RECORD OF THE DEFENDANTS
(VOLUME 1 OF 2)
,\
Department of Justice
B.C. Regional Office
900-840 Howe Street
Vancouver, British Columbia
Solicitor for the Defendants:
V6Z 2S9
Tel: 604-666~3049/604-775-60141
604- 666-7761
Donnaree Nygard, Michael Taylor and
Oliver Pulleyblank
Farris, Vaughan, Wills & Murphy LLP
Barristers and Solicitors
P.O. Box 10026 Pacific Centre South
25th Floor, 700 West Georgia Street
Vancouver, British Columbia
V7Y IB3
Tel: 604-684-9151
Solicitor for the Plaintiffs:
Joseph J. Arvay,
David E. Gruber
Q.c., and
Court File No.: T-1736-14
FEDERAL COURT
BETWEEN:
VIRGINIA HILLIS and GWENDOLYN LOUISE DEEGAN
PLAINTIFFS
and
THE ATTORNEY GENERAL OF CANADA and THE MINISTER OF
NATIONAL REVENUE
DEFENDANTS
MOTION RECORD OF THE DEFENDANTS
(VOLUME 1 OF 2)
Department of Justice
B.C. Regional Office
900-840 Howe Street
Vancouver, British Columbia
V6Z 2S9
Tel: 604-666~3049 / 604-775-6014 /
604- 666-7761
Farris, Vaughan, Wills & Murphy LLP
Barristers and Solicitors
P.O. Box 10026 Pacific Centre South
25th Floor, 700 West Georgia Street
Vancouver, British Columbia
V7Y IB3
Tel: 604-684-9151
Solicitor for the Defendants:
Donnaree Nygard, Michael Taylor and
Oliver Pulley blank
Solicitor for the Plaintiffs:
Joseph J. Arvay, Q.C., and
David E. Gruber
INDEX
VOLUME 1 OF2
Tab
Description of Document
Page
Number
1-3
1.
Notice of Motion, dated June 2, 2015
2.
Written Representations of the Defendants; dated June 2, 2015
4-21
2A
Appendix "A" - Expert Report of Allison Christians
(With added highlighting)
22-37
2B
Appendix "B" - Expert Report of Robert W. Wood
(With added highlighting)
38-51
VOLUME20F2
I
Book of Authorities of the Defendants
Tab
Cases
A.
Canadian Society of Immigration Consultants v. Canada, 2011 FC 669
B.
Eurocopter v. Bell Helicopter Textron Canada Limitee, 2010 FC 1328
C.
Pan American World Airways Inc. v. Canada (1979), [1979] 2 F.e. 34 (T.D.)
D.
Pelletier v. Canada (Attorney General), 2008 FC 803
_.
E.
i R. v. Abbey,
2009 ONCA 624
F.
R. v. Abbey, [1982J 2 S.e.R. 24
G.
R. v. Lavallee, [1990] 1 S.e.R. 852
H.
R. v. Jvfohan, [1994] 2 S.C.R. 9
I.
R. v. Robinson, 2003 BCCA 353
J.
White Burgess Langille Inman v. Abbot and Haliburton Co., 2015 SCC 23
-i
-
1
Court File No.: T-1736-14
FEDERAL COURT
BETWEEN:
VIRGINIA HILLIS and GWENDOLYN LOUISE DEEGAN
Plaintiffs
and
THE ATTORNEY GENERAL OF CANADA and THE MINISTER OF
NATIONAL REVENUE'
Defendants
NOTICE OF MOTION
TAKE NOTICE THAT the Deputy Attorney General of Canada, on behalf of the
Defendants, the Attorney General of Canada and the Minister of National Revenue,
will make a motion to the Court on a date to be set pursuant to Rule 35(2)(b), at the
Federal Court of Canada, 701 West Georgia Street, Vancouver, British Columbia.
THE MOTION IS FOR:
1. An order striking portions of the report of Allison Christians (the "Christians
Report"), attached to the affidavit of Allison Christians sworn 28 April 2015
and filed in Court 1 May 2015;
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2. An order striking portions of the report of Robert W. Wood (the "Wood
Report"), attached to the affidavit of Robert W. Wood sworn on 29 April 2015
and filed in Court 1 May 2015; and
3. Costs of this motion.
THE GROUNDS FOR THE MOTION ARE
1. The Wood Report and the Christians Report (collectively "the Reports") were
filed as expert evidence in support of the Plaintiffs' notice of motion for a
summary trial filed 1 May 20 15 (the "Summary Trial Motion").
2. Portions of the Reports are inadmissible as expert evidence in the Summary
Trial Motion because they:
a. Are irrelevant to any matter at issue in that motion;
b. Consist of evidence of Canadian law that is unnecessary to assist the
trier of fact;
c. Consist of inadmissible hearsay;
d. Set out opinion without setting out the basis for that opinion; or
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e. Set out opinions on matters concerning which the authors do not possess
expertise.
THE FOLLOWING DOCUMENTARY EVIDENCE will be used at the hearing of the
motion: [Nil).
DATE: June 02, 2015
Per:
Tel:
Fax:
File:
Oliver Pulleyblank
Department of Justice
900 - 840 Howe Street
Vancouver, British Columbia
V6Z 2S9
604-666-6671
(604) 775-7557
6966881
Solicitor for the Defendants
TO:
Joseph J. Arvay, Q.C.
Farris, Yaughan, Wills & Murphy LLP
Barristers and Solicitors
P.O. Box 10026 Pacific Centre
2500 -700 West Georgia Street
\!ancouver, British Columbia
V7Y IB3
THIS NOTICE OF MOTION IS PREPARED ON BEHALF OF THE DEFENDANTS BY THE
DEPUTY ATTORNEY GENERAL OF CANADA WHOSE PLACE OF BUSINESS AND ADDRESS
FOR SERVICE IS THE DEPARTMENT OF JUSTICE, 900 - 840 HOWE STREET, VANCOUVER,
BRITISH COLUMBIA, V6Z 2S9, TELEPHONE 604-666-6671, FACSIMILE (604) 775-7557,
ATTENTION:
OLIVERPULLEYBLANK.
.
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Court File NO.:T-1736-14
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FEDERAL COURT
BETWEEN:
VIRGINIA HILLIS and GWENDOLYN LOUISE DEEGAN
PLAINTIFFS
and
THE ATTORNEY GENERAL OF .CANADA and THE MINISTER OF
NATIONAL REVENUE
~l
DEFENDANTS
WRITTEN REPRESENTATIONS OF THE DEFENDANTS
1
Department of Justice
B.C. Regional Office
900-840 Howe Street
Vancouver, British Columbia
V6Z 2S9
Oliver Pulleyblank, Counsel
Solicitor for the Defendants:
Farris, Vaughan, Wills & Murphy LLP
Barristers and Solicitors
P.O. Box 10026 Pacific Centre
2500 - 700 West Georgia Street
Vancouver, British Columbia
V7Y 1B3
Solicitor for the Plaintiffs: .
Joseph J. Arvay, Q.C., Counsel
5
OVERVIEW
1. Expert evidence can be of great assistance in the search for truth. However, when
such evidence is irrelevant to the matters at issue or is unnecessary to assist the trier
of fact, it may obfuscate rather than elucidate. This is why the Supreme Court of
Canada recently warned of the "special dangers" posed by expert evidence, and
emphasized the importance of the trial judge's gatekeeping role with regard to
matters of admissibility: White Burgess Langille Inman v. Abbot and Haliburton
Co., 2015 SCC 23, at para. 1. Irrelevant or unnecessary expert evidence is not just
unhelpful, it is inadmissible.
2. In this motion for a summary trial, the Plaintiffs have put forward as expert evidence
two reports from rpembers of the legal profession. Much of that evidence is
inadmissible. Some purports to explain Canadian law to this Court, and is
unnecessary and inadmissible. Other evidence is directed at United States law.
Expert evidence on United States.law has a role to play in this motion, which
considers the Canadian legislative response to an American law, the Foreign
Accounts Tax Compliance Act ("FATCA"). However, much of the evidence led by
the plaintiffs exceeds that role because it doesnot e~plain the United States law, but
rather criticizes its application to Canadian.financial institutions and U.S. Persons
living in Canada.
The wisdom behind the valid legislation of the United States is
not a matter for determination by this Court, and evidence criticizing FATCA' s
scope is therefore irrelevant and inadmissible.
3. The reports also improperly put forward opinions without explaining their factual
basis and contain evidence that is inadmissible hearsay or that is beyond the purview
of the authors' claimed expertise. These portions of the reports are also
inadmissible.
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6
PART I - STATEMENT OF FACTS
4. On 11 August 2014, Virginia Hillis and Gwendolyn Louise Deegan ("the Plaintiffs")
filed a Statement of Claim in the Federal Court challenging the constitutionality of the
Canada-United
States
Enhanced
Tax
Information
Exchange
Agreement
Implementation Act (the "IGA Implementation Act'), being s. 99 and Schedule 3 of
the Economic Action Plan 2014 Act, NO.1, S.C. 2014, c. 20 and ss. 263 to 269 of the
Income Tax Act, RS.C. 1985, c. 1 (collectively the "Impugned Provisions").
5. The Impugned Provisions were enacted after the United States and Canada concluded
the Intergovernmental Agreement for the Enhanced Exchange of Tax Information
under the Canada-US. Tax Convention (the "Intergovernmental Agreement") in 2014
in response to the American Foreign Account Tax Compliance Act ("FATCA"),
passed in 2010 as part of the Hiring Incentives to Restore Employment Act, Pub. L.
No. 111-147,124 Stat. 71.
6. On 9 October 2014, the Plaintiffs filed an Amended Statement of Claim, which added
additional claims that were not based on constitutional arguments (the "Amended
Claim"). Specifically, the Plaintiffs assert:
a. the automatic disclosure of information provided for under the Impugned
Provisions is ultra vires based on the Canada-United States Tax Convention
Act, 1984, S.C. 1984, c. 20 (the "Tax Convention Act") to the extent that
1.
the taxpayer information relates to a taxable period in which the
taxpayer was a citizen of Canada;
11.
the taxpayer information is not relevant for carrying out the provisions
of the Tax Convention Act or the domestic tax laws of Canada or the
Unites States; or
lll.
the collection and disclosure of the taxpayer information pursuant to
the Impugned Provisions subjects United States nationals resident in
Canada to taxation and requirements connected therewith that are
more burdensome than the taxation and requirements connected
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I
therewith to which Canadian nationals resident in Canada are subject;
and
b. the automatic disclosure of information provided for under the Impugned
Provisions is ultra vires to the extent it is contrary to s. 241 (1) of the Income
Tax Act.
(Collectively, these assertions are 'referred to as the "Administrative Law
Claims")
7. In the Amended Claim the Plaintiffs seek ail order in the nature of an interlocutory or
permanent prohibitive injunction preventing the collection and disclosure of taxpayer
information to the United States by the Minister of National Revenue where:
a. the taxpayer information relates to a taxable period in which the taxpayer was
a citizen of Canada;
b. the taxpayer information is not shown to be relevant for carrying out the
provisions of the Tax Convention Act or the domestic tax laws of Canada or
the United States; or
c. the collection and disclosure of the taxpayer information subjects United
States nationals resident in Canada to taxation and requirements connected
therewith that are more burdensome than the taxation and requirements
connected therewith to which Canadian citizens resident in Canada are
subjected.
8. On 1 May 2015, the. Plaintiffs filed a Notice of Motion for a summary trial pursuant
to Rules 213 and 216 solely concerning the Administrative
"Summary Trial Motion").
Law Claims (the
The constitutional law claims are not advanced in the
Summary Trial Motion.
9. Specifically, in the Summary Trial Motion, the Plaintiffs seek:
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A declaration that disclosures of taxpayer imormation to the United States
pursuant to the Impugned Provisions
are unlawful based on the Tax
Convention Ador s. 241 of the Income Tax Act, to the extentthat:
1.
the taxpayer information relates to a taxable period in which the
taxpayer was a citizen of Canada;
11.
the taxpayer information is not relevant for carrying out the provisions
of the Tax Convention Act or the domestic tax laws of Canada or the
Unites States;
111.
the disclosure of the taxpayer information subjects United States
nationals resident in Canada to taxation and requirements connected
therewith
that are more
requirements
burdensome
than
the taxation
and
connected therewith to which Canadian nationals
resident in Canada are subjected; and
IV.
the disclosure of the taxpayer information relates to matters not
. explicitly covered by the Convention Between the United States and
. Canada with Respect to Taxes on Income and Capital, 26 September
1980, Can. T.S. 1984, No. 15 as amended (the "Canada-US Tax
Treaty")
10. The Plaintiffs also seek an order in the nature of a permanent prohibitive injunction
preventing.disclosure of taxpayer information to the. United States by the Minister of
National Revenue where:
a. the taxpayer information relates to a taxable period in which the taxpayer was
a citizen of Canada;
b. the taxpayer information is not shown to be relevant for carrying out the
provisions of the Tax Convention Act or the domestic tax laws of Canada or
the United States; or
c. the disclosure of the taxpayer information subj~cts United States nationals
resident in Canada to taxation and requirements connected therewith that are
more burdensome than the taxation and requirements connected therewith to
which Canadian nationals resident in Canada are subjected.
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11. In support of the Summary Trial Motion, the Plaintiffs filed five affidavits:
a. the affidavit of Sally Yee, affirmed 24 April 2015;
b. the affidavit of Gwendolyn Louise Deegan, sworn 27 April 2015;
c. the affidavit of Virginia Hillis, sworn 28 April 2015;
d. the affidavit of Allison Christians, sworn 28 April 2015 (the "Christians
Affidavit"), attached to which was an undated report entitled "Expert Report
of Allison Christians" (the "Christians Report") and a Certificate Concerning
Code of Conduct for Expert Witnesses signed by Allison Christians; and
e. the affidavit of Robert W. Wood (the "Wood Affidavit"), sworn 29 April
2015, attached to which was an undated report entitled "Expert Report of
Robert W. Wood" (the "Wood Report") and a Certificate Concerning Code of
Conduct for Expert Witnesses signed by Robert W. Wood.
(Collectively, the Wood Report and the Christians Report are referred to as "the
Reports")
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PART II - ISSUES
12. The Defendants say that portions of the Reports are inadmissible as expert evidence
in the Summary Trial Motion because they:
a.
are irrelevant to any matter at issue in that motion;
b. consist of evidence of Canadian law that is unnecessary to assist the trier of
fact;
c. consist of inadmissible hearsay;
d. set out opinions without setting out the basis for the opinion; or
e. set out opinions on matters concerning which the authors do not possess
expertise.
The Defendants have attached as "Appendix A" to these written representations a
copy of the Christians Report indicating the inadmissible portions, and as "Appendix
B" a copy ofthe Wood Report indicating the inadmissible portions.
,
-7 PART III -SUBMISSIONS
GENERAL PRINCIPLES
REGARDING THE ADMISSIBILITY
OF EXPERT OPINION
The Admissibility of Expert Opinion Evidence is Governed by the Mohan Criteria
13. Expert opinion evidence may be admissible if it satisfies the well-known criteria set
out by the Supreme Court of Canada in R. v. Mohan, specifically:
a.
relevance
b.
necessity in assisting the trier of fact
c.
the absence of any exclusionary rule; and
d.
a properly qualified expert
R. v. Mohan, [1994] 2 S.c.R. 9, at 20.
14. The Supreme Court of Canada has recently reiterated the danger that expert
evidence may be misused and distort the fact finding process. The Court noted that:
Expert opinion evidence can be a key element in the search for truth, but it
may also pose special dangers. To guard against them, the Court over the last
20 years or so has progressively tightened the rules of admissibility and
enhanced the trial judge's gatekeeping role. These developments seek to
ensure that expert opinion evidence meets certain basic standards before it is
admitted.
White Burgess Langille Inman v. Abbot and Haliburton Co., 2015 SCC 23,
at para. 1.
Relevancy: A Two-Step Analysis
15. The admissibility of expert evidence is considered in two distinct steps. At the first
step, the proponent of the evidence must establish the four Mohan factors.
11
- 8-
Relevancy at this stage refers to logical relevance: evidence is relevant to a fact in
issue if it tends to establish it.
Mohan, at S.C.R. 20-21.
White Burgess, supra, at para. 23.
16. At the second step, the trial judge must balance the risks and benefits of admitting
the evidence. Justice Cromwell described this second step in the following terms:
[24]
At the second discretionary gatekeeping step, the judge balances the
potential risks and benefits of admitting the evidence in order to decide
whether the potential benefits justify the risks. The required balancing
exercise has been described in various ways. In Mohan, Sopinka J. spoke of
the "reliability versus effect factor" (p. 21), while in J. -L.J., Binnie J. spoke
about "relevance, reliability and necessity" being "measured against the
counterweights of consumption of time, prejudice and confusion": para 47.
Doherty J.A. summed it up well in Abbey, stating that the "trial judge. must
decide whether expert evidence that meets the preconditions to admissibility
is sufficiently beneficial to the trial process to warrant its admission despite
the potential harm to the trial process that may flow from the admission of
the expert evidence": para. 76.
White Burgess, supra.
] 7. The distinction between logical and legal relevance, and the requirement that expert
evidence meet both criteria, was described by Doherty J.A. in the following terms:
[82]
Relevance can have two very different meanings in the evidentiary
context. Relevance can refer to logical relevance, a requirement that the
evidence have a tendency
'l;S
a matter of human experience and logic to make
the existence or non.,.existence of a fact in issue more or less likely than it
would be without that evidence: J.-L.J. at para. 47. Given this meaning,
.1 ?'-
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relevance sets a low threshold for admissibility and reflects the inclusionary
bias of our evidentiary rules: see R. v. Clark (1999), 129 C.C.C. (3d) 1 (Ont.
c.A.), at p. 12. Relevance can also refer to a requirement that evidence be
not only logically relevant to a fact in issue, but also sufficiently probative to
justify its admission despite the prejudice that may flow from its admission.
This meaning of relevance is described as legal relevance and involves ~
limited weighing of the costs and benefits associated with admitting
evidence that is undoubtedly logically relevant: see Paciocco & Stuesser at
pp.30-35.
R. v. Abbey, 2009 ONCA 624.
The Burden of establishing Admissibility lies with the Party leading the Evidence
18. The party proposing to lead expert evidence bears the burden of establishing its
admissibility on a balance of probabilities. Therefore, while the Defendants raise the
issue of admissibility, the Defendants need not prove that the Reports are
inadmissible; rather the Plaintiffs bear the burden of showing that the Reports satisfy
the Mohan criteria.
White Burgess, supra, at para. 48.
THE PLAINTIFFS' EXPERT REPORTS
The Christians Report improperly provides evidence on Canadian Law
19. Both Ms. Christians and Mr. Wood are put forward as experts on matters of tax law.
Ordinarily a party need not lead expert evidence on the law, as the Court may take
notice of the law and has the expertise necessary to evaluate it. Such evidence is
therefore unnecessary.
As was set out by Justice Martineau of this C0w:t, in noting
that a report consisting of evidence with regard to Canadian law failed to meet the
standard of necessity:
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[11]
... It is well-established that the Federal Court shall take judicial
notice of any public or private Act of the Federal Parliament and of the
Legislature ofthe province (Section 18, Canada Evidence Act, R.S.C. 1985,
c. C-5). Consequently, while expert evidence may be required for
intemationallaw,
it is not admissible as to domestic law (Pan American
World Airways Inc. v. The Queen, [1979] 2 F.C. 34 (T.D.) atp. 44, affirmed
[1980] F.C.J. no. 1158 (F.C.A.) (QL), affirmed [1981] 2 S.c.R. 565
(S.C.C.».
Eurocopter v. Bell Helicopter Textron Canada Limitee, 2010 FC
1328.
See also Canadian Society of Immigration Consultants v. Canada,
2011 FC 669, at paras. 7 -9; Pan American World Airways Inc. v.
Canada (1979), [1979] 2 F.C. 34 (T.D.) at p. 44, affd (1980),120
D.L.R. (3d) 574, affd [1981] 2 S.C.R. 565.
20. The Christians Report explicitly purports to answer a question of Canadian law.
Specifically, at paragraphs 14 -'-23, the Christians Report addresses "With respectto
each circumstance under which a US Person resident in Canada who reports and
pays taxes in accordance with Canadian law also owes taxes to the United States ... ,
do the laws of Canada require such a US Person to disclose or report any
information or document relating to that circumstance?". (Emphasis added).
21. This portion of the Christians Report is unnecessary and therefore inadmissible.
Evidence on U.S. Law is Inadmissible ifIrrelevant to the Facts at Issue on the Motion
22. Unlike expert evidence of Canadian law, which is always inadmissible, evidence
with regard to foreign law may in certain circumstances be admissible. However,
like all expert evidence, it will be inadmissible unless it is relevant to a fact at issue.
14
- 11 -
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23. Substantial portions of the Reports provide evidence of United States law that is
irrelevant to the facts at issue on the Summary Trial Motion, or that is of such
marginal relevance that it does not meet the standard oflega! relevancy.
24. There are only two substantive points at issue in the Summary Trial Motion. As set
out by the Plaintiffs in their memorandum of fact 'and law at paragraph 38, apart
from whether the issues are suitable for determination by slibunary trial, the only
issues to be decided in this motion are:
a.
. .. what is the scope of AccOlmtholder Information that Canada may disclose
pursuant to the Canada-US Tax Treaty; and
b. to the extent that the Canada-US Tax Treaty does not permit the disclosure
of Accountholder Information, would disclosure of that information also
violate s. 241 ofthe Income Tax Act?
25. The latter question is a simple matter of interpretation ofs. 241 of the Income Tax
Act, and the Plaintiffs do not rely on either of the Reports in relation to that issue.
26. Consequently, the admissibility of the Reports depends on whether the evidence
therein contained is relevant to the question of the scope of information that Canada
may disclose pursuant to the Canada-US Tax Treaty.
27. This question turns on the interpretation ofthe Canada-US Tax Treaty as
implemented by the Tax Convention Act, and the Intergovernmental Agreement as
implemented by the lOA Agreement Implementation Act. This is not a question of
applying U.S. law, but rather requires this Court to interpret two domestic Canadian
statutes.
28. Evidence of United States law will be relevant for purposes of determining this
motion only insofar as it relates to establishing whether the information that Canada
is required to disclose pursuant to the lOA "may be relevant" for carrying out the
provisions of the Canada-US Tax.Treaty or of United States domestic tax laws as
contemplated by the Canada-US Tax Treaty and by the Tax Convention Act.
- 12 -
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29. In considering that issue, evidence establishing the United States laws that concern
taxes, including FATCA, maybe relevant. However, while the parameters of
FATCA may be relevant, a criticism of the wisdom or necessity of FA TCA will not
be relevant.
A Canadian court is not the right forum to challenge the advisability of
what the Wood Report acknowledges is "a valid, enforceable law of the United
States".
30. Nevertheless, substantial portions of both Reports are devoted to criticizing the
decision to draft FATeA so that reporting requirements apply to Canadian financial
institutions and to US Persons living in Canada. Ms. Christians and Mr. Wood do
not assert that FATCA does not apply to such entities, they simply present evidence
in support of arguments that it should not have been crafted to do so. That is not
relevant to the issue before this Court in the Summary Trial Motion.
31. Perhaps most strikingly, at paragraphs 4 - 8, the Christians Report addresses the
question "[t]o what extent is Canada a destination for US Persons (as defined in
FATCA and the Intergovernmental Agreement) who seek to evade the payment of
taxes?" Ms. Christians' opinion that Canada is not a tax haven may indeed be
sound, but it is irrelevant to the question before the Court on this motion of what
"may be relevant" to United States law as it stands. While an argument might have
been made to the United States Congress at the time FATCA was introduced for
limiting its application to "tax havens", this Court is only concerned with US law as
it exists, not as it might have been designed.
32. Similarly, at paragraph 10 of the Christians Report it is stated "IRS estimates
provide that fewer than 10% of all individuals who file US tax returns from a 'tax
home' located outside the United States ultimately owe any tax to the United
States". Then again, at paragraph 11 of the Christians Report, it is stated "[a] large
majority of Canadian residents who have US Person status likely do not owe taxes to
the United States in most years because the United States generally relieves such tax
both statutorily '!TIdin accordance with the Tax Treaty". This is irrelevant to the
question of whether information exchanged pursuant to the Impugned Provisions is
- 13-
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relevant for carrying out the provisions the domestic laws of the United States
concerning taxes.
33. Tax law is of ~ourse far broader than simply the collection of taxes owing: it must
also cover matters such as information collection, the identification of taxpayers,
verification of compliance, and the determination of liabilities. Indeed, as is set out
in the Christians Report, "Canadian residents who have US Persons status must fulfil
annual tax form filing and financial asset reporting obligations to the United States,
in most cases unrelated to any tax due" (at para. 13) and "(r]egardless of whether
any tax is due, the United States requires extensive tax and asset reporting
documentation, for which noncompliance attracts extensive penalties" (at para. 10).
34. The Wood Report also includes irrelevant material when it describes the history of
FATCA's passage. On page 6, the Wood Report offers evidence of the view of
FATCA taken by the popular press and the general public in ~erica.
This
evidence is irrelevant to the questions before the Court.
35. This Court is not required to decide ifFATCA is advisable legislation, or whether it
is as narrowly tailored as it should be. Nor is this Court required to determine how it
has been perceived by the general public. The Court is not even being asked to
apply FATCA. Rather, evidence of United States law is relevant only to the extent
that the Court requires information on what United States law in fact provides for
purposes of deciding whether the disclosure contemplated by the Impugned
Provisions exceeds the scope authorized by the Canada-US Tax Treaty.
Experts must remain within their field of expertise
36. Being qualified as an expert does not give a witness license to opine on matters
outside their expertise.
R. v. Robinson, 2003 BCCA 353, at paras 85-90.
- 14-
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37. At several points, the Wood Report proffers evidence that is beyond the scope of Mr.
Wood's expertise.
For example, at page 6 the Report offers opinion on the public
perception ofFATCA in America. Yet Mr. Wood is not held out as an expert on
measuring public opinion. Similarly, at page 9 he provides evidence concerning the
fear that can be caused by receiving mail from the IRS. There is no indication that
he is an expert on the psychology of fear. These portions of the Wood Report are
inadmissible because Mr. Wood is not a qualified to make such pronouncements.
Objections beyond the Mohan Criteria
38. Finally, beyond the Mohan criteria, portions of the Reports are inadmissible for
failing to conform with general principles of expert evidence. While it may in
certain circumstances be appropriate for an expert to rely on hearsay evidence in
forming an opinion, this does not mean that otherwise inadmissible evidence
becomes admissible simply because it is contained in an expert opinion. As set out
by Dickson J. (as he then was) in R. v. Abbey, "[b]efore any weight can be given to
an expert's opinion, the facts upon which the opinion is based must be found to
exist".
R. v. Lavallee, [1990] 1 S.C.R. 852, at S.C.R. 893.
R. v. Abbey, [1982] 2 S.C.R. 24, at S.C.R. 46.
39. The Wood Report contains several instances of clearly inadmissible hearsay. At
page 6, it quotes at length an editorial from the Bloomberg View. Newspaper
articles are hearsay evidence and are generally inadmissible for the truth of their
contents.
The quotation is inadmissible as proof of the truth of the contents of the
information contained therein. Similarly, on page 7the Report again refers to a
newspaper article for the proposition that the Mayor of London was born in the
United States. Again, this is inadmissible as proof of the truth of its contents.
Pelletier v. Canada (Attorney General), 2008 FC 803, at paras. 25-26.
- 15 -
40. The Christians Report makes a bald assertion of fact at paragraph 23 where the
author states that "Canada and the United States ate aware of the Tax Treaty Gaps."
There is no indication as to the source of the information, or indeed even who the
Report refers to as "Canada" and the "United States". Testimony as to the purported
knowledge of an undefined entity without any explanation of the basis for the
assertion has no value. Alternatively, if this assertion could be classified as opinion,
the Report gives no explanation for the factual basis upon which it lies.
'\ 9
- 16 -
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PARTIV-ORDERSOUGHT
41. That the portions of the Christians Report indicated in Appendix A be struck as
inadmissible.
42. That the portions of the Wood Report indicated in Appendix B be struck as
inadmissible.
43. Costs of this motion.
ALL OF WHICH IS RESPECTFULLY SUBMITTED.
DATED at the City of Vancouver, in the Province of British Columbia; this
second day of June, 2015.
William F. Pentney, Q.c.
Deputy Attorney General of Canada
Per:
Oliver Pulleyblank
Department of Justice
B.C. Regional Office
900-840 Howe Street
Vancouver, British Columbia
V6Z 2S9
Tel:
(604) 666-6671
Fax: (604) 775-5942
File: 6966881
Solicitor for the Respondent
I
TO:
The Registrar
Federal Court of Canada
AND TO:
Joseph J. Arvay, Q.C.
Farris, Vaughan, Wills & Murphy LLP
Barristers and Solicitors
P.O. Box 10026 Pacific Centre
2500 -700 West Georgia Street
Vancouver, British Columbia
V7Y IB3
Solicitor for the Applicant
- 17 -
21
PART V - LIST OF AUTHORITIES
1.
Canadian Society of Immigration Consultants v. Canada, 2011 FC 669
2.
Eurocopter v. Bell Helicopter Textron Canada Limitee, 2010 FC 1328
3.
Pan American World Airways Inc. v. Canada (1979), [1979] 2 F.C. 34 (T.D.)
4.
Pelletier v. Canada (Attorney General), 2008 FC 803
5.
R. v. Abbey, 2009 ONCA 624
6.
R. v. Abbey, [1982] 2 S.c.R. 24
7.
R. v. Lavallee; [1990] 1 S.C.R. 852
8.
R. v. Mohan, [1994] 2 S.C.R. 9
9.
R. v. Robinson, 2003 BCCA 353
10.
White Burgess Langille Inman v. Abbot and Haliburton Co;, 2015 sec 23
22
APPENDIX "A" EXPERT REPORT OF ALLISON CHRISTIANS
(With added highlighting)
000088
Expert Report of Allison Christians
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I am the H. Heward Stikeman Chair in the Law of Taxation at McGill University, Faculty
of Law, where I teach courses on Canadian individual and corporate income tax law,
international and comparative tax law, and tax policy. Before joining the Faculty of Law
at McGill University in 2012, I taught US individual, corporate, and international tax law
at the University of Wisconsin Law School and at the Northwestern University School of
Law in Chicago, Illinois. I have been a full time tax law professor for 12 years. I attained
my juris doctor degree (JD) at Columbia University in New York, where I was awarded
top academic disti~ction as a James Kent Scholar and a Harlan Fiske Stone Scholar. I
attained my LL.M.(Tax) at New York University, the top graduate program for taxation
'."intheUnited'States.Before'enteri:ng academia, I practiced tax law at Wachtell, Lipton,
Rosen & Katz in New York, where I focused on the US taxation of domestic and cros,sborder mergers and acquisitions, spin-offs, restrUcturings and associated issues and
transactions involving private and public companies, and at Debevoise & Plimpton in
New York, where I focused on the taxation of private equity funds. I have written
numerous articles, essays, and book chapters on international and comparative tax topics
and am the co-author of a leading international tax casebook.
You asked me to consider three questions:
I.
To what extent is Canada a destination for US Persons (as defined in
'FATCA and the Intergovernmental Agreement) who seek to evade the payment of
taxes?
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II.
Under what circumstances and to what extent would a US Person (as
defined in FATCA and the Intergovernmental Agreement) resident in Canada
who reports and pays taxes in accordance with Canadian law: owe taxes to the
United States; and be liable in the United States for penalties or fines in relation to
the reporting or paying of United States taxes?
III.
With respect to each circumstance under which a US Person resident in
Canada who reports and pays taxes in accordance with Canadian law also owes
taxes to the United States (as set out in question 2(a), above), do the laws of
Canada require such a US Person to disclose or report any information or
document relating to that circumstaIice?
3]
In answering these ,questions I make the following assumptions:
a. That the affected individuals reside at all relevant times exclusively in
Canada for Canadian federal tax purposes and are liable to tax in Canada
as such pursuant to ITA s. 2.1
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The terms s. and section herein refer to provisions in the Canadalncome Tax Act (RS.C., 1985, c.
1 (5th Supp.) as amended (ITA) and the Income Tax Regulations thereto (ITR); the use of the symbol ~
refers to provisions of the
Internal Revenue Code of 1986, as amended (IRC), and treasury regulations
thereto (Regulations). References to the Tax Treaty are to the Convention between The United States of
America and Canada with respect to Taxes on Income and on Capital, signed at Washington on 26
September 1980, as Amended on 14 June 1983,28 March 1984, 17 March 1995,29 July 1997, and 21 Sept.
2007.
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That the financial lives of the affected individuals at all relevant times are
located in Canada, that is, that all sources of income including that from
employment, business, property, or gains, are earned in Canada and would
be subject to taxation in Canada on an annual basis under applicable
federal, provincial, and territorial law.
TO WHAT EXTENT IS CANADA A DESTINATION FOR US
PERSONS (AS DEFINED IN FATCA AND THE
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IN1'ERGOVERNMENTAL
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AGREEMENT) WHO SEEK TO EVADE
THE PAYMENT OF TAXES?
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It is my opinion that Canada is not a destination for individuals with US Person status,2
for three reasons.
5]
First, Canadl:j.has a comprehensive and well-regulated income tax system that is in
fundamentals very similar to the tax system in the United States, although Canada's
system features generally higher tax rates of tax. In my opinion, individuals seeking to
escape taxation by leaving the United States would not find reliefby moving to Canada.
a.
Both countries impose comprehensive, worldwide taxation on personal
income at the national and subnationalleve1.3 In Canada, top income
earners face a combined federal and provincial tax rate as high as 49.5%4
. for incomes in excess of $136,270.5 In the United States, top income
earners face a combined rate' as high as 46.3%6 once income reaches
$406,751 (or higher, depending on filing status). 7
b.
Both countries compute income for tax purposes on a net basis"by
?eneralll allowing de.ductions for .expense.s paid orin,:urred in. ea~ng
mcome. Both countIies also prOVIde speCIfied deductIOns agamst Income
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"US Person" is a defined term in US law. IRe ~ nOI(a)(3) and regulations thereunder. In this
opinion, I use the terms "US Person," "US Person resident in Canada," and "Canadianresident(s) with US
Person status" interchangeably. The latter best describes the class of persons to whom this opinion relates.
3
In the United States, gross income includes all income from whatever source derived. IRC ~ 61. In
Canada, income is defined as that which arises from an office, employment, business, property, or other
enumerated source, together with capital gains. ITA s. 3.
'
4
, As adjusted by inflation and combined with top provincial rate: OECD, Table 1.7. Top statutory
personal income tax rate and top marginal tax rates for employees,
http://stats.oecd.orgiindex.aspx?DataSetCode=T ABLE 17.
5
Federal Income Tax Rates, 2014, http://www.cra-arc.gc.caltXIndvdls/fg/txrts-eng.html; Brackets
are adjusted annually for inflation.
'
,
6
IRC ~1 as adjusted by inflation, combined with top state and m).lnicipal tax rates: 'see OECD,
Table I.7. Top statutory personal income tax rate and top marginal tax rates for employees,
http://stats.oecd.orgiindex.aspx?DataSetCodlFT ABLE 17
7
2014 Rates; brackets are adjusted annually for inflation.
8
IRC ~ 61-68; ITA s. 2-4.
2
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for certain non-mcome related items. In the United States, additional
deductions include mortgage interest on a principal residence, certain
..
state, local, and property taxes, charitable gifts, and other specified items.9
In Canada, additional deductions include spousal support payments,
moving expenses, and RRSP contributions. 10Net income as computed
under each system therefore generally varies.
.
c. Both countries grant a reduced tax rate on capital gains and certain
dividends. The top US rate is 15 per cent for long-term capital gains
(generally, gain on the sale of capital assets held for at least one year),11
and for most corporate 'dividends received by individuals.12 The Canadian
tax for capital gains is generally half the regular rate of tax, which yields a
maximum effe.ctive rate of up to about 25%,13and Canada al~o grants a
reduced tax rate on dIvidends paid by Canadian, but not foreign,
corporations. 14
..
d. Both countries provide various tax credits designed to achieve social and
economic policy objectives, which reduce tax otherwise owing and in
certain cases may be "refundable," such that the taxpayer receives a net
cash transfer through the tax system. IS It is not clear whether refundable
credits received from the United States constitute income for Canadian tax
purposes or vice versa. Accordingly, the final tax computed under each
. system generally varies.
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e. In cases of income tax overlap, both countries generally accord the
primary right to tax to the country in which income arose, as reflected in
the Tax Treaty, which has been in place and periodically updated since
1942. Accordingly, each country generally either exempts income that
arose in the other country, or credits taxes paid to the other country on
income that arose therein.16
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Both countries impose taxes on corporations as entities separate from their
owners. 17Both countries impose income tax on the owners of other forms
of entity, such as partnerships.I8 Both countries impose taxes on trusts,
either at the entity or atthe owner/beneficiary level. 19 To the extent that
mismatches in the entity residence rules create jurisdictional overlaps, a
tie-breaker rule in the Tax Treaty generally assigns entity residence
9
IRC ~ 101 et seq.; 153 et seq.; 161 et seq.; 211 et seq.
ITA s. 58 et seq.
.
II
IRC ~ l(h)
12
IRC ~ l(h)(ll)
13
ITAs.3(b).
14
ITAs.82.
15
US persons who are not factually domiciled in the United States and who meet various income or
family composition requirements may be eligible for certain of these credits depending on income
thresholds, but are not eligible for others regardless of income.
16
IRC ~~ 911,901 et seq; ITA ~ 126, Tax Treaty Art. XXIV (Elimination of Double Taxation).
17
IRC .~7701(a)(3); ITA s. 248(1).
18
IRC ~~ 701-777, 1361-1379; ITA s. 96 et seq.
19
IRC ~~ 641-685; ITA s.104 et seq.
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excl~sively to one of the two countries.20 The owner of income or the
taxpayer entitled to deductions may be differentially identified under the
two systems from time to time?l
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g. As a result, a Canadian resident with US Person status who pays income
tax in Canada does not usually owe income tax to the United States.
However, because the two tax systems are not identical in every respect,
certain items of Canadian-source income may not be exempted, nor
ce~ain taxes credited, b~ the United Stat~, either within a ~ingle tax
penod or permanently.2 I refer to such cIrcumstances herem as "Tax
Treaty Gaps."
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Second, Canada is not a tax haven, rather it is a highly Cooperative member of the
international community on matters involving tax and financial information sharing. In
my opinion, individuals seeking to evade taxation by moving assets to a secrecy
jurisdiction would not consider Canada a favorable destination.
a.
Canada is not a tax haven according to the DECD definition. Tax havens
are characterized by the DECD as having four keY factors: (I) No or
minimal tax on the relevant income; (2) No effective exchange of
information with respect to the regime; (3) The jurisdiction's regimes lack
transparency; (4) The jurisdiction facilitates the establishment of foreignowned entities without the need for a local substantive presence or
prohibits these entities from having any commercial impact on the local
economy?3 Canada does not satisfy any ofthese conditions. According to
a 2011 peer report written by the DECD Global Forum on Transparency
and Exchange of Information for Tax Purposes, "The CRA has received
requests for all types of ownership and identity information from its
[Exchange ofInformation]parfuers
including with respect to companies,
partnerships and trusts and there have not been any instances where
oWnership and identity information could riot be provided as a result of it
not being available." 24
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b.
'fP.e United States does not have an official definition of the term "tax
haven," but the US Senate has identified criteria that the United States
would consider in evaluating whether a jurisdiction is an "Offshore
SecrecyJurisdiction."
These include a holistic evaluation of "corporate,
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Tax Treaty Art. IV. This provision also contains tie-breaker rules for individuals, however these
are not applicable in the case of US citizens. Art. XXIX (exception for US citizens).
21
This may happen, for example, due to differential deeming rules in each country. In most cases,
income and deduction differences caused by such deeming rules are reversed or reconciled in future tax
periods.
~2
See discussion in Part II.
23
The Organization for Economic Co-operation and Development, "Towards Global Tax Cooperation; Report to the 2000 Ministerial Council Meeting and Recommendations by the Committee on,
Fiscal Affairs," at 10.
;
24
Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews:
Canada 2011, Combined: Phase 1 + Phase 2, April 2011 (hereinafter, "OECD Peer Report") at 17,
available at
http://www.oecd.org/documentJ51/0J746.en
21571361 43854757 47572915
1 1,00.html.
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business, bank, or tax secrecy rules and practices which [... ] unreasonably
restrict the ability of the United States to obtain information [... ] unless
[... ] such country has effective information exchange practices.,,25 To my
knowledge Canada has never been included in any proposed list of secrecy
jurisdictions compiled by the United States.
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Third, Canada aild the United States have a deep and longstanding cooperative
relationship in tax compliance. and enforcement. In my opinion, iridividuals seeking to
thwart US tax compliance and enforcement efforts would not seek assistance in this effort
by moving to Canada.
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a.
Since 1942, Canada and the United States have had in place an extensive
bilateral information-sharing regime, which is contained within the Tax
Treaty.26Since 1985, Canada and the United States have had in place a
Mutual Legal Assistance Treaty that provides for a broad range of legal
assistance in criminal matters.27 Beginning in 1996, Canada and the
United States began an "automatic" exchange of information regime.
Article XXVII(2) of the Tax Treaty obliges each to obtain tax information
for the other even where it would not normally collect such information
for domestic law purposes.
b.
In addition, Canada and the United States have a Simultaneous
Ex~ation
Program and a Simultaneous Criminal Investigation Program
in place?S These programs allow for detailed, coordinated compliance and
enforcement efforts,ptoviding
mechanisms under which the CRA and the
IRS may act jointly, in close cooperation and constant communication, to
undertake corresponding audits of related taxpayers in Canada and the US.
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, Accordingly, in my opinion Canada is not a destination for individuals with US Person
status who seek to avoid or evade taxation.
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In a prior proposed version ofFATCA, the "Stop Tax Haven Abuse Act" of2007, "Stop Tax
Haven Abuse Act'; (proposed) s.681.1S at F(b)(B), thirty-four (34) jurisdictions were identified as tax
havens. Canada was not listed. Though this act was not adopted by the United States (it has been
reintroduCed several times and continues to sit before the Senate as a reform and expansion ofFATCA), it
provides the clearest understanding of the criteria and definition of a tax haven from the US perspective. In
short, the United States will deem a jurisdiction to be a tax haven if it does not cooperate with information
sharing regarding US persons with assets in that jurisdiction.
Convention and Protocol between Canada and the United States for the Avoidance of Double
Taxation and the Prevention of Fiscal Evasion in the case of Income, 4 March 1942.
26
Treaty Between the Government of Canada and the Government 9f the United States of America
on Mutual Legal Assistance in Criminal Matters, 18 March 1985, Can TS 1990 No 19.
27
28
See e.g. Treasury Inspector General for Tax Administration: Office of Inspections and
Evaluations, "Inspection of the Exchange of Information Process at the Plantation, Florida, Office" (25 July.
2012), online: www.treasury.gov/tigta/iereports/2012reports/2012IERQ06fr.html.
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UNDER WHAT CIRCUMSTANCES
AND TO WHAT EXTENT
WOULD A US PERSON (AS DEFINED IN FATCA AND THE
INTERGOVERNMENTAL
AGREEMENT) RESIDENT IN CANADA
WHO REPORTS AND PAYS TAXES IN ACCORDANCE WITH
, CANADIAN LAW: OWE TAXES TO THE u.NITED STATES; AND BE
LIABLE IN THE UNITED STATES FOR PENALTIES OR FINES IN
',.
RELATION TO THE REPORTING OR PAYING OF UNITED
STATES TAXES?
Canadian residents may have US Person status because the United States includes all US
citizens as permanent tax residents in the United States for federal income tax purposes.29
Accordingly, every Canadian resident who is a US citizen, whether or not they are also a
Canadian citizen, is defined as a US Person Jor US federal income tax purposes (but not
generally for st~te tax purposes). US Persons are subjectto US federal taxation on all of
their income from all sources, wherever derived?O
Under a specific set of circumstances, Canadian residents who have US Person status
may be subject to US taxation on their Canadian-source income (circumstances referred
to herein as Tax Treaty Gaps). The extent to whiqh they are actually so subject is not
known because taxpayer data is confidential in both Canada and the United States and
nether country, t6 my knowledge, compiles or discloses aggregate statistics of the amount
of tax paid by Canadian residents on Canadian source income to the United States.
However, IRS estimates provide that fewer than 10% of all individuals who file US tax
returns om a tax orne ocate ou Sl ee
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a e owe an ax 0 e
United States. Regardless of whether any tax i~ due, the United States requires
extensive tax and asset reporting documentation, for which noncompliance attracts
extensive penalties ..
29
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IRC 9 7701(a)(30) and regulations thereunder. The United States is the only country in the world
'that comprehensively treats individuals as resident for tax purposes by virtue of their status as citizens or
legal permanent residents under relevant immigration and nationality laws, as amended from time to time
by statute and at common law (including retroactive1y)~Eritrea is the only other country knoWn for
attempting to impose a tax on Eritrean citizens who live permanently outside the country, however, the
United States, Canada, and other countries have rejected the right of Eritrea to collect this tax. UN Security
Council Resolution 2023 (2011), Adopted by the Security Council at its 6674th meeting, on 5 December
2011.
.
30
IRC 961.
31
National Taxpayer Advocate, 2011 Report to Congress, Vol. 1 at 156 (Dec. 31,2011), at
http://www.taxpayeradvocate.irs.gov/2011-annua1-report-to-congress
(in tax year 2009 "88 percent of all
taxpayers claiming the foreign earned income exclusion (FEIE) did not have U.S. tax liability after '
applying the exclusion. After the application of the [foreign tax credit], only about nine percent offuese
taxpayers had a U.S. tax liability"). Only persons with a tax home outside of the United States are eligible
for the FEIE. See IRC 9 911 and regulations thereunder.
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A large majority of Canadian residents who have US Person status likely do not owe
taxes to the Umted States In most years because the Umted States generally relieves such
tax both statutorily and in accordance with the Tax Treaty,32
12]
'Where there are systemic mismatches involving identification of income or deductions,
timing of income or deductions, character of income, or rate of tax, certain Canadian
residents who have US Person status may be subject to U,S. taxation on Canadian source
income that is unrelieved by statute or the Tax Treaty within a given tax year or, in a few
discrete cases, permanently. Whether US tax will ultimately be imposed in such Tax
Treaty Gap cases, and at what rate, depends on the individual's overall income for US tax
purposes, as offset by available credits and'deductions. Below, Ibriefly outline some of
the most common situations in which income may arise for US tax purposes at a time or
in a manner in which it would not so arise for Canadian tax purPoses, thus creating a Tax
Treaty Gap.
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a. Canada does not include gains from the sale of owner-occupied housing in
income for tax purposes, but the United States does include such gains
with an exemption fOrthe first $250,000 in the case of individual
taxpayers and $500,000 for married couples filing joint returns, assurn.iD.g.
various requirements are met. 33Therefore such gains are not included in
income in Canada but will be included in income for US tax purposes. I
note that this represents a structural difference between the two systems in
that the United States allows a deduction for mortgage interest during the
term of owner-occupation,34 while Canada does not~
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b. Similarly, Canada does not include certain items, such as lottery
wimrings35or strike pay,36in the concept ofincome, while the United
States does include these items.37
IRC gg 901et seq, 911; TreatY Art., XXIV. For example, if a Canadian residentearns $50,000 in
income from employment in Canada, in most cases she will pay income taXes in Canada in some amount. If
she is also deemed to be a resident of the United States for tax pUrposes, she must also declare atld file a US
tax return showing the employment income and calculating a provisional tax liability to the United States.
She may then elect to either deduct the Canadian tax she paid from her US tax owing via a foreign tax
credit, or deduct the entire earned income amount assuming she meets specified requirements, via an
exemption. The foreign tax credit applies only to foreign taxes that are imposed on income "in the US
sense" and is limited to the amount of US income tax that would otherwise apply. The income exclusion is
adjusted annually and is limited to USD $100,800 in2015, with a further exemption available as a housing
amount. See IRS Online Guidelines: http://www.irs.gov/Individuals/Intemational-Taxpayers/ForeignEarned-lucome-Exclusion; IRS Online Guidf?lines: http://www.irs.gov/Individuals/IntemationalTaxpayers/Foreign-Housing-Exclusion-or-Deduction.
Taxpayers may in certain cases elect instead to
deduct the Canadian taxagainst income, rather than against tax. IRC g 164(a)(3).
33
ITA40(2),(b), (c); IRC g 121.
34
IRC g 163(h)(2)(D). The economic effect of this structural difference is likely equivalent. Irt the
United States, deductible interest payments reflect a reduction of tax during the owner occupation, while
~able capital gain on the sale, if any, represents an economic recapture of those prior deductions, so that
on net, there is no final tax impact in most cases. Irt Canada, there is no up front reduction in tax so no need
to recoup the tax on final sale.
35
Gambling gains, which would include lottery winnings, are not included within the concept of .
income in Canada pursuant to ITA 40(2)(f), but they are so included and are subject to a special regime for
the limitation oflosses in the United States. IRC g 165(d); see also Zarin v. Commissioner, U.S, Ct. App 3d
Cir., 916 F.2d 110, 1990
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c~ The United States has a number of tax shelter rules to restrict certain
deductions for passive income losses to passive income.38 A passive loss
that is limited in one tax year may be claimed when the investment is
ultimately disposed of. This can create income in one year that is offset by
a deduction in a later year for US tax purposes, in a manner that does not
align with the investment outcome for Canadian tax purposes. Canadian
residents who have US Person status therefore may be subject to US tax
on certain Canadian-source income from passive investments where there
is no such income for Canadian tax purposes, while in a subsequent year
the situation would be reversed.
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d. The United States has.a number of rules that deem income to be earned by
the shareholders of certain foreign cOrP;-ate entities. Controlling US
shareholders of non-US corporations must generally include deemed
dividends in income, calculated annually by reference to certain types of
passive income earned by the corporation.39 US shareholders in certain
non-US investment companies must generally include in their income
their share of all income, including unrealized gains, earned by the ..
investment company.40The United States generally exempts later income
distributions to the shareholder as "previously taxed income.'>41Cariadian
residents who have US Person status therefore may be subject to US tax.
on certain Canadian-source income earned by Canadian corporations, even
where thereis no distribution of such income to the shareholder, while in a
subsequent year the situation would be reversed.42
e. The United States has a number of rules that deem income to be earned by
the owners (grantors) or beneficiaries of non-US trusts in specified cases.
This may in some cases include the income and gains earned in Registered
Education Savings and Disability Plans (RESPs and RDSPs),and Tax
Free Savings Accounts (TFSAs). Canadian resident~ who have US Person
sta;tustherefore may be subject to US tax on certain Canadian-source .
income earned within such plans even where there is no distribution .of
such income to the taxpayer. Similar to the treatment of deemed versus
actual distributions in cases inVOlvingcorporations, in a subsequent year
the situation would be reversed. To my knowledge the United States has
not provided guidance with respect to whether and to what extent any
contributions to such plans by the Government of Canada, or the
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Canada v. Fries [1990] 2 SCR 1322.
IRC ~ 61.
38
IRC ~ 469. Passive income generally means the kind of income that arises frorilthemere
ownership of income-producing assetS, mime1y, dividends, interest, rents, and royalties.
39
IRC ~ 951 et seq.
40
IRC ~ 1291; IRC ~1297 (known as the Passive Foreign Investment Company; or "PFIC" rules.).
Where the shareholder cannot calculate her share of annual unreallzed income from PFIC, such as a mutual
fund, the United States imposes penalties and interest on any amount included upon the disposition of such
investment.
.
41
IRC ~ 959(a) (CFC rules) and 1293(c) (pFIC rules).
42
. When the situation is reversed, a foreign tax credit mayor may not be available tci eliminate the
double tax that would otherwise occur, depending on the circumstances.
37
8
investment income and gains pertaining to such contributions, would
constitute income to US Persons who make contributions to, or are
. beneficiaries of, such plans.
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The United States recently enacted a Net Investment Income Tax
(''NUT''), a 3.8% excise tax on certain ''unearned'' or passive income
received by US Persons, includin~ but not limited to capital gains, rents,
dividends, interest, annuities, etc. 3 The NUT is not eligible for offset by
foreign taxes via credit. Therefore, Canadian residents who have uS
Person status may be subject to US tax on certain Canadian-source.
investment income even if Canadian income taxes have already been paid
on such income, and even if such Canadian income tax exceeds the total
amount of tax provisionally computed on such income for US tax
purposes.
g.
Beginning in 2014, all Canadian residents who have US person status are
subject to an annual "shared responsibility payment" to the United States
if they do not demonstrate that they have health care coverage or have a
health coverage exenz.rtion as defined (colloquially known as the
.
Obamacare penalty).
This is a tax for some purposes, and a penalty for
other purposes, under US law.45 To my knowledge the payment would not
be eligible for offset by foreign taxes via credit, either because it is in the
nature of an excise tax rather than all income tax,46 or because it is a
penalty, The payment is calculated as the greater of a flat fee or a
percentage of household income, as adjusted from year to year. 47For tax
year 2014, the maximum payment is USD$2,448 pet household member,
including children, for an annual maximum payment per household of
USD$12,240.48
h.
All US tax information must be reported in US dollars; with currency
conversions calculated under specified rules. Transactions undertaken in
Canadian dollars by Canadian residents who have US Person status may give rise to "foreign currency transaction" gains for US federal tax
purposes.49 Foreign currency transaction gains are generally subject to tax
as ordinary income (rather than capital gain) for US federal tax purposes.
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IRC 9 1411. The NIIT applies to US persons who have incomes above a specified threshold,
generally USD$200,OOOfor single filers and USD$250,OOOfor married couples filing jointly. This tax was
adopted to help pay forhealth insurance of US residents under the Affordable Care Act, commonly known
as Obamacare. Individuals who are not resident within the United States are generally ineligible for health
care coverage under Obamacare even if they are US Persons for federal tax purposes.
44
IRC 9 5000A ("Requirement to maintain minimum essential coverage"). In order to avoid being
subject to the shared responsibility payment, US Persons must file Form 8965 and attach it to their annual
income tax return, as discussed more fully infra.
4S
National Federation of Independent Business v. Sebelius, 132 S.Ct 2566 (2012).
46
The applicable provision is contained in Subtitle D of the United States Code, "Miscellaneous
Excise Taxes."
47
IRC ~ 5000A(c); see also Congressional Research Service, Individual Mandate Under ACA, Aug.
12, 2014 at https://www.fas.org/sgp/crs/miscIR41331.pdf.
48
The payment is only calculated for the first five individuals of a household.
49
IRC ~ 988.
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Therefore, Canadian residents who have US Person status may be subject
to US tax on certain proceeds of transactions, even if such transactions
produce no gain, and even if they produce a loss, for Canadian income tax
purposes.
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In addition to the federal income tax, the United States has federal estate
and gift taxes, which are designed to give rise to taxation in certain
succession transfers, mainJ,yinvolving higher income taxpayers. Like
income taxes, US estate and gift taxes apply to all deemed tax residents
and are not generally mitigated by statute or treaty. 50 Therefore, Canadian
residents who have US Person status, and in some cases their spouses or
heirs regardless oftheir status as US Persons, may be subject to US estate
or gift tax in specified cases, even if no part of the estate or gift arises
from US sources.
j.
Other timing, character, and taxpayer mismatches may occur which may
result in US taxation of Canadian source income received by Canadian
residents who have US Person status, as well as in some cases their
spouses and heirs.
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Canadian residents who have US Persons status must fulfill annual tax form filing and
financial asset reporting obligations to the United States, in most cases unrelated to any
tax .due. Failure-to-file, failure-to-pay, accuracy-related, and information return penalties
are generally assessed in cases in which US Persons fail to make required form
submissions. Some of the most common required annual filing forms, and the penalties
for not filing them, are described below. Additional forms may also be required and may
be subject to non-filing penalties whether or not tax is due.
a. An annual tax return must be filed (Form 1040 or applicable substitute) if
annual income thresholds are met, whether or not any tax is due. 51 A
failure to file a tax return is subject to a late filing or a late payment
penalty of a maximum of 25% of any balance due. 52 I note that foreign tax
credits and foreign income ~xemptions are only available by filing,. so
failure to file may result in assessed tax obligations, penalties; and inte;rest,
even if such taxes, penalties, and interest would have been eliminated if
the requisite filing had been completed.
b. An attestation of "Health Coverage Exemption" (Form 8965) must be filed
annually with the annmil income tax return in order to avoid a penalty for
lack of health insurance. Failure to file the Health Coverage Exemption
form may result in the automatic assessment of a shared responsibility
payment of up to USD$2,448 per household member, including children,
for an annual maximum penalty per household of USD$12,240. 53 This
so
Tax Treaty Art. XXIX B (Taxes Imposed by Reason of Death).
IRC S 6012.6017. For the most recent tax year, the income thresholds ranged according to family
status from USD$10,150 for single filers to USD$20,300 for couples filing joint returns, with specified
exceptions
.
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lRC SS 6651, 6501(c)(I), (2), (3).
53
lRC S 5000A.
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penalty is administered by the IRS but is unrelated to any tax liability that
may be owed by a US Person.
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A foreign bank account report, or "FBAR," must be filed annually with
the U.S. Financial Crimes Enforcement Network to disclose all assets held
outside the United States iftheir combined value reaches USD$lO,OOO at
any time during the year. 54 Depending on whether the failure to disclose is
deemed to be willful or not, a failure to file or omission in FBAR -filing
may be subject to penalties that range from USD$lO,OOO to the greater of
USD$100,000 or 50% of the highest balance in each non-US financial
account, as converted to US currency in the time and manner prescribed
by statute. 55 FBAR penalties are administered by the IRS but are unrelated
56
to any tax liability that may be owed by the owner of the account.
d. A "Statement of Specified Foreign Assets" (Form 8938) must be filed
annually to disclose all financial assets held outside the United States if
their combined value reaches a specified amount, ranging from
USD$200;000 to USD$600,000, dependin.g on filing status, for those
factually domiciled outside the United States.57 Whether or not any tax is
due in connection with such assets, failure to file Form 8938 is subject to a
penalty ofUSD$l 0;000 each year, rising to USD$50,000 for continuing
failure to file after receiving notification from the IRS.
e.
Canadian residents who have US Person status and who contribute to or
are. beneficiaries of certain savings vehicles, including some RESPs;
RDSPs, and TFSAs, may be required to file an "Annual Information
Return of Foreign Trust With a US Owner" (Form 3520A) or an "Annual
Return to Report Transactions With Foreign Trusts and Receipt of Certain
Foreign Gifts" (Forni 3520), or both. Failure to file Form 3520A if
required is subject to a penalty of the greater ofUSD$ 10,000 or 5% of the
gross amount 6fthe trust or plan that is deemed to be owned by the US
Person, whether or not any tax is due.58 Failure to file Form 3520 is .
subject to a penalty of the greater ofUSD$lO,OOO, 35% of annual
contributions to the trust or plan, 35% of gross distributions received from
the trust orplan, or 5% of the gross amount of the trust or plan that is
59
deemed to be owned by the US PerSon, whether or not any tax is due.
31 USC ~ 5314 and regulations thereunder; 31 CFR Chapter X.
Specified relief from FBAR penalties may be available td some US Persons in certain
circumstances under various compliance programs, as amended from time to time.
56
A person may avoid penalties by showing a "reasonable cause," which is undefined in US law and
appears to be determined at the sole discretion of the US Treasury. Willfulness is under-defmed, but
.
includes intentionally failing to learn about the FBAR. a standard which has yet to be explored at commOn
law. If the taxpayer is found willful- including willfully blind to the regime - FBAR penalties rise
dramatically and ,can ultimately include criminal. liability. In extreme cases, FBARcrimina1izes paperwork
mistakes.
'
57
IRC ~ 6038D.
58
IRC ~ 6048(b)(1). This penalty will apply whether or not any tax is due on Form 1120.
59
IRC ~ 6677.
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f. Canadian residents who have US Person status and who invest in certain
Canadian mutual fund. companies or who are directly or indirectly
controlling shareholders of C~adian corpora~ions, including small
business corporations, may be required to annually file an "Information
Return of U.S. Persons With Respect to Certain Foreign Corporations"
(Form 5471).6oFailure to ftle Form 5471 when required results in an
automatic penalty of $1 0,000 whether or not any tax is due, and may also
result in reduction of foreign tax credits.61
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g. Canadian residents who have US Person status and who own interests in
certain Canadian mutual funds and other investment vehicles may also be
required to annually file an "Information Return by a S~areholder of a
Passive Foreigri Investment Company or Qualified Electing Fund" (Form
8621).62 Failure to file Form 8621 when required may result in a $10,000
penalty whether or not any tax is due.63
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Canadian residents who have US Person status and who own interests in,
make transfers to, or receive income, dispose of, or change their interests
in, certain Canadian partnerships may be .required to annually file a
"Return of U.S. Persons With Respect to Certain Foreign Partnerships"
(Form 8865).64 Failure to file Form 8865. when required may result in a
$10,000 penalty whether or not any tax is due, with additional
USD$10,000penalties
increasing to USD$50,000 applied for continuing
failure to file after receiving notification from the IRS.65
WITH RESPECT TO EACH CIRCUMSTANCE UNDER WHICH A US
PERSON RESIDENT IN CANADA WHO REPORTS AND PAYS
TAXES IN ACCORDANCE WITH CANADIAN LAW ALSO OWES
TAXES TO THE UNITED STATES (AS SET OUT IN QUESTION 2(A),
ABOVE), DO THE LAWS OF CANADA REQUIRE SUCH A US
60
IRC ~~ 6038'-6046, and regulations thereunder.
IRC ~~ 6038(b)(1) (imposing a USD$10,000 penalty); 6038(c) (imposing a 10% reduction of the
foreign taxes available for credit under IRC Sections 901, 902 and 960). The reduction may be applied in
addition to the penalty. IRC Section 6038(c)(3).
62
IRC ~ 1298(f).
63
IRC ~ 6038D(d). Regulations under section 1298(f) coordinate the Form 8621 filing requirements
with the Form 8938 filing requirements, so that Form 8938 reporting may not be required if the individual
reports the asset on Form 8621.
.
64
IRC ~ 6038 (reporting with respect to controlled foreign partnerships); 6038B (reporting of
transferS to foreign partnemhips); 6046A (reporting of acquisitions, dispositions, and changes in foreign
Eartnership interests).
5
CPR 1.6038-3(i).
61
12
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3 S.
PERSON TO DISCLOSE OR REPORT ANY INFORMATION OR
DOCUMENT RELATING TO THAT CIRCUMSTANCE?
14]
It is my understanding that the information that would be relevant to a US tax assessment
of a collectible tax debt in Canada would generally be reported or disclosed to the CRA
by the taxpayer or by a third party charged with such reporting; in cases where the
relevant information would not be reported under existing rules, the CRA is empow~red
to compel such reporting.
15]
The eRA collects inforniation from taxpayers pursuant to annual tax returns.66 The
Minister of Revenue may demand a filing of any person whether or not the person is
liable to pay tax. Residents must file and declare all sources of income, regardless of
where it is earned, while non-residents must generally file and declare Canadian
employment income, Canadian business and property income, and gains on the
disposition oftaxable Canadian property. A nonresident individual who has taxable
capital gains, disposes of a tax!,tbleCanadian property, or who is subject to tax under Part
I on taxable income earned in Canada is subject to the same annual filing requirements as
residents. The same rule applies for a non-resident business if it carries on business in .
Canada. 67
16]
The CRA requires resident paying agents, such as payors of compensation and fees,
transferors of property, payors of dividends to shareholders, interest to creditors or
account holders, and royalties to licensors, and others to disclose all tax-relevant
payments to the domestic tax authorities.68 Similarly, any person that receives any such
payment as a nominee or agent for some other person resident in Canada, and any person
who receives interest or dividends in respect of a bearer bond or a similar instrument
under which the beneficial ownership is not disclosed, is responsible for filing an
information return.69
17]
Information collection from third parties is authorized under Part II ofthe regulations to
ITA s. 221(1)(d), which enables the Governor in Council to require information returns
from any person in connection with any information required in connection with
aSsessments under the Act. The CRA routinely collects information returns from third
parties to confirm information and detect noncompliance. Thus, employers must file
reports detailing compensation paid to employees, and payers of investment income
(dividends, interest, rent, royalties, ai:ldthe like) must report such payments whether
made to residents or nonresidents.'
18]
Entities through which individuals might invest in Canada, whether corporations,
partnerships, trusts, or estates, are also highly regulated and subject to extensive reporting
and tax-related obligations.7o Every person who carries on a business or who is required
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Section 150(2).
See s. 150(1) and 150(1.1).
68
ITR, c. 945, Part II, S. 200(1); ITA s. 201,202.
69
ITA 201(2), 201(3).
70
Partnerships must fIle annual returns that include in most instances disclosure of the names and
addresses of partners. ITA s. 233(2). Canadian resident trusts, and certain foreign trusts with Canadian
67
13
000.101
36- ..
to payor collect taxes or other amounts in Canada must keep adequate records that record
and explain all transactions for a minimum 6 years from the end of the last taxatioli year
to which the records and books of account relate. Private corporations doing business in
Canada must identify in their annual tax returns a list of all shareholders holding 10% or
more of share capital. Public corporations generally disclose ownership information
under federal and provincial securities laws. Companies formed under federal law have
specific information gathering and filing requirements including shareholder registers.
Compliance is monitored and audited by Industry Canada or by the Office of the
Superintendent of Financial Institutions (OSFI), which provides noncompliance
information to the Financial Transactions and Reports Analysis Centre of Canada
(FINTRAC), as the case may be.
19]
In addition, Canadian banks are required to disclose client information under valid and
authoriied information requests from domestic and international authorities, to comply
with laws, regulations, subpoena or court order, and to help prevent fraud.71
,
20]
The CRA may also demand information or documents from the taxpayer or a third party
in connection with an audit or investigation involving tax avoidance or evasion. Thus,
for example, the CRA could obtain shareholder information from a corporation where
necessary for administration ofthe tax laws, using a "Requirement for Information"
under ITA's. 231.2(1). Noncompliance can result in fines or imprisonment or both.72
21]
Third party information is not limited to Canadian sources, but extends internationally via
treaty. The CRA may obtain relevant tax information with respect to Canadian taxpayers
(whether or not they are also US persons) pursuant to the exchange of information
provisions in its bilateral tax conventions and TIEAs and the multilateral agreement on
mutual assistance in tax matters.73 In addition, Canada may request assistance of other
countries in pursuing criminal matters involving tax evasion under its network of mutual
legal assistance treaties.74
,
22]
Finally, authorized tax officials have the right to enter a taxpayer's place of business, any
location in which anything is done in connection with the busmess, or any place where
records related to the business are kept. Tax officials may also examine any document of
another taxpayer that relates, or may relate to, the information that is, or should be, in the
books and records ofthe taxpayer who is being audited.
.
23]
Accordingly, the type of information that may be relevant to the assessment of a US tax
debt is already disclosed to the CRA in most cases by the taxpayer or by a third party
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source income, must file annual trust information and income returns that include identities of trust
beneficiaries in receipt of income. ITA s. 233.2.
71
Federal Personal Information Protection and Electronic Documents Act (pIPEDA).
72
ITA s. 238(1).
\
73
Convention on Mutual Administrative Assistance in Tax Matters, Jan. 25, 1988, E.T.S. No. 127
(Council of Europe and OECD Member Nations).
74
For alist of Canada's mutual legal assistance treaties currently in force, see Information Exchange
Network forMutual Assistance in Criminal Matters and Extradition at
htqJ://www.oas.org/juridico/mla/enican/en
can-mla-gen-liste.html. These include 33 bilateral agreements
and three multilateral agreements.
14
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with the exception of the sale of a personal residence. 75 Canada and the United States
are aware of the Tax Treaty Gaps. In cases involving such Gaps, the necessary tax
reporting is required or if need be could be compelled by the CRA. In virtually all cases
in which US taxation would actually apply, information compiled by the CRA that
identifies Canadian residents who have US Person status could be cross-referenced with
the information received by the CRA that is relevant to the Tax Treaty Gaps.
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In the case of a sale by a Canadian resident of a principal residence held in Canada, specified
reporting to the CRA may not in all cases be required under existing rules. However, such information
would not be reported in the information transmitted to the CRA by Canadian financial institutions under
FATCA or the intergovernmental agreement in any case.
15
38
APPENDIX "B"EXPERT REPORT OF ROBERT W. WOOD
(With added highlighting)
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0002S4
1
EXPERT REPORT OF ROBERT W. WOOD
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Table of Contents
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A. Overview and Summary of
Opinion
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B. Questions
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1. Legal Status of FATCA under United States Law...................................
2
2. Purpose and Objectives of FATCA
4
3. Reporting Requirements of FATCA on Individual U.S. Persons Resident in
Canada, and Relation to the Purpose or Objective of
FAlCA
,
,
6
4. IRS Collection Options against U.S. Persons Resident in Canada
9
C. Conclusion..............................................................................................
Appendices
12
EXHIBIT C
O~02.~S
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A. Overview and Summary of Opinion
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I have been engaged as an expert by the law firm of Farris, Vaughan, Wills & Murphy,
LLP, which represents Ms. Virginia Hillis ("Ms. Hillis") and Ms. Gwendolyn Louise
Deegan ("Ms. Deegan," and together with Ms. Hillis, the "Plaintiffs"). I have been asked
to opine on the legal status, purpose, requirements, and enforcement mechanisms of
FATCA. I have reviewed the relevant statutory and administrative background materials
in developing the opinions I now express.
Scott Weese, an associate attorney at Wood LLP, assisted me in the preparation of this
report, as did legal assistants in our office. However, in all respects this report is my
work product. I affirm and enunciate the opinions and the analysis contained
throughout this report.
Based on my review and evaluation of the relevant documents and materials, it is my
opinion that:
[]
1. FATCA is a valid and enforceable law of the United States.
o
2. The immediate purpose of FATCA is to force foreign financial institutions and nonfinancial foreign entities to disclose foreign financial assets of U.S. persons. The larger
purpose and over-arching goal of FATCA is to prevent tax evasion by U.S. persons, and
to force U.S. persons to report their worldwide income, foreign accounts and foreign
financial assets to the U.S. government.
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3. FATCA created several new reporting requirements for individual U.S. persons.
4. The Internal Revenue Service ("IRS") has numerous enforcement tools with which it
can collect taxes, penalties, and interest arising under or triggered by FATCA from U.S.
persons resident in Canada. However, the IRS frequently does not need to resort to
enforcing collection. The mere issuance of an IRS demand letter or notice can often be
sufficient to prompt payment.
B. Questions
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1. Legal Status of FATCA under United States Law
The Foreign Account Tax Compliance Act ("FATCA'j was originally passed as part of
the Hiring Incentives to Restore Employment Act ("HIRE Act,,).1 The provisions
commonly referred to as FATCA were contained in Sections 501,502,511,512,513,
521,522,531,532,534,
and 535 of the HIRE Act? The HIRE Act, including FATCA,
was signed into law by President Sarack Obama on March 18,2010.
1 Hiring Incentive to Restore Employment Act, Pub. L. No. 111-147, 124 Stat. 71 (hereafter "HIREAct")
(Appendix A).
2/d.
EXHIBIT C
41
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3
Following President Obama's signature, FATCA was incorporated into the United States
Code ("USC"). For the reference of the Court, the USC is arranged by title into subject
matters. Title 26 contains the tax laws of the United States and the tax-related FATCA
provisions can be found as additions or amendments to that title.3 FATCA is a valid,
enforceable law of the United States, and has been codified in the USC.
3 The FATCA provisions were codified asfollows: Section 501 added 26 USC ~S 1471 through 1474.
These provisions require foreign entities to disclose U.S. persons who are beneficial owners of foreign
financial accounts. They also require such institutions to withhold 30% of all transactions sourced in the
United States, payable to the U.S. Treasury. The 30% withholding tax is waived if the foreign financial
institution agrees to disclose its U.S. account holders. These provisions came into effect on December
31,2012. HIRE Act, supra, note 1, at S 501.
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Section 502 amended 26 USC S~ 149,163,165,871,881,1287,
and 4701, as well as 31 USC
3121. These are technical amendments to repeal certain exceptions to registered bond requirements.
These provisions came into effect two years after March 18,2010. HIRE Act, supra, note 1, at S 502.
Section 511 added 26 USC ~ 60380. Section 60380 imposes a requirement on all individual
U.S. taxpayers to disclose specified foreign financial assets if their aggregate value exceeds certain
thresholds based on their filing status. Failure to fulfill this requirement imposes a $10,000 (USD)
penalty. This provision came into effect for taxable years beginning after March 18, 2010. HIRE Act,
supra, note 1, at S 511. The Internal Revenue Service has issued temporary regulations at 26 Code.of
Federal Regulations ("CFR") ~~ 1.6038D-OT through 1.60~8D-8T supplying rules this reporting
requirement. Taxpayers fulfill this requirement by filing IRS Form 8938 (Appendix B) with their annual
tax return.
Section 512 amended 26 USC ~ 6662. This provision imposes a 40% accuracy-related penalty
to any undisclosed financial asset subject to information reporting, such as foreign financial assets
reporting on IRS Form 8938 pursuant to 26 USC ~ 60380. This provision came into effect for taxable
years beginning after March 18, 2010. HIRE Act, supra, note 1, at ~ 512.
Section 513 amended 26 USC ~ 6501. This provision extended the typical three-yeC!r statute of
limitations for tax assessments to six years in the case of failure to report foreign financial assets on Form
8938, pursuant to 26 USC ~6038D. This provision came into effect for tax returns filed after March 18,
2010. HIRE Act, supra, note 1, at~. 513.
Section 521 amended 26 USC ~ 1298. This provision requires U.S. persons who are
shareholders of passive foreign investment companies ("PFIC") to file an annual report of their interests in
such companies. This provision came into effect on March 18, 2010. HIRE Act, supra, note 1, at S 521.
The Internal Revenue Service has issued temporary regulations at 26 CFR ~~ 1.1298-0T and 1.1298-1T.
Taxpayers fulfill this requirement by providing the necessary information on IRS Form 8621
(Appendix C).
Section 522 amended 26 USC S~ 6011 and 6724. This provision permits the United States to
require financial institutions to file information regarding their withholding tax requirements on U.S.
accounts regarding certain transfers. This provision came into effect for U.S. tax returns due after March
18,2010. HIRE Act, supra, note 1, at S 522.
Sections 531 and 532 amended 26 USC S 679. These provisions regard rules for foreign trusts
that have to identify U.S. persons as beneficiaries, or deemed beneficiaries of such trusts. They also
establish a rebuttable presumption that a foreign trust has a U.S. beneficiary regarding transfers and
distributions from the trust. Thes!9 provisions came into effect for transfers after March 18, 2010. HIRE
Act, supra, note 1, at S~ 531 and 532.
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Section 533 amended 26 USC ~ 643. This provision treats loans of trust property to U.S. persons
as paid or accumulated to the benefit of a U.S. person if such loan is not repaid at market rates within a
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2. Objectives of FATCA
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FATCA was intended to establish an international compliance and disclosure regime for
offshore accounts held by U.S. taxpayers. In February 2009, shortly before the
introduction of FATCA, the U.S. Department of Justice entered into a deferred
prosecution agreement with Swiss bank, UBS AG.4 A deferred prosecution
agreement is an agreement between a person or entity accused of a crime and a
prosecutor.
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The terms of such an agreement usually require the accused to fulfil certain
requirements and to cooperate with the prosecution, after which the criminal charges
will be dismissed. The UBS deferred prosecution agreement was the result of the
revelation that non-U.S. banking institutions were assisting U.S. taxpayers in hiding
overseas assets and income from U.S. taxing authorities.
r]
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FATCA was introduced in the U.S. House of Representatives in June of 2009 in an
atmosphere of increased scrutiny concerning offshore income and asset tax
5
compliance. No specific legislative history document, such as a House or Senate
report, accompanied FATCA. However, there is a technical explanation of FATCA
written by the United States Congress Joint Committee on Taxation ("Joint Committee").
The Joint Committee is a legislative committee which advises on tax legislation.6
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Although they are nof formal legislative history, Joint Committee reports are commonly
looked to for guidance by U.S. courts in ruling on and interpreting the purpose and
scope of U.S. tax laws.? The Joint Committee report on FATCA describes its function
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reasonable period of time. This provision came into effect for loans made after March 18, 2010. HIRE
Act, supra, note 1, at 9 533.
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Section 534 amended 26 USC S 6048. This provision requires U.S. persons who ar~ owners of
foreign trusts to file information returns. This provision came into effect for taxable years beginning after
March 18, 2010. HIRE Act, supra, note 1, at S 534. Taxpayers fulfill this requirement by providing the
necessary information on IRS Form 3520-A (Appendix D).
Section 535 amended 26 USCS 6677. This proviSion creates a minimum penalty of $10,000
(USD) for U.S. person who fail to report certain foreign trusts. This provision became effective for returns
required to be filed after December 31, 2009. HIRE Act, supra, note 1, at S 535.
U.S. v. UBS AG, Case No. 09-60033-CR-COHN (SO FI. 2009) (Deferred Prosecution Agreement),
avaNable at http://www.justice.gov/sites/default/fifes/taxllegacy 12009/02/19/U BS_Signed_Deferred_
Prosecution _Agreement. pdf (last accessed on April 17, 2015). See also Press Release, United States
Department of Justice, UBS Enters into Deferred Prosecution Agreement (February 18,2009), available
at http://www.justice.gov/opa/pr/ubs-enters~deferred-prosecution-agreement
(last accessed on April 17,
2015).
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H.R. 2847, 111th Congo (2009).
6
See 26 USC S9 8001 through 8023 (establishing the Joint Committee, its powers, and its duties).
See, e.g., United States V. Woods, No. 12-562, at 16 (2013) ("Of course the Blue Book [a term used to
refer to Joint Committee annual reports], like a law review article, may be relevant to the extent it is
persuasive."); Estate of Hutchinson v. Comm'r, 765 F.2d 665,669-70 (7th Cir. 1985) ("This evidence of
course does not rise to the level of legislative history, because it was authored by Congressional staff and
not by Congress. Nevertheless, such explanations are highly indicative of what Congress did, in fact,
7
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0002~8
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and its new reporting requirements on foreign banks. The technical explanation states
that:
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[ilt is expected that in complying with the requirements of this provision,
the foreign financial institution and the other members of the same
expanded affiliated group comply with know-your-customer, anti-money
laundering, anti-corruption, or similar rules to which they are subject, as
well as such procedures and rules as the Secretary may prescribe, both
with respect to due diligence by the foreign financial institution and
verification by or on behalf of the IRS to ensure the accuracy of the
information, documentation, or certification obtained to determine if the
account is a United States account. The Secretary may use existing
know-your-customer, anti-money laundering, anti-corruption, and other
regulatory requirements as a basis in crafting due diligence and
verification procedures in jurisdictions where those requirements provide
reasonable assurance that the foreign financial institution is in compliance
with the requirements of this provision.8
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Statements made in the legislature support FATCA's purpose as enforcing U.S. tax
compliance on taxpayers with overseas assets, and eliminating bank secrecy practices
that can shield U.S. taxpayers who fail to report and pay tax on overseas assets and
9
income. FATCA was intended to complement and enforce the civil and criminal law
intend."); Muncy v. Comm'r, T.C.M. 2014-251, at *16 ("The Joint Committee on Taxation's general
explanation, also known as the Blue Book, provides some guidance as well.").
JOINTCOMM.ONTAXATION,111TH CONG.,JCX-4-10, TECHNICALExPLANATIONOFTHEREVENUE
PROVISIONSCONTAINEDINSENATEAMENDMENT3310, THE"HIRINGINCENTIVES
TORESTOREEMPLOYMENT
ACT," UNDERCONSIDERATION
BYTHESENATE,at 40 (Feb. 23, 2010). See also JOINTCOMM.ONTAXATION,
11TH CONG.,JCS-2-11, GENERALEXPLANATION
OFTAX LEGISLATION
ENACTEDINTHE111TH CONGRESS
(MARCH2011), at 221 - 72.
8
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9 See 111 CONGREC. H14404 (daily ed. December 9,2009) (statement of Rep. Skelton) ("And to ensure
the legislation [referring to the Tax Extenders Act of 2009, H.R. 4213] does not add to the deficit, the $31
billion cost of this legislation is offset by cracking down on tax evaders who hide their assets in offshore
tax havens ... ").
See also 111 CONGoREC. H14403 (daily ed. December 9,2009) (statement of Rep. Camp) ("ln
fact, Republicans share the majority's concern about the illegal use of offshore accounts to evade U.S.
taxes. Tax evasion is a Federal crime and individuals who break the law by illegally hiding their income in
offshore accounts and any financial institutions that facilitate that tax evasion should be aggressively
pursued and punished to the fullest extent of the law. "lf loopholes exist in law that allow tax cheats to
illegally hide assets offshore, obviously Republicans stand ready to help close those loopholes iii an
appropriate way.").
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See also 111 CONGoREC. S1635 - 36 (daily ed. March 17,2010) (statement of Sen. Levin) ("Right
now, thousands of U.S. tax dodgers conceal billions of dollars in assets within secrecy-shrouded foreign
banks, dodging taxes and penalizing those of us who pay the taxes we owe. The Permanent
Subcommittee on Investigations, whiCh I chair, has estimated that these tax-dodging schemes cost the
Federal Treasury $100 billion a year.
.
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"But under this legislation, for the first time, foreign banks will be required to disclose their U.S.
account holders to the U.S. Government or face significant penalties. This provision will make it far more
difficult for tax dodgers to conceal assets and income in foreign banks. As more banks set up systems to
43
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rules that: (1) U.S. persons must report their worldwide income to the IRS; 10 and (2)
under the Bank Secrecy Act, they must file the financial bank account reporting forms
11
known as FBARs.
FBARs. are the separate financial account disclosure documents
filed annually with the Financial Crimes Enforcement Network, an independent unit of
the Treasury Department separate from the IRS.
The popular press and the general public in America have a similar view of FATCA. For
example. one recent Bloomberg article states that:
The tax issue has come to a head since Congress, in 2010. introduced
~[FATCA]
reporting rules for all foreign financial institutions thathold
the assets of U.S, citizens. The goal is to catch wealthy AmeriGans in the
U.S. who offshore their investments to evade tax, but expatriates get
caught in the crosshairs. They have to report on their local bank accounts
or face penalties.
And because foreign banks don't want the U.S.
re.portjng liabilities some expatriates have trouble opening accounts at
i!l.l.
'
3. Reporting Requirements
FATCA Objectives
on
u.s. Persons
in Canada, and Relation to
U.S. worldwide tax reporting requires U,S. taxpayers to report their worldwide income to
the IRS even if they are paying taxes elsewhere. Any person born in the U.S. is a U.S.
citizen and remains so for U.S. tax and other purposes unless and until such person has
renounced that citizenship within the meaning of U.S. law.13 Even accidental citizens
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disclose U.S. account holders, bank secrecy will become increasingly difficult to maintain. With increased
transparency will come less tax evasion, less money laundering, and less crime.
.
"Certainly, this legislation will not end tax avoidance or money laundering. Its provisions do not
take effect for several years, and its impact will depend in large part on the willingness of regulators at the
Treasury Department and elsewhere to write strict regulations and enforce them vigorously. It also will
not affect banks willing to conceal their U.S. account holgers despite the penalties that carries [sic] a
significant loophole for tax dodgers and the foreign banks that assist them ....
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"For the first time in years, we are poised to approve legislation with a real chance to pull back the
curtain of bank secrecy, expose offshore accounts, and ensure that those who owe taxes pay them.n).
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10See 26
useS
1131 USC
S 5314; 31 CFR ~ 1010.350.
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61.
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12 Bloomberg Editors, End the American Expat Tax, BLOOMBERGVIEW
(Apr. 24, 2015, 1:42AM),
http://www.bloombergview.com/a rticles/20 15-04-24/end-the-american-expat -tax (internal hyperl ink
omitted) (last accessed on April 24,2015).
13See 8 USC ~ 1401 (defining United States birthright citizenship); 8 USC ~ 1101(a)(36) (defining the
term "State" for purposes of immigration and nationality); 8 USC 91101 (a)(38) (defining the term "United
States" in its geographical sense for purposes of immigration and nationality); 26 USC 9 7701 (a)(30)(A)
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born in the U.S. who left in their infancy to live abroad may face U.S. tax filing and
payment obligations, as recently occurred with Boris Johnson, the Mayor of London.14
7
.
At an unprecedented time in U.S. tax enforcement worldwide, FATCA placed the long
arm of the United States on foreign institutions and foreign governments to force U.S.
persons to declare their non-U.S. income and assets. Often, this implicates entirely
non-U.S. spouses, since U.S. persons who live outside the U.S. may be married to nonU.S. persons with whom they jointly hold assets and jointly file tax returns.
[1
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With the overarching goal of preventing U.S. persons evading taxes, FATCA was
designed to force foreign financial institutions and similar entities to disclose their U.S.
customers. Foreign financial institutions that do not agree to disclose their U.S.
customers must withhold 30% of all payments of fixed or determinable annual or
periodical ("FDAP") from sources within the United States without regard to treaty
5
benefits.1. The foreign institution can avoid this withholding requirement by disclosing
its U.S. account holders, or entering into an agreement with the U.S. Government to
disclose. 16
If the foreign financial institution is located in a jurisdiction with bank secrecy laws, the
institution must seek a waiver of those bank secrecy laws from the account holder.17
U.S. persons, or suspected U.S. persons who cannot establish that they are not U.S.
persons, who do not agree to a waiver can be deemed "recalcitrant account holders.,,18
The foreign financial institution is authorized by U.S. law to shift the withholding
obligation to parties who transfer funds to recalcitrant account holders, rather than being
subject to the withholding obligation themselves.19
FATCA imposes several reporting requirements on individual taxpayers including U;S.
persons residing in Canada:
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(defining the term "United States person" to include a citizen or resident of the United States for U.S
taxation purposes).
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26 USC
S 1471(b).
1726 USC ~ 1471(b)(1)(F).
1,826 USC
19
S 1471(d)(6).
26 USC ~ 1471(b)(3),
,-
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a. Form 8938 -
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Statement of Foreign Financial Assets:
IRS Form 8938, Statement of Specified Foreign Financial Assets, is required for all U.S.
individuals with assets outside of the United States whose value is in excess of certain
thresholds based on their residency and filing status.20 For individuals residing in the
U.S. who file as "single," or as "married filing separately," Form 8938 is required if the
aggregate value of all specified foreign financial assets exceeds either $50,000 (USD)
on the last day of the tax year, or $75,000 (USD) at any point during the year. These'
rules can adversely impact non-U.S. spouses who jointly hold assets and jointly file tax
returns with a U.S. person spouse.
f~
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For U.S. persons living abroad, including in Canada, Form 8938 is required if theyfile
as "single" or "married filing separately," and have specified foreign financial assets in
excess of $200,000 (USD) on the last day of the tax year, or $300,000 at any point
21
during the year.
For U.S. persons living abroad who file a joint tax return (a return that
reports the income of both spouses and carries joint and several liability for both
spouses), the thresholds are $400,000 (USD) on the last day of the year, or $600,000
(USD) at any point during the year.22
Failure to file Form 8938 incurs a penalty of $10,000 (USD) for each failure.23 If the IRS
notifies a taxpayer ofthe failure to file this form, and they do not correct the failure within
ninety days, an additional $10,000 (USD) penalty is imposed for each thirty-day period,
to a maximum of $50,000 (USD) per failure.24 Married taxrayers who file joint tax
returns are jointly and severally liable for these penalties.2 If a U.S. taxpayer has
specified foreign assets and fails to disclose them, the aggregate value of those assets
is presumed to exceed the relevant threshold 'and thus incur a penalty, unless the
Taxpayer can prove a lower value.26
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b. Form 8621 - Information Return by a Shareholder of a Passive Foreign
Investment Company or Qualified Electing Fund:
Individuals who own shares, or are treated as owning shares, in a Passive Foreign
Investment Company ("PFIC") at any time during the tax year are required by FATCAto
report their ownership on Form 8621.27 A PFIC is a construct of U.S. tax law that
2026
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USC
9 60380;
99 1.6038D-OT through
26 CFR ~ 1.60380-2T(a)(3).
2226 CRO ~ 1.60380-2T(a)(4).
23
26 USC
9 6038D(d)(1);
26 CFR
9 1.6038D-8T(a).
2426 USC 960380(d)(2); 26 CFR 9 1.6038D-8T(c).
2S 26 CFR ~ 60380-8T(b).
26
26 USC 9 6038D(e); 26 CFR ~ 1.6038D-8T(d).
27
26 USC 9 1298(f).
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26 CFR
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8
1.60380-8T.
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EXHIBIT C
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9
generally subjects non-U.S. source investment returns to special tax and interest rules.
Depending on details and elections, U.S. persons may pay current U.S. tax on
unrealized investment gains. On January 13, 2014, the IRS issued temporary
regulations providing guidance on this Form 8621 requirement.28
.
The Canadian spouse of a U.S. person can also be caught within these unfavorable and
complex PFIC rules by joint filing with their dual status (U.S. and Canadian) spouse.
c. Form 3520-A - Annual Return of Foreign Trust with a U.S. Owner:
A U.S. individual who owns, oris treated as owning, a foreign trust is required by
FATCA to submit an annual information return on Form 3520-A.29
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d. Role of Individual Information Reporting Under FATCA:
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FATCA is designed to force foreign financial institutions to disclose U.S. customers to
the United States. The IRS can match information received from foreign financial
institutions to individual taxpayers. Individual taxpayers who fail to comply with their
reporting obligations may be revealed by FATCA reporting on account holders. In such
cases, the U.S. government can use the absence of an individual reporting Form, such
as Form 8938, to identify taxpayers and to initiate a specific examination of that
taxpayer and his or her foreign accounts.
c
4. IRS Collection
Options Against U.S. Persons Resident in Canada
If Canada collects all of the account information of U.S. Persons contemplated by
FATCA and the Intergovernmental Agreement,30 and if Canada discloses such
information to U.S. officials, it is reasonable to expect that the IRS would take action to
collect taxes, interest, and penalties from U.S. persons resident in Canada. The IRS
has an extensive arsenal of weapons to do so.
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At the outset, it must be noted that the IRS often need not resort to protracted
.
enforcement mechanisms. A simple IRS notice' a demand fQr payment Qreyen a
notice of balance due. all can generate fear in U.S. persons.' In my experience and
opinion the in terrorem effect of a mere envelope from the IRS can be significant.
u
Some U.S. tax advisers, including myself. not infrequently advise clients to pay an IRS
.
issues that rna be raised are sensitive. Thus, any discussion of IRS collection and
enforcement mechanisms s ou
egrn WIt
e. ase IDethat.a.slmple nottce from t e
6111 rather than to dispute it. particularly if the amounts are relatiyely minD[ or if thfl
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28
T.D. 9650, 2014-1 C.B. 394 (Dec. 30,2013).
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2926
USC ~ 6048(b)(1) ..
30 Agreement Between the Government of Canada and the Government of the United States of America
to Improve International Tax Compliance through Enhanced Exchange of Information under the
Convention Between the United States of America and Canada with Respect to Taxes on Income and
Capital, Feb. 5, 2014.
i
(FHJ 2.&3
The most basic mechanism for the IRS is to assess taxes, interest andpenalties.31 An
IRS assessment generally consists of notices sent to a taxpayer's last known address
that become final if timely protest is not made and that culminate in the recording and
collection of a tax liability.32 The potential liability can extend for many years.
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An IRS assessment must typically be made within three years of the 'date the tax return
33
is filed.
How~ver, any failure to report $5,000 or more in offshore income triggers an
extension of the statute of limitationsto six years.34 Moreover, if the taxpayer fails to file
a return, the three or six year period never even commences to run.
There are also numerous technical exceptions to the normal three and six year rules
even if returns are filed. For example, if the U.S. person fails to file an information
return such as IRS Form 8938-a form required by FATCA, discussed above-the
three-year statute of limitations does not even begin to run until the relevant form is
35
actually filed.
This is so evenifthe tax return correctly states the taxpayer's income
and tax liability, and only the FATCA information reporting form was unintentionally
omitled.36
Once taxes are properly assessed, another protracted period of time allows the IRS to
pursue collection. After taxes are assessed, the IRS can generally collect tax liability for
to the following ten years.37 This ten-year collection period is generally tolled (that is,
suspended) while taxpayers reside outside of the United States.38 In effect, therefore,
U.S. persons resident in Canada could potentially face IRS liabilities from FATCA going
back to its inception, and liabilities from other foreign reporting requirements (such as
FBARs) going back decades.
.
The IRS has a variety of mechanisms through which to collect assessed taxes,
including:
U
USC 36203 (assessment made by recording of tax liability); U.S. v. Galletti, 541 U.S. 114, 122
(2004) ("it is clear that the term 'assessment' refers to little more than the collection or recording of tax
liability. ").
u
3226
J
3126
USC
9 6212
(notices of deficiency in tax following assessment).
36501(a).
33
26USC
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34
26 USC 9 6501(e)(1)(A)(ii).
1
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USC
3626
USC 9 6501 (c)(8)(A).
3726
USC 96502.
26 USC
L
3 6501(e)(1)(A)(ii).
3526
38
(
10
I,RS is by its very nature' significant. Regardless of whether such a notice is correct or
incorrect. it often may prompt payment
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EXHIBIT C
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36503(c),
See alsolntemal Revenue Manual 9 5.1.19.3.7 (06-04-2006).
•
File a general lien which attaches, under U.S. law, to all of the U.S. person's
property;39
•
Where the IRS has filed a lien, they can enforce it through a court action;40
•
Levy and seize the U.S. person's property;41
•
Sell seized property in satisfaction of the tax debt;42
•
Garnish wages from employment;43
•
Garnish up to 15% of disability or social security payments under the Federal
Payment Levy Program;44
•
If the U.S. person's property is transferred to a third party:
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File a "nominee lien" against the specific property regardless of who holds
it'46
,
Deny an otherwise valid.request for an alternative payment scheme, such ~s an
offer in compromise (settlement of the tax liability) or payment plan, on grounds
of public policy;47
26 USC
42
S 6331.
26 USC
S 6335.
USC
S 6331 (e).
26 USC
S 6331(h).
4326
44
S 7403.
USC
4126
4526
G
Impose the tax liability directly against the transferee;45
39 26 USC S 6321. A lien comes into existence at the time of assessment, and remain in force until
satisfied or until it becomes unenforceable. 26 USC S 6322. An IRS lien, if properly perfected; has
statutory super-priority against most other creditors. See 26 USC S 6323.
.
40
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EXHIBIT C
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USC
S 6901.
Transferees include recipient of an inheritance or of a gift. Id. at
9 6901 (a).
See Internal Revenue Manual S 5.17.5.7.2 (03-27-2012); U.S. v. Powell, 2014 w.L. 1056697, at *2, No.
2:12CV110-SA-JMV (N.D. Miss., Mar. 18,2014) (nominee lien factors include "'(a) [nJo consideration or
inadequate consideration paid by the nominee; (b) [pjroperty placed in the name of the nominee in
anticipation of a suit or occurrence of liabilities while the transferor continues to exercise control over the
property; (c) [cJlose relationship between transferor and the nominee; (d) [fJailure to record conveyance;
(e) [rJetention of possession by the transferor; and (f) [cJontinued enjoyment by the transferor of benefits
of the transferred property. '" (quoting Oxford Capital v. U.S., 211 F.3d 280,284 (5th Cir. 2000))).
46
47
Internal Revenue Manual
S 5.8.7.7.2(3)
(03-07-2014).
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FATCA specifically indemnifies foreign financial institutions from liabilil¥ against
claims by U.S. persons for any amounts withheld pursuant to FATCA;
~
•
Criminal tax consequences are less likely, but can include:
12
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o Felony criminal fines of nor more than $100,000 and I or imprisonment for
not more than three years for t~x fraud and false statements;50
n
o
Misdemeanor criminal fines of not more than $25,000 and lor
imprisonment for not more than one year for willful failure to file a return,
supply information, or pay tax;51and
o
Misdemeanor criminal fines of not more than $10,000 and lor
imprisonment of not more than one year for filing a false return.52
I[]
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Felony criminal fines of not more than $10,000 and lor imprisonment of
no more than five years for attempting to evade or defeat tax;49
C. Conclusion
FATCA caps an unprecedented drive by American prosecutors and tax officials to
collect revenue from non-U.S. sources. With America's breaking of Swiss bank
secrecy, service of numerous John Doe summonses to obtain non-compliant U.S.
taxpayer identities, and other enforcement efforts, the U.S. added its most ambitious
law yet in 2010.
FATCA adds comprehensive third party reporting and enforcement mechanisms
intended to compel foreign financial and similar institutions to disclose U.S. persons for
whom these institutions hold assets. Superficially, the burden of implementing FATCA
falls on such institutions. Institutions are required to: (1) withhold; (2) affirmatively
disclose U.S. account holders; and (3) make efforts to obtain the consent of account
holders if local bank secrecy laws prevent unfettered disclosure. However, on a deeper
level, it is the U.S. persons residing in Canada and other countries who will bear the
true burdens of FATCA.
Indeed, FATCA's obligations on institutions are intended solely to compel U.S. persons
to truthfully report and disclose their worldwide income and assets. The required
reporting by foreign institutions is complimented by FATCA's obligations on individual
U.S. persons regardless of their country of residence. The individual reporting
48
26 USC ~ 1474(a).
49
26 USC ~ 7201.
5026
USC ~ 7206.
S 7203.
51
26 USC
52
26 USC ~ 7207.
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51
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requirements imposed by FATCA can be onerous and intrusive. The spouses and
families of U.S. persons can be prejudiced even if they are not themselves U.S.
persons.
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Moreover, a failure to complete FATCA's Form 8938 or related forms such as FBARs
can generate significant tax, interest or penalty liabilities, even for seemingly innocuous
violations. The web of exceptions to the IRS statutes of limitation can make such
liabilities a real and present danger for decades.
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U.S. taxparers do have certain procedural avenues for applying for relief from these
5
penalties.
However, these relief mechanisms are not automatic and can entail
significant administrative costs. Due to 'last known addr~ss' rules under U.S. tax law, it
is not uncommon for a taxpayer to have all procedural remedies foreclosed despite the
fact that he or she has never received actual notice from the IRS of anything. 54
Should a Canadian citizen be found liable for U.S. tax, the IRS has a number of
powerful tools which allow it to collect that liability against assets located in the United
States, and possibly against assets located in Canada under the Canada-U.S. tax
treaty.
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53 See, e.g., 26 USC ~ 6038D(g) (relief from $10,000 penalty for failure to file Form 8938 where
reasonable cause exists for such failure); and the Offshore Voluntary Disclosure Programs.
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26 USC ~ 6212(b)(1)i 26 CFR ~ 301.6212-2(a).
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/