Leniency From The IRS If You Reside In Canada: The Reach Of The IRS And How Filing For Bankruptcy Can Help

Law Articles

If you are an American that has moved across the border and now reside in Canada or have assets in Canada, the new changes made in the Foreign Account Tax Compliance Act (FATCA) may be problematic to your financial situation. As of July 2, 2014, Canadian banks are required to provide your financial information to the America's Internal Revenue Services (IRS). With this new information, the IRS will determine whether you owe additional taxes. If the IRS comes up with an absurd amount, and all of your assets are in Canada, you may want to consider filing for bankruptcy.

Understanding the Reach That the IRS Has

Understanding the type of reach that the IRS has will help you better determine what your options are. You may want to contact a bankruptcy attorney if you will be facing financial difficulties in order to gain a better understanding of the predicament that you are in.

Although the IRS may have deemed you liable for paying additional taxes, the Canada Revenue Agency will not help the IRS collect the taxes that they claim that you owe, as long as you were a Canadian citizen at the time that the tax debt arose. In addition, the IRS cannot enforce any tax debts that they claim that you owe on any Canadian assets that you may have. Although the IRS cannot enforce any tax debts on your Canadian assets, keep in mind that refusing to pay a U.S. tax debt is considered to be a criminal offence. As a result, depending on how many American assets are under your name, filing for bankruptcy may be the best option.

Gaining a Better Understanding of How Filing for Bankruptcy Can Help

Depending on the amount of American assets that are under your name, you may be eligible for filing for bankruptcy either under chapter 7 or 13. Filing for bankruptcy in the U.S. may not affect your financial standing in Canada, and may actually help you solve tough IRS problems. Filing for bankruptcy can:

• immediately release and prevent any seizures that are being conducted by the IRS. Filing for bankruptcy will put all actions that the IRS is taking against you to a complete halt. Bankruptcy laws trump IRS administrative action at all times.
• reduce the amount of debt that you owe the IRS. Your bankruptcy attorney will be responsible for negotiating a settlement with the IRS. In most cases, you will only be paying a fraction of your tax debts. Filing for bankruptcy can also put a stop to interest and penalty accruals. This is possible since tax debts are considered to be non-priority debts.
• negotiate a payment option that will greatly reduce the IRS collection timeframe. In short, you may only be required to make small monthly payments for a set amount of time, even if the debt is not completely paid off. The IRS cannot go after you for the remaining debts if you make all of these payments on time.
• put your tax debts on an uncollectible status. This means that the IRS is temporarily agreeing to forbear the tax debts that you owe until your income increases. 
• interfere when the IRS is making unreasonable claims or demands. Your bankruptcy attorney will have to carefully review your file in order to determine how much you owe, and the type of claims that the IRS is making in order to determine whether the claims are reasonable and lawful.

Conclusion

Filing for bankruptcy in the U.S. may not affect your financial standing in Canada at all. After filing for bankruptcy, some Americans have chosen to completely forgo their American citizenship in order to avoid any action that the IRS may take against them in the future.

Share

7 May 2015