This question is the title of a recent article over at Going Concern, where they wonder why the IRS is trying to enforce traffic safety by shooting jaywalkers.
Most US expats living in Canada owe little or no taxes to the IRS once the foreign earned income exclusion and foreign tax credit are applied, but that won’t stop the IRS from imposing draconian penalties for failing to fulfil the bureaucracy’s paper quota.
The penalties for failing to file the FBAR Form, Form TD 09.22-1, are the greater of $10,000 or half the value of the account. The IRS is freely asserting these penalties even when little or no tax is due, and is even applying them to Canadian retirement accounts of U.S. expats like [New Brunswick Premier David] Alward.
What does the IRS hope to achieve by labelling hard working, low-to-middle class families as “tax cheats”? Or coming after their retirement savings and their children’s education funds?
Meanwhile, Canada and even some states allow people to quietly file back taxes and re-enter the system, a policy that benefits both government and citizen.
If the IRS would take this approach, and waive FBAR penalties for accounts under, say, $200,000 – and for all retirement accounts – maybe we won’t have to worry about the White House getting sacked again.