A Lac du Bonnet woman is worried she could face huge fines for failing to file American tax returns, but the U.S. Internal Revenue Service has some soothing words for her and thousands of other Canadians in the same pickle.
Ohio-born Julie Veilleux spent the first eight years of her life in the United States but has lived in Canada for nearly 40 years. She became a Canadian citizen in 1995 and was told by the citizenship judge she was no longer an American.
But Veilleux is among thousands of Canadians who could get caught up in a U.S. tax dragnet called the Offshore Voluntary Disclosure Initiative, or OVDI. It's an amnesty program that promises reduced fines and penalties for Americans living abroad who catch up on unfiled tax returns. But it still threatens penalties of $10,000 or more for every bank account, RRSP or other savings account not declared from 2003 to 2010.
For Veilleux, that could mean at least $80,000 in fines.
"I'm just thinking, you gotta be kidding me. We don't have that kind of money," she said. "You wake up thinking about it, and you go to sleep thinking about it."
It's been difficult to get straight answers and Veilleux fears the worst -- being sued by the IRS, being stopped at the border or having a lien placed against her family's modest bungalow.
A recent story about OVDI in the Winnipeg Free Press sent Americans living in Manitoba into a panic, especially those like Veilleux who did not realize they were still U.S. citizens.
"My phone's ringing off the wall. It was ringing five minutes after the newspaper hit the streets," said accountant Gerald Peterson, a partner in the Peterson Group. "It's a mess."
Peterson said accountants all over Canada are struggling with what to tell clients before the Aug. 31 filing deadline. The IRS paperwork is much heftier and more complicated than Canadian tax forms, and some clients are opting to simply hunker down and hope the IRS doesn't go after the small-fry cases.
Peterson said he's obliged to advise worried callers and clients to file their tax returns, especially when the IRS hints at possible civil or criminal charges. But it's tricky when the IRS is so vague about what fines might be levied or how lenient it will be with people with no taxable U.S. income who genuinely didn't realize they needed to file, he said.
IRS spokesman Eric Smith said the intent of the foreign income disclosure rules is to avoid money laundering and to prohibit wealthy Americans from hiding large sums of money in offshore accounts. The IRS is generally interested only in accounts with more than $10,000.
U.S. citizens living abroad are required to file tax returns, even if they haven't worked there and don't owe taxes. Not disclosing out-of-country accounts can result in fines of $10,000 to $100,000.
Smith couldn't comment on what the IRS might do cases in like Veilleux's but said a criminal case would need to prove someone knowingly sought to bilk the IRS. The IRS has traditionally been judicious when deciding which cases to pursue, he added, and Americans abroad can appeal for much lower fines if there was clearly no intent to defraud the government or hide large sums of money.
Veilleux and her sister travelled to the U.S. consulate in Calgary earlier this month to renounce their U.S. citizenships, which Peterson said was wise, because it stops the clock on tax obligations. But it also means the U.S. government now knows where to find her.