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March 05, 2007

The Greatness, plutocrat

February is over and March has begun, a passage of time both encouraging and depressing. Encouraging, because the coldest of the Nova Scotia winter is past. But depressing because March in Canada still feels like January for a Virginia boy. Not that February was as bleak as my blog probably made you feel. I apologize, gentle readers. I promise, you will never see a blank front page on this blog again. (Sorry, that doesn't mean I'll necessarily post more. Rather that I will provide "recent content" in an increasingly Orwellian sense -- like 90 days of posts instead of 30.)

No, February had its moments. Like when I took The Sweetness to the circus for her birthday. And when I saw Mercury, Venus, Saturn and two dozen Messier objects on the same weekend. And of course, when I found out just how rich I was: rich enough to be caught in the US government's web of double taxation and global financial surveillance.

Since my web stats unequivocally show that most of my visitors are American, the rest of the world will just have to bear with. This post is really for Usanians, especially those who want to know just how much America will go to bat for its citizens when abroad. Which is to say, not much. America is not the new Rome, generously lending its aegis to all who call it home. Really, the only thing vaguely Roman about my treatment by America as an "overseas" citizen is that, like the early Christians, I, too, must spend a lot of time in the catacombs.. of the Government Printing Office. (If it sounds like I'm overly nitpicky in the following, remember that I am merely dwelling on the only problems in my life, fabulously wealthy as I am.)

Let's start with double taxation, shall we? I will translate for my American audience. In Canada, you don't get pay stubs until near the end of February, so that's when I get the tax paperwork started. I got two T4's (the U.S. W-2) and one T4A (1099-MISC) this year due to my change of employers and of status; now that I'm a Canadian immigrant, I have to pay into the Canada Pension Plan and "premiums" for Employment Insurance. As a new immigrant, I am not allowed to collect unemployment unless my wife pays it back, but let that pass. I also am expected as a Canadian resident to report all worldwide income on my T1 (1040). So when BellSouth sends me dividends on a 1099-DIV, I have to report such earnings (properly converted to CAD) on T1 line 121 and attach Schedule 4.

As it happens, the US government has a tax reporting policy on all of its citizens, regardless of where they reside. This is a relative rarity among nations of the world, but then we've always been elite. So after I've figured my Canadian tax, I then sharpen my pencils to handle Form 1040. This isn't too bad, really. You use the IRS's official exchange rate for the tax year to convert your wages into US dollars and report that on 1040 line 7. Then you fill out Form 2555-EZ, on which you report every day in the tax year that you were present in your home country. (This doesn't directly affect the calculation, by the way, which makes you wonder what they use it for.) Then write the result in parenthesis on 1040 line 21 and write "2555-EZ" next to it. For most people filing 2555-EZ, the rest of the form is a handwriting exercise (write "0" on line 37, 38, 41, 43, etc.)

But as we all know, I am not most people. I am a magnate, a captain of industry. I have for many years received as much as $600 in filthy, unearned stock-market dividends, reportable on 1040 line 9a. As a Canadian resident, I have to report them in Canada as well. Under the principles of avoiding double taxation, a tax treaty should specify in which country I must pay and in which country I am entitled to a foreign tax credit. In principle, the Canada-U.S. Income Tax Treaty does this. However, the U.S. government reserves the right to tax its own citizens irrespective of the provisions of this treaty. Perversely, this position is called the "saving clause". I can assure you, no savings accrue to my benefit from this clause!

The IRS tells me, though I am a Canadian resident, that U.S.-source income is taxable in the U.S. and I should claim a refund of U.S. tax paid when filing in Canada. Except that I didn't make enough money in the U.S. to pay any tax. So I can't very well claim a refund of tax I didn't have to pay. Maybe in the end it doesn't make much difference; I would have had to pay somewhere, it might as well be in Canada. Still, the whole process is byzantine and doesn't seem altogether fair (and if you can stomach reading Article X of the treaty, you'll see it's obviously not fair in several other cases).

"All right, Greatness, quit belly-aching about taxes. Tell me about the global surveillance part." Sure thing. Have you ever looked at 1040 Schedule B? It's a trip. I especially like Part III:
part3.jpg

There are so many things to love about this schedule that I will have to restrain myself. For one thing, you generally don't have to fill it out unless you have over $1,500 in dividend or interest income. The only reason I've ever seen this form is that the threshold used to be much lower. Good thing I was aware of it, because Part III applies to me. It looks like I should say "Yes" on line 7a, because (duh) I have some bank accounts in Canada. However, if you flip to page B-2 (oh wait, you can't flip to it, because it's not attached -- it's in the instruction package), you learn that unless you have more than $10,000 in such accounts, you should say "No" despite the plain language of the question. I assume that would be my alibi if they wanted to get me for making a false statement. This procedure also guarantees that anyone who has to fill out Part III has to read all of the miscellany around the question before answering, whether any of it applies to them or not. Really, IRS guys, this screams out for a redesign.

But anyway. This year, for the first time, "Yes" is the right answer (thank you, joint accounts!). So what must I do? From the venerable page B-2: "file Form TD F 90-22.1 by June 30, 2007, with the Department of the Treasury at the address shown on that form. Do not attach it to Form 1040." I haven't decided whether this is the tax man being nice to the boys in Treasury or just closing ranks. You see, this part of the schedule has nothing to with taxes. Part III is to remind all red-blooded Americans of their duty to comply with the Code of Federal Regulations Title 31, Part 103. Treasury form TD F 90-22.1 (supplied by the IRS) looks innocuous enough. They just want the bank name and account number of every foreign asset under your control, whether it's your money or not. Why, exactly?

privacyact.jpg

What patriot could argue with that reasoning? How about this one.

Posted by The Greatness at March 5, 2007 10:54 AM

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