Moving From Canada To The USA? If You Owe Money To The Canada Revenue Agency – Will The IRS Collect For Canada?

Leave a reply

A quick post based on the following tweet …

The facts:

A Canadian citizen (not a dual Canada/U.S. citizen) with tax debts owing to the Canada Revenue Agency moves to the United States. The Canada Revenue Agency (surprise, surprise) wants its money. The decision of the court explained it this way:

P owes approximately $200,000 in Canadian tax for tax years 1993 and 1994. In 2017 the Canada Revenue Agency sent the Internal Revenue Service (IRS) a mutual collection assistance request (MCAR) under the Canada-U.S. Income Tax Treaty (Treaty). Once the U.S. Competent Authority granted the MCAR, the IRS filed a notice of federal tax lien (NFTL) against P. The IRS notified P of the NFTL filing but stated that she had no right to a collection due process (CDP) hearing under I.R.C. §§6320 and 6330. P nonetheless requested a CDP hearing within 30 days of the IRS’s notice. When the IRS denied P’s request, she petitioned for review of that denial under the color of I.R.C. §6330(d)(1).

Held: We have jurisdiction under I.R.C. §6330(d)(1) to review a determination only if, in making that determination, the IRS was subject to one or more obligations imposed by I.R.C. §6320 or §6330.

Held, further, Treaty Article XXVI A requires the United States to collect an accepted Canadian revenue claim as it would a U.S. tax assessment for which the taxpayer’s right to a CDP hearing (among other rights) has lapsed or been exhausted. Consequently, P has no additional rights under I.R.C. §6320 or §6330 with respect to the IRS’s collection of her Canadian tax liability, and those statutes imposed no obligations on the IRS with respect to P’s hearing request.

Held, further, we lack jurisdiction over P’s Petition because the IRS did not issue a determination letter to P that would invoke our jurisdiction under I.R.C. §6330(d)(1), and it had no obligation to do so.

The question:

What collection options are available to the Canada Revenue Agency? Will the IRS assist Canada? (An excellent article by Kreig Mitchell – describing the general process is here.)

The answer:

Yes, the Canada/US tax treaty contains a (Article XXVI A) an “Assistance In Collection” provision. The full text of the collection article is reproduced in the Appendix.

Of significant note:

– the requesting state (in this case Canada) must certify that the tax debt has been gone through all procedural steps and has been “finally determined”

– upon receipt of the request of a “finally determined” claim, the requested state (in this case the United States) will treat the tax debt as (under the treaty) “finally determined”. The effect is that (as decided in Ryckman v. Commissioner, T.C. Memo. 2024-75) the taxpayer will have no procedural rights to defend the tax debt in the requested country.

(In 2016 I explained why and how the assistance in collection provision disproportionately benefits the United States because of citizenship taxation.)

To put it simply:

In Ryckman, the IRS enforced collection of a Canadian tax debt against a “non-citizen” residing in the United States.

Q. What if Ms. Ryckman had been a dual Canada/U.S. citizen? Would the IRS have been bound to assist the Canada Revenue Agency?

A. The answer is NO. The Canada U.S. tax treaty could not have been used by the Canada Revenue Agency. This is because of Article XXVI A 8 which reads:

8. No assistance shall be provided under this Article for a revenue claim in respect of a taxpayer to the extent that the taxpayer can demonstrate that

(a) where the taxpayer is an individual, the revenue claim relates either to a taxable period in which the taxpayer was a citizen of the requested State or, if the taxpayer became a citizen of the requested State at any time before November 9, 1995 and is such a citizen at the time the applicant State applies for collection of the claim, to a taxable period that ended before November 9, 1995; and
(b) where the taxpayer is an entity that is a company, estate or trust, the revenue claim relates to a taxable period in which the taxpayer derived its status as such an entity from the laws in force in the requested State.

The moral of the story …

Canadian residents who move from Canada and owe money to the Canada Revenue Agency should be careful about which country they move to. Pay attention to tax treaties. Moving to the United States was a very expensive choice because of this mutual assistance provision in the Canada/U.S. tax treaty. The fact that Ms.Ryckman was NOT a U.S. citizen meant that she had no protection under the treaty.

Canada/U.S. dual citizens have better protection against IRS enforcement of Canadian tax debts. The reciprocal situation is also true.

Yes, citizenship matters when it comes to the collection of tax debts! Those considering renouncing U.S. citizenship take note!

John Richardson – Follow me on X.com at @Expatriationlaw

Appendix

Article XXVI A
Assistance in Collection

1. The Contracting States undertake to lend assistance to each other in the collection of taxes referred to in paragraph 9, together with interest, costs, additions to such taxes and civil penalties, referred to in this Article as a “revenue claim”.

2. An application for assistance in the collection of a revenue claim shall include a certification by the competent authority of the applicant State that, under the laws of that State, the revenue claim has been finally determined. For the purposes of this Article, a revenue claim is finally determined when the applicant State has the right under its internal law to collect the revenue claim and all administrative and judicial rights of the taxpayer to restrain collection in the applicant State have lapsed or been exhausted.

3. A revenue claim of the applicant State that has been finally determined may be accepted for collection by the competent authority of the requested State and, subject to the provisions of paragraph 7, if accepted shall be collected by the requested State as though such revenue claim were the requested State’s own revenue claim finally determined in accordance with the laws applicable to the collection of the requested State’s own taxes.

4. Where an application for collection of a revenue claim in respect of a taxpayer is accepted

(a) by the United States, the revenue claim shall be treated by the United States as an assessment under United States laws against the taxpayer as of the time the application is received; and
(b) by Canada, the revenue claim shall be treated by Canada as an amount payable under the Income Tax Act, the collection of which is not subject to any restriction.

5. Nothing in this Article shall be construed as creating or providing any rights of administrative or judicial review of the applicant State’s finally determined revenue claim by the requested State, based on any such rights that may be available under the laws of either Contracting State. If, at any time pending execution of a request for assistance under this Article, the applicant State loses the right under its internal law to collect the revenue claim, the competent authority of the applicant State shall promptly withdraw the request for assistance in collection.

6. Subject to this paragraph, amounts collected by the requested State pursuant to this Article shall be forwarded to the competent authority of the applicant State. Unless the competent authorities of the Contracting States otherwise agree, the ordinary costs incurred in providing collection assistance shall be borne by the requested State and any extraordinary costs so incurred shall be borne by the applicant State.

7. A revenue claim of an applicant State accepted for collection shall not have in the requested State any priority accorded to the revenue claims of the requested State.

8. No assistance shall be provided under this Article for a revenue claim in respect of a taxpayer to the extent that the taxpayer can demonstrate that

(a) where the taxpayer is an individual, the revenue claim relates either to a taxable period in which the taxpayer was a citizen of the requested State or, if the taxpayer became a citizen of the requested State at any time before November 9, 1995 and is such a citizen at the time the applicant State applies for collection of the claim, to a taxable period that ended before November 9, 1995; and
(b) where the taxpayer is an entity that is a company, estate or trust, the revenue claim relates to a taxable period in which the taxpayer derived its status as such an entity from the laws in force in the requested State.

9. Notwithstanding the provisions of Article II (Taxes Covered), the provisions of this Article shall apply to all categories of taxes collected, and to contributions to social security and employment insurance premiums levied, by or on behalf of the Government of a Contracting State.

10. Nothing in this Article shall be construed as:

(a) limiting the assistance provided for in paragraph 4 of Article XXVI (Mutual Agreement Procedure); or
(b) imposing on either Contracting State the obligation to carry out administrative measures of a different nature from those used in the collection of its own taxes or that would be contrary to its public policy (ordre public).

11. The competent authorities of the Contracting States shall agree upon the mode of application of this Article, including agreement to ensure comparable levels of assistance to each of the Contracting States.

Leave a Reply