Regular readers of this blog know that I talk frequently about RRSPs. (For those of you who don’t know, RRSPs are Canadian “do-it-yourself” pension plan arrangements, like an Individual Retirement Account (“IRA”) in the United States.) A whole bunch of OVDI participants are about to go down the rabbit hole to Alice-in-Wonderland tax logic, as the Commissioner tries to decide what to do with RRSPs.
Here is the problem in a nutshell.
With great power comes great responsibility. Or something like that.
The IRS is evidencing the flip-flop management style with the OVDI that it followed with the 2009 Voluntary Disclosure Program. According to an article in today’s Tax Notes Today, the OVDI Hotline originally told callers that RRSPs would not be in the penalty base for calculating the OVDI penalty. That changed. Now (as a recent comment on this blog indicated) an OVDI participant will pay 25% of the RRSP balances to the IRS as a penalty.
Think about what the IRS is saying:
Ordinary Canadians must give the United States Treasury 25% of their pension savings because of a missing piece of 8.5 x 11 paper.
“Render unto Caesar . . . ” is all well and good. But it strikes me that the appropriate historical allusion is not New Testament, but rather to Julius Caesar’s “Alea iacta est” pronouncement as he crossed the Rubicon. (See what I did there?)
In waging a penalty war on middle-class Canadians and imposing shock-and-awe penalties on ordinary law-abiding people in the USA and Canada, the IRS has kicked off a diplomatic spat with Canada. “The die is cast” is apt. This is a defining act by the IRS. One need only look at the rising tide of media attention this topic is bringing in Canada.
At some point the announcement will come over the intercom, “Mr. Shulman, please come to the principal’s office.” That announcement cannot come a moment too soon, as far as I am concerned.
And yes, I am fully aware that Julius Caesar’s army defeated Pompey’s army. From my reading, a large part of the reason was that Pompey’s cavalry had communications problems. This makes the analogy all the more apt — the Forces of Good (that would be us) have a communications problem. How do we get the word out? How do we get the Canadian politicians into gear? How do we get the attention of John Baird, Minister of Foreign Affairs, to make him aware of the situation?