The US Foreign Account Tax Compliance Act (FATCA) has made waves in Canada since the 2014 federal budget made it Canadian law. It obliges financial institutions to report the accounts of US citizens to the Canada Revenue Agency, which passes the information on to the IRS.

Consider this example. Vangie is an American citizen born in Denver who moved to Calgary when she was young. She’s not compliant with her US taxes. Her consulting business has clients on both sides of the border. Vangie has personal and business bank accounts with RBC. FATCA affects both.

Under FATCA, RBC is obliged to report Vangie’s personal accounts to the IRS. Because Vangie was born in the US, RBC will likely ask Vangie to complete a Form W-9, to certify that she’s a US citizen. Simply filling out this form shouldn’t cause Vangie to panic — even if she is behind on her US taxes.  This is just the first step in a long, winding road by which Vangie’s information will make its way to the IRS. While determining what exactly gets reported is complicated, accounts worth less than $50,000 and Canadian RRSPs, TFSAs, RESPs, and RDSPs should not be reported.

It’s not entirely clear what the IRS will do with the information it receives from the thousands of financial institutions all over the world required to report to it. That’s a lot of information to sort through. Processing it will take time. Theoretically, the IRS could easily cross-reference the detailed information it receives through FATCA against the list of people who file US taxes and send out letters to those who are not filing. Postage is cheap. Flying an IRS agent to Canada to conduct an examination is the opposite of cheap. Most US citizens in Canada won’t owe US tax. So even if the IRS did start aggressive enforcement, which they currently do not do, it’s not clear how much money they would collect. For someone like Vangie, the cautious course of action is to get caught up on her US taxes before the IRS gets her information through FATCA.

FATCA will affect Vangie’s business as well. Since she does business in the US, she may receive Form W-8-BEN-E which looks, and is, pretty complicated. It may require Vangie to determine the FACTA classification of her business. Businesses filing this form for the first time should consult a professional tax advisor. After the initial determination has been made, the information can simply be replicated on all future W-8-BEN-E forms.

As a US citizen and person doing business in the US, Vangie to have more paperwork as a result of FACTA.  But she doesn’t have to fear FATCA — like all other new laws it can be dealt with.

Written by Max Reed