If you have U.S.-citizen clients, or clients who qualify as U.S. persons, start worrying.

The recent deal struck between Canada and the U.S. lessens FATCA’s reporting burden on financial institutions like banks. But it doesn’t do much for your U.S. clients, notes Dan Lundenberg, a partner at Grant Thornton in Toronto.

Read: Who’s on the hook for FATCA?

FATCA or no FATCA, clients still have to file returns to the IRS. But the Act “is going to flush out those who have not yet become compliant,” says Lundenberg.

We’re not talking about people deliberately dodging taxes with offshore accounts (though they’re FATCA’s primary target). These are ordinary people who dutifully file to CRA every year, but don’t do the same with IRS.

“I run into people all the time who didn’t want to deal with the cost of compliance,” says Lundenberg, “so they stopped filing or pretended not to be [U.S. persons].”

Some clients assume all taxes are higher in Canada, so they don’t owe IRS a dime. That’s an error that magnifies an already worrisome problem.

Lundenberg notes income generated in an RRSP is exempt from U.S. tax only with proper filing to IRS.

“A U.S. citizen with an RRSP who doesn’t file Form 8891,” says Matt Altro, chief operating officer at Altro Levy LLP, “has to pay tax to the IRS on any income earned in the RRSP.”

But RESPs and TFSAs are never exempt. “You have to file a return and you may end up paying a little bit of tax,” says Lundenberg.

He suggests government entities should “renegotiate the U.S.-Canada treaty and put all these registered accounts on the same level as an RRSP.”

Another sticking point is the capital gains exclusion, which has no parallel in the U.S. Lundenberg explains that if clients gain when they sell their principal residences, they don’t have to worry about tax in Canada; but they may have to send cheques to Uncle Sam.

These mismatches in tax policy mean there are few U.S. persons living in Canada who won’t have a U.S. tax liability, says Lundenberg. Since FATCA increases the likelihood IRS will find out about them, clients who haven’t been filing should use the agency’s voluntary disclosure program.

Read: FATCA deal finalized

Carlene Hornby, a partner at KPMG in Vancouver, notes that while this is the best course, meeting the program’s requirements will be difficult. “It’s not easy [for clients] to collect the information because they weren’t expecting to need it. And chances are slim that they’ll be able to do the returns themselves, with all the complexity and extra reporting required.”

They’ll need three years of returns and six years of FBARs. “Once you’ve become compliant,” notes Jillian Nicolson, a partner at EY in Toronto, “there’s an opportunity to relinquish your U.S. citizenship.”

Lundenberg, who was born in the U.S. and practices in Canada, adds advisors need to be aware that an investment plan that would work wonders for a Canadian could be full of traps if the client is a U.S. person.

Read: New rules for U.S. taxpayers with mutual funds

One example is Canadian mutual funds, which can have adverse tax consequences in the U.S. because they fall into the Passive Foreign Investment Company category.

“I get cold calls all the time from [advisors] wanting my business, and I say, ‘Explain to me the challenges of being a U.S. person living in Canada, and the kinds of investments I should have. If you can explain that, we can potentially have a conversation.’ Most of them can’t.”

Can you?

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