Thousands of reports containing confidential Canadian banking information records have been sent directly to the U.S Internal Revenue Service, without the Canadian government's knowledge.

According to information obtained by CBC News under a U.S. Freedom of Information Act request, 31,574 such reports have been sent directly to Internal Revenue Service over the past two years under the U.S. Foreign Account Tax Compliance Act (FATCA).

That is in addition to about 469,827 reports that the Canada Revenue Agency has transferred to the IRS under a Canada-U.S. agreement negotiated in the wake of the adoption of FATCA.

That means more than a half million Canadian banking information records have now been sent to the IRS.

Under U.S. law, anyone who is a U.S. citizen or considered a U.S. person for tax purposes has to file an income tax return to the IRS, regardless of whether they are living in the States. Some estimate as many as a million Canadian residents could be affected by FATCA — from Americans and dual citizens who are living in Canada to someone born in a U.S. border hospital who has lived their entire lives in Canada.

David Walters, spokesman for the Canada Revenue Agency, said the CRA was not aware of the additional records being sent, because they did not flow through the CRA.

"There are entities that do not meet the technical definition of a reporting Canadian financial institution, as per the legislation….These same entities may have the obligation to report directly to the IRS under some circumstances."

"Therefore, the CRA would not necessarily be aware of them reporting directly to the IRS."

Walters said one such example could be an investment fund manager in Canada that would be required to report directly to the IRS because of its holdings.

The revelation that information about some Canadian banking records is flowing directly to the United States is the latest twist in a controversial system set up by Congress. While it was designed to ferret out offshore tax cheats, thousands of Canadian residents who have dual citizenship or various ties to the U.S. have also gotten swept up in the Foreign Account Tax Compliance Act, known as FATCA.

On Wednesday, the impact of the reporting regime on Americans living outside the United States will be front and centre when a House of Representatives subcommittee holds hearings on the issue in Washington.

Most of the reports being sent to the IRS from Canadian banks first go through the Canada Revenue Agency under an agreement reached between Canada and the U.S. (Sean Kilpatrick/Canadian Press)

In the wake of FATCA's adoption, Canada negotiated an intergovernmental agreement with the U.S.

Under the agreement, instead of reporting directly to the IRS, Canadian financial institutions would send banking record information of clients they believed qualified as U.S. persons for tax purposes to the CRA, which in turn would transfer it to the IRS.

While controversial, the government says it increases confidentiality and avoids the prospect of a U.S. law being directly enforced in Canada. Under FATCA, Canadian financial institutions face the prospect of a 30 percent U.S. withholding tax if they fail to comply.

The first transfer, of 154,667 records for the 2014 tax year, took place in September 2015 in the midst of a federal election and despite a challenge of the constitutionality of the agreement in Canada's Federal Court. A second transfer of 315,160 records took place the following year for a total of 469,827.

However, according to information obtained by CBC News under the American Freedom of Information Act, the IRS received 501,401 records "from financial institutions registered out of Canada" over the past two years. It said 171,678 records were received for the 2014 tax year and 329,723 for 2015.

NDP Revenue Critic Pierre-Luc Dusseault says the revelation raises questions about whether the intergovernmental agreement between Canada and the U.S. is being respected. (Adrian Wyld/Canadian Press)

Bruce Friedland, spokesman for the IRS, says some Canadian bank account holders required to file FATCA reports to the IRS don't fall under the intergovernmental agreement worked out with Canada.

"The laws governing FATCA reporting contemplate that filers not covered by an Intergovernmental Agreement (IGA) will file directly with the IRS," he wrote in an e-mailed response. "For example, direct reporting non-financial foreign entities (NFFEs) would file reports directly with the IRS even where there is an IGA (in) effect in their jurisdiction."

Friedland has not yet clarified whether the reports are being sent to the IRS by organizations that qualify as non-financial foreign entities or whether they are being sent, as the wording of the document released under Freedom of Information suggests, by their financial institutions.

The IRS website lists 9,654 "financial institutions" based in Canada and registered with the IRS – from big banks to credit unions, companies and investment funds.

New Democratic Party Revenue Critic Pierre-Luc Dusseault said the new numbers are "surprising" and raise questions about whether the intergovernmental agreement between Canada and the U.S. is being respected.

"At some point we need to look at the fact that the agreement maybe is not being respected. Maybe financial institutions are transferring their files directly to the IRS which would be against the intergovernmental agreement with the U.S. government."

Stephen Kish, a member of the group fighting in Canada's Federal Court to have the banking record sharing deal struck down, said one of the key concerns of those affected by FATCA is the confidentiality of their banking information.

"The Canadians that I talk to, they are very concerned about the security of the data that travels between the CRA and the IRS," Kish explained. "They are very worried because they know computers can be hacked, information can be stolen."

Elizabeth Thompson can be reached at elizabeth.thompson@cbc.ca