- 1 How much does a streamlined case cost?
- 2 How a streamlined case is handled
- 3 Are the streamlined procedures appropriate?
- 4 Do I Need a Tax Lawyer, or can I use a CPA?
- 5 Can we just Forget about my past Non-Compliance and file Correctly Going Forward?
- 6 Client tips on hiring an attorney
How much does a streamlined case cost?
Foreign accounts cases are unique and present different challenges. We often get quote requests by email. Hopefully this article will explain why we cannot provide a quote without having a consultation and reviewing your situation.
How a streamlined case is handled
Our policy is that if you’re voluntary coming into compliance for mistakes or omissions made on your tax returns (and which can carry hefty penalties), now is not the time to cut corners.
Step 1: Initial consultations
Clients are often nervous and don’t know what to expect at the start of the process. We provide an overview and go into as much detail as possible, but there’s so much information that most clients will feel overwhelmed.
The attorney should discuss the various options for coming into compliance and you should agree on the best way to disclose your accounts.
Step 2: Research
Offshore compliance is a niche area of tax law. There are thousands of different types of foreign accounts.
The IRS does not tell you how your specific foreign investment should be reported. And it would be impossible for the IRS to do that.
If you have a U.S. brokerage account, you get a 1099-B summary that you can just plug into Turbo Tax. That’s not the case with foreign investments. A foreign investment account can be any number of things:
Correctly reporting an account often requires an attorney to delve into the abyss of our tax code and treasury regulations to determine how the investment should be reported and taxed. The attorney should review any applicable tax treaties. Finally, the attorney should assist you with any questions regarding the organizers that you fill out.
Tax compliance for individuals should not be this complicated, but unfortunately our laws concerning foreign accounts are onerous and there are stiff penalties for some mistakes.
Step 3: Tax preparation
After the attorney has classified the accounts, determined how they should be taxed and reported, determined what forms should be filled out, and determined that you are non-willful and eligible for the streamlined procedures, the tax preparation process can begin.
Step 4: Certification
Your certification of non-willful conduct is the important part of your application. In it, you will present your facts to demonstrate non-willfulness under penalties of perjury.
A CPA/accountant should NOT be drafting this form. Charges for the filing of a false statement in a streamlined filing is not a theoretical risk — it is possible if you present incorrect facts.
The narrative on your certification should be concise but should address all the topics.
The IRS is looking for troublesome facts such as:
- Accounts held in the name of offshore entities (which could show an intent to disguise ownership)
- Actions taken to disguise or conceal ownership — e.g., accounts identified by code names, nicknames, or numbers; requesting foreign institution to hold mail and only visiting the bank in person for transactions
- Illegal source funds or significant amounts of previously untaxed legal source funds
- Accounts located in tax havens
(note: the above factors are not exclusive)
To ensure the IRS has confidence that such facts are not present in your case, your certification should address such topics as your personal and financial background, the source of funds, your reasons for opening the foreign accounts, and the types of contacts with the accounts.
Are the streamlined procedures appropriate?
The Traditional Voluntary Disclosure Program is for taxpayers who need protection from criminal prosecution or civil willfulness penalties. The following factors (not exclusive) are some indicators of willfulness.
- Opening an account in a jurisdiction in which the taxpayer has no other ties. Do you have legitimate business or personal ties to the jurisdiction where your foreign assets are located? Or are they located in offshore tax havens such as Switzerland, Panama, Cyprus, Liechtenstein, Luxembourg, Austria, and others where there have (or had) bank secrecy?
- A consistent pattern of under-reporting large amounts of income
- Use of bank accounts held under fictitious names
- Setting up foreign trusts or corporations to conceal sources of income
- Selectively filing some forms but not others
- Using different passports
- Requesting your bank to not send statements
- Using code words
- Only making cash deposits and withdrawals, and visiting the bank in person
- Receiving letters from the foreign bank regarding reporting requirements
- Failure to supply an accountant with accurate and complete information
- Keeping a double set of books
- Hiding, destroying, throwing away, or “losing” books and records
- Placing property or a business in the name of another (nominees)
- Use of bank accounts held under fictitious names
It is rare for a client to need a traditional voluntary disclosure.
Some factors are more indicative than others of willfulness. The presence of these factors in your case does not automatically make you willful.
For instance, you may have filed your FBARs but not Forms 8938 (see #5), or you reported your foreign bank accounts but not your non-bank foreign financial assets because you believed the FBAR was a foreign bank account report (see #5).
On the other hand, the use of a foreign bank account held under fictitious names, on its own, could be enough to show willfulness.
Willfulness is a legal determination, not a bright line rule – which is why a CPA should never handle offshore compliance cases.
Do I Need a Tax Lawyer, or can I use a CPA?
A client should not directly reach out to a CPA in a tax matter where they may be facing significant civil or criminal penalties for a tax violation.
Can we just Forget about my past Non-Compliance and file Correctly Going Forward?
Our job is to bring clients into compliance safely and will not advise or assist you in your strategy of “going forward compliance.”
Client tips on hiring an attorney
Be Upfront During your Initial Consultation. This means truthfully and completely answering all questions, and proffering relevant information. It is important to identify any weaknesses so that they may be addressed early on, as well as to identify the full scope of the work involved.
Be Organized. If you’re paying hourly, then obviously good organization on your part will save you money. If your attorney is charging a fixed fee and does not sense that you are organized, you can expect that your fees might be higher to reflect the additional time commitment on the attorney’s part.
Do your Tax Research. Be prepared with good questions to gauge whether the attorney has handled cases like yours before. Our clients who have done their research understand the nuances and complexity of this work, often more than some of the attorneys they end up talking to.