Avoid 5 Common Mistakes in Offshore Disclosure

Avoid 5 Common Mistakes in Offshore Disclosure

Avoid 5 Common Mistakes in Offshore Disclosure: The IRS (stand-alone) streamlined filing procedures are approaching its 8th year. The standalone procedures were developed in 2014. Our firm (Golding & Golding) is one of the main firms worldwide that represents clients exclusively in streamlined filing/offshore disclosure and compliance matters – in over 80 countries. We have counseled thousands of individuals on issues involving FBAR, FATCA, PFIC and more.  We have also inherited a significant number of clients who were misled by inexperienced counsel.

Here are five preventable streamlined filing mistakes that we see all too often.

Inexperienced Counsel, Outside CPAs and Hidden Hourly-Fee

There are only a handful of experienced streamlined attorneys who focus exclusively on this area of tax law. These Attorneys have a +20-years experience as lawyers, are Board-Certified Tax Specialists, have advanced degrees (LL.M.) and are dual-licensed.

Exprienced offshore disclosure attorneys charge flat-fee, to include both legal and tax representation in-house. If a small law firm is going to charge you a low up-front fee and refer you to an outside CPA for tax return preparation, chances are you are getting shafted.

It is referred to as a “bait-and-switch” and we are aware of only a handful of law firms that still do this —

Overwriting the 14653 and 14654

The streamlined certification forms are not dissertations, and taxpayers should not be drafting 10-page, single-spaced summaries.

Whenever a streamlined certification is rejected, it is typically (but not always) because the submission is way too long — and includes information that begins to look more like reckless disregard or willful blindness (willfulness) than mere negligence or inadvertence (non-willful).

Including Assets that are Exempt

Not all foreign assets are included in the penalty computation in a Streamlined Domestic Offshore submission (Streamlined Foreign has no penalty). For example, individually owned rental property and RRSP are not subject to the SDOP penalty.

Not Responding to Further IRS inquiries

There is no closing letter with a streamlined case; the matter can stay open for several years. Sometimes the IRS will follow-up after the submission. If you retained a tax/legal firm that provided flat-fee for the full representation — then this should not be a problem.

Other firms that charge hourly and use outside CPAs tend to forget about the matter after it’s been submitted — even though most submissions are subject to a six-year statute of limitations and the IRS will oftentimes follow-up on a variety of issues.

When the taxpayer client confronts the Attorney, the Attorney claims that either:

• the CPA should have responded; or
• representation did not include post-submission follow-up (and now they want you to replenish the retainer).

Noncompliance can lead to an audit or even a rejection of the submission.

Divulging Attorney-Client Privilege Information to an Outside CPA

This has to be the biggest preventable mistake in the world of offshore disclosure.  

If a client talks to an attorney about legal matters, those legal matters are protected under the Attorney-Client Privilege. If that attorney’s law firm is dual-licensed and also handles tax preparation in-house, it does not impact the attorney-client privilege. Courts have found that when a law firm prepares the tax and legal submission for their client, they do not waive the attorney-client privilege as to the legal issues of representation. Dual representation using this method is a cost-effective way to represent clients in Offshore Disclosure matters — while protecting the attorney-client privilege.

Meanwhile, there is no attorney-client privilege with a CPA.

Unfortunately, a handful of inexperienced attorneys want to “up-charge” their clients and pad their bills. They accomplish this by referring parts of the case to an outside CPA for tax preparation (not for true Kovel protection) — and together the Attorney and CPA each charge their own set of hourly fees. 

*Kovel can be rejected by courts. Even if it is accepted, it does not provide any protection for tax preparation matters.

The attorney scares the client into believing that if the same firm handles both the legal representation and tax preparation, that somehow this impacts the attorney-client privilege (it doesn’t). These attorneys are literally willing to risk their client’s confidentiality for their own benefit.

The client then ends up divulging privileged information to the CPA, while paying double-fees.

Only an inexperienced attorney with no actual attorney/litigation experience would ever refer a client to an outside CPA to prepare tax returns that inherently involve legal issues regarding the disclosure being made — and unnecessarily put their client’s confidentiality at risk.

Stay Aware

In conclusion, the Streamlined Procedures can be a great way for a taxpayer to resolve prior year noncompliance. When hiring a team for representation (unless the taxpayer is going to submit on their own), it is important that the taxpayer carefully vet out the attorney and their team carefully. We have severral resources available on both this website and our main website — as well as a video library to assist you.

Golding & Golding: About Our International Tax Attorney Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS disclosure & compliance.

Contact our firm today for assistance.