We can't trust the IRS – But can we trust the accountants and lawyers?

The post is a comment responding to the blog post – IRS issues Fact Sheet For U.S. or dual citizens residing outside of the U.S., to which Petros commented :

They [the IRS] can’t be trusted when they talk about reasonable cause, because they don’t really indicate what reasonable cause is.

As I said in the post – the trust issue is huge. But, the trust issue exists with respect to both the IRS and the accountants and lawyers who have been involved in this (often giving advice that was clearly of benefit to the accountant/lawyer and not necessarily to the client).

With Respect To The IRS:

The distrust of the IRS is richly deserved. Examples include their “bait and switch” (described above) tactics in the 2009 OVDI, There other examples of people being mistreated in OVDI. See:

http://hodgen.com/yet-another-ovdi-victims-story/

http://hodgen.com/a-real-life-voluntary-disclosure-program-participants-story/

http://hodgen.com/why-the-irs-is-pushing-to-close-all-2009-vdp-cases/

http://federaltaxcrimes.blogspot.com/2011/09/experiences-inside-ovdp-ovdi-91411.html

http://www.reuters.com/article/2011/12/08/us-usa-taxes-foreign-idUSTRE7B723920111208

http://www.expatforum.com/expats/expat-tax/93621-ovdi-program-information-updates-stories.html

The basis of the problem is a sense that the rules are not clear and even if they were clear one doesn’t know how they will be applied. The only thing one can be certain of – if you are an honest taxpayer, trying to come into compliance with requirements you didn’t know about it – is unfairness. But remember that OVDI is not premised on “reasonable cause”. It is premised on “criminality”.

With Respect To The Accountants and Lawyers:

Let me begin with this article:

In my opinion this is an “infomerrcial” to encourage people to enter OVDI without determining whether their circumstances justify it. OVDI was part of “Voluntary Disclosure”. That means entry into OVDI was not required. The media during the summer of 2011 portrayed OVDI as mandatory. The media wrote many articles about OVDI without understanding it.

Next, it is clear to me that this is not an issue of completing tax returns. It is an issue of how to get into compliance (or not) with the laws of the U.S. (however insane they are). For this, you need a professional that specializes in this kind of work. It is quite obvious that many people sought advice from people who were not specialists. They will pay a heavy, heavy price for the advice that they paid a fortune for.

We are now is a position where the lawyers/accounts are not trusted either.

So, the problem remains in a context where: people don’t trust the IRS (as you point out, one can’t be certain what reasonable cause is), people do not have confidence in the advice of lawyers/accountants. Yet, the IRS laws and procedure are so complicated that people need lawyers/accountants in order to know how to proceed (if that is what they want).

Finally, the issue of costs of compliance. Very few people have the money to pay professional fees.

Conclusion: Even though the IRS (in my irrelevant opinion) is attempting to solve this problem, it may no longer be solvable. The distrust of the IRS, the lawyers, and the accountants, coupled with the legal and accounting costs may be too much for people. But, remember that this Fact Sheet directed to taxpayers living outside the U.S.(the subject of the above article) is NOT the same thing as OVDI. Perhaps different treatment can be expected from the IRS if you enter through the door that reads “I didn’t know about the FBAR requirement” as opposed to entering through the door that reads: “Presumptive Tax Cheats Enter Here”. Once again – this is not intended to be any kind of whatsoever – whether legal or otherwise.

It would be good if some others would “weigh in” on this.

15 thoughts on “We can't trust the IRS – But can we trust the accountants and lawyers?”

Welcome aboard. RenounceUScitizenship is a really great blog and hope everyone will take a chance to go and see what you’ve written there.

I have a growing feeling that tax specialists are not really out there to help people. The ad you mention is an excellent example. It encourages people to enter the OVDI who should not be in the program (most US expats should not have entered the program). I think that the true specialists out there will not be ambulance chasers but can really advise you properly on what to do; and they are competent and they have sufficient business so they won’t be taking you for a ride. My wife’s cousin for example paid something like $5000 to get up to date on her tax and FBARs, and she is just a working woman, not some rich person. What does it cost to put together a single returns, $125-200? I’ve never paid more than that.

Phil Hodgen comes to mind as someone who is a true specialist and therefore is so busy that he isn’t out there chasing ambulances.

It takes a very long time and requires a lot of experience to properly advise someone in this area. I am convinced that a majority of people who entered OVDI did so pursuant to bad professional advice. The trouble is that it is hard for a lay person to tell the difference. The trouble is that the really good advisers cost more than the “minnow” can afford. So, the minnows are on their own.

I would add that for many people (depending on the complexity of their situation) that this is far more than an issue of preparing tax returns.

Finally, I would counsel people to use lawyers because of the lawyer client privilege.

This is a very nasty mess – what people really need is an individual counseling session which reviews their situation and then advises the person what steps to take and with what lawyer/accountant.

The main problem is “how to proceed – what to do”.

Anyone know how TFSAs are treated in OVDI? trusts or savings accounts?

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@all, the article below just appeared in the Hamilton Spectator re ‘voluntary disclosures’ . with a glancing mention of FATCA. The authors are from KPMG.
http://www.thespec.com/news/business/article/694426–americans-in-canada-beware-of-irs-bloodhounds
Tue Mar 27 2012
by Jeffrey Brown and Elena Hanson
(“Jeffrey Brown is a partner and Elena Hanson is a senior manager with KPMG’s US and Cross-Border Tax Group in Hamilton.”)

“Americans in Canada beware of IRS bloodhounds”
“Whether they know it or not, most of the roughly one million “United States persons” who reside in Canada remain subject to US income tax. US persons include US citizens, green card holders and even some “accidental Americans” who don’t realize they are subject to US tax. Non-compliance with US tax laws among US persons in Canada remains widespread, according to analysis by accounting firm KPMG, and has recently become subject to intense enforcement by the Internal Revenue Service (IRS). While the time has come for US persons to “get back into the US tax system”, there are alternative approaches to remedy past non-compliance……………”

“…….US persons abroad can favourably correct past non-compliance but the window of opportunity for doing so is closing. For example, beginning in 2014, a new US law mandates that financial institutions outside of the US disclose to the IRS all accounts held by US persons. To achieve the best possible outcome, non-compliant US persons should review their situation with qualified US tax advisers to map out their best approach for becoming and remaining compliant sooner rather than later.”

It only alludes to FATCA: “After 2010, a foreign account disclosure similar to and in addition to FBAR is a part of the US income tax return….”

@Petros, if this should go on another thread, could you move it? There are several other places where it might go….

I am all for a new thread. But being away from the desk makes it little difficult. Perhaps someone’d be willing to do that and just indicate here in the comment stream that they’re going to do so.