This post has been cross posted from RenounceUSCitizenship.
U.S. citizenship has been priced out of the market
The taxpayer, the IRS and the “cross border professionals” – where to go from here
U.S. citizens may have trouble finding qualified tax preparers
An inside perspective – Stacie Kitts, CPA:
“Choose A Tax Preparer That Has a Clue
Here it is, what all un-registered (non CPA’s, attorneys, or enrolled agent) tax preparers have been waiting for. The specs for the competency test that will award those who pass the title of “Registered Tax Return Preparer.”
Wowwee doesn’t it just give you the chills….
No – well maybe that’s because CPA’s and attorneys can sign tax returns even if they don’t have a single clue what they are doing. They get to do this without passing a test (other than the initial licensing exam which he/she could have taken a hundred years ago – so not even relevant today) or taking a single hour of tax related continuing professional education. You know, training that would keep you up to speed on the actual tax laws that apply to tax return preparation.
So what do you think the odds are that many of these licensed “professionals” would have a difficult time passing the new competency test?
Ya, scary jacked up regulation that leaves out a large number of people who are trusted to prepare your tax return.
Fixing the mistakes of these so called professionals is a large part of my practice. I guess I should be grateful instead of loosing my mind over the absurdity of it all.”
Gives you food for thought doesn’t it. Not all tax preparers are created equally and the one you choose better “have a clue”.
U.S. citizens and dual citizens living outside the United States
Few U.S. citizens living outside the United States will forget 2011. It was a year where many learned that they may not have been compliant with U.S. tax and/or information reporting requirements. If the IRS statistics are to be believed, the vast majority of U.S. citizens living outside the United States were not filing U.S. tax returns. Of those who had been filing tax returns virtually none of them were filing the FBAR (“Foreign Bank Account Report”). When it came to the FBAR (which is not a tax form and is not even to be mailed to the IRS), virtually nobody knew that it existed, virtually no tax professionals (if they knew of it) were educating people, and there was no reason to suspect such a form existed. Those those who HAD been filing tax returns had never been notified that an FBAR was required. Most U.S. expats are law abiding patriotic U.S. citizens. Most want to be in compliance. As a result, the viciousness of the IRS assault impacted their health, wealth and quality of life.
U.S. citizens living outside the United States seem to fall into one of the following groups:
- Never filed U.S. tax returns
- Stopped filing U.S. tax returns after having become a citizen of another country
- Filed U.S. tax returns on an ongoing basis, but had never filed information returns (“FBAR”)
- Filed all tax and information returns properly (I suspect that this small group was comprised of people with large incomes and large amounts of money to pay on tax and legal advice)
The 2011 Taxpayer Advocate Report to Congress reveal that “past compliance” has been low. It is also clear that the “past compliance” was inadvertent AND that (for the most part as they should), U.S. citizens living outside the United States,want to be in compliance! The conduct of the IRS has made compliance difficult. The irony is that although Commissioner Shulman claims that his objective is to “bring people back into the tax system”, the reality is that the conduct of the IRS (OVDI, threats, absence of clear guidelines) has made people frightened and reluctant to comply. The IRS has become an obstacle to compliance. U.S. citizens living abroad are like “deer frozen in the headlights” – they are paralyzed with fear and don’t know what to do.
Most taxpayers want to come into compliance – the question is how to do this
The conduct of the IRS has had a profound, permanent and irreparable effect on the lives of U.S. citizens living outside the U.S. A recent blog post titled: “Has your life been stolen from you by the IRS” revealed the true effect of recent IRS initiatives. By presuming that all taxpayers who entered OVDI were criminals, the IRS has eroded trust. The IRS cannot function without trust. This is tragic and was entirely unnecessary.
I repeat, the vast majority of U.S. expats want to be in compliance and just need to be told how. The time to file 2011 taxes is rapidly approaching. The IRS is making demands on the expat community but is not providing guidelines for how to comply. On January 9, 2012, when the IRS announced the reopening of OVDI, the IRS promised procedures for how to come into compliance. Those procedures have not been announced. Instead of asking taxpayers to “come clean”, the time has come for the IRS to “come clean” by revealing the promised procedures for U.S. citizens outside the U.S. to come into compliance. Time is of the essence – tax season is upon us.
U.S. tax and information return compliance –Choosing your dance partner - what kind of “cross border professional”?
It is becoming increasingly difficult to find competent “cross border” professionals. The cost of expat tax compliance is very high. So high, that U.S. citizenship has been priced out of the market. Everybody has different situations. Furthermore, there are at least two sets of issues:
- The possible issue of past non-compliance which may require the services of a lawyer
- The issue of “number crunching” and form completion which deals with more objective information
Compliance issues are more complex. The more complex the situation, the more you should consider a lawyer. At a minimum, compliance issues require the exercise of judgment that completing tax returns may not. Here is a “snapshot” of the different categories of people who you might turn to for assistance.
First, ALL “paid tax preparers” are required to have a PTIN number. The IRS is requiring all paid tax preparers to register with the IRS and to pass an exam. (If this applies to tax preparers outside of the United States, this regulation like FATCA is one more attempt of the U.S to impose its law outside of the U.S.) Note that this requirement applies to ALL paid tax preparers.
Second, there are two broad categories of “paid tax preparers”.
- Attorneys, CPAs and Enrolled Agents – have far greater privileges and responsibilities (including the ability to represent you before the IRS). Their conduct is governed by “Circular 230” which is a compilation of rules and ethics. Circular 230 is worth a read. You will see why so much of the advice is the same from CPA to CPA.
- Registered Tax Preparer– who is restricted to preparing tax returns and is required to pass a competency exam
All of these people cost lots of money. You will pay the most for Attorneys and CPAs. An Enrolled Agent will cost less than an attorney but more than a preparer.
These costs are such that “U.S. citizenship has been priced out of the market”.
When you seek the services of a “cross border professional” you need to understand the qualifications and limitations of the person you are dealing with. At the one extreme you have the attorney and at the other extreme you have the “Registered Tax Preparer”.
Your Four Choices Of Dance Partner – Understanding The Differences
1. Attorneys: If you use an Attorney make sure that it is one who specializes in tax compliance. If you use an attorney you will have the benefit of “attorney client privilege”. This means that once you retain the attorney, things you tell the attorney remain secret.
“What goes on in Vegas stays in Vegas”. This can be “priceless”.
2. CPAs: Assuming the CPA specializes in “cross border” issues, you should be fine. They are, in my experience just as expensive as the attorneys. That said, they do not come with “privilege”.
3. Enrolled Agent: Enrolled Agents have a very specialized knowledge in tax and IRS procedure. Like all professionals, they advertise their designation. Enrolled Agents market themselves (in part) on the basis that they cost less than attorneys and CPAs. They know what they are doing. It’s just that all they know is tax. You may have never heard of an “Enrolled Agent”.
An Enrolled Agent (EA) is a federally-authorized tax practitioner who has technical expertise in the field of taxation and who is empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service for audits, collections, and appeals.
What does the term “Enrolled Agent” mean?
“Enrolled” means to be licensed to practice by the federal government, and “Agent” means authorized to appear in the place of the taxpayer at the IRS. Only Enrolled Agents, attorneys, and CPAs may represent taxpayers before the IRS. The Enrolled Agent profession dates back to 1884 when, after questionable claims had been presented for Civil War losses, Congress acted to regulate persons who represented citizens in their dealings with the U.S. Treasury Department.
What are the differences between Enrolled Agents and other tax professionals?
Only Enrolled Agents are required to demonstrate to the IRS their competence in matters of taxation before they may represent a taxpayer before the IRS. Unlike attorneys and CPAs, who may or may not choose to specialize in taxes, all Enrolled Agents specialize in taxation. Enrolled Agents are the only taxpayer representatives who receive their right to practice from the U.S. government (CPAs and attorneys are licensed by their state).”
4. Registered Tax Preparer: What is this about?
The Internal Revenue services defines a “tax return preparer” as “an individual who, for compensation, prepares all or substantially all of a federal tax return or claim for refund.
What are the recent changes to become a Tax Preparer?
The IRS requires all paid tax preparers to sign up with the IRS, pay a registration fee and obtain a preparer tax identification number (PTIN). If you already have a PTIN you must still sign up under the new process. All paid preparers will be required to register and obtain a PTIN before April 18th, 2012 or they cannot prepare returns for compensation.
Beginning in November 2011, tax return preparers must pass an IRS Competency Exam to officially become an IRS Registered Tax Return Preparer. Tax return preparers who have PTINs before April 18, 2012 will have until December 31, 2013 to pass the IRS Competency Test and may take the test an unlimited number of times to pass it. There will be a fee to take the test and that fee will be due each time the individual attempts to pass the test. New tax return preparers will be required to pass the IRS Competency Test before they can obtain a PTIN. The IRS will require competency tests for all paid tax return preparers (except Attorneys, CPA’s, Enrolled Agents).
Unless you have a very simple return (only employment income and maybe a bit of interest income), I would seek somebody with greater competency than a “tax preparer”. On the other hand, it may be the only service you can afford.
Moral of the story: You want to be in tax compliance. Be thoughtful and discriminating in who you retain. In the same way that there are different kinds of taxpayers, there are also different kinds of tax preparers. Your choice of “cross border professional” is important.
The 2011 Taxpayer Advocate Report To Congress confirmed that the renunciation of U.S. citizenship is a growth industry (who wouldn’t renounce if the IRS won’t tell you how to come into compliance while threatening you with big fines for not being in compliance). You will have to be in tax compliance in order to renounce. Many of you will have to pay an Exit tax to renounce U.S. citizenship. Your choice of “cross border” professional should include this consideration.
If you survived the vicious assault of 2011, your goal may be to: