FATCA & FBAR Conviction – Risk of Using CPAs in Offshore Disclosure
- 1 How Did He Get Caught?
- 2 Isn’t There an Attorney Client Privilege with a CPA?
- 3 What About a Kovel Letter?
- 4 Is a Kovel Statutory Law?
- 5 What if I spoke to the CPA about other issues, such as Willfulness?
- 6 My Attorney did Not Explain this to me?
- 7 How Can I Protect Myself?
- 8 Understanding Legal vs. Accountant Privileges
- 9 IRS Offshore Disclosure & Privileges
- 10 Misuse of Kovel in Offshore Disclosure
- 11 Being Dually Licensed Has a Big “Real World” Benefit
- 12 Common Example from Clients Who First Used a Non-Dually Licensed Less-Experienced Attorney
- 13 Your Confidentiality and Offshore Disclosure Submission is Now at Risk
- 14 Other Considerations for Selecting an Offshore Disclosure Attorney
- 15 4 Types of IRS Voluntary Disclosure Programs
FATCA & FBAR Conviction – Risk of Using CPAs in Offshore Disclosure
Paul Manafort (President Trump’s former Campaign Manager) was recently convicted of many different crimes relating to the non-disclosure of offshore accounts. The main problem was that Manafort:
- Kept the foreign accounts secret;
- He did not disclose them to the IRS; and
- He used a CPA.
How Did He Get Caught?
Manafort ended up being done in by his own accountant, who testified against him.
Isn’t There an Attorney Client Privilege with a CPA?
No. There is an Accountant-Client Privilege, but it does not carry near the same weight or protection as the Attorney-Client Privilege. It does not protect against criminal or quasi-criminal investigations.
What About a Kovel Letter?
Kovel Letters are not statutory law. All the “Kovel Letter” does is let you speak to a CPA or Accountant on matters in which your attorney is not well-versed enough in an area of tax law sufficient to provide you tax legal advice.
Therefore, the Attorney refers you to an Accountant for limited-purposes.
Is a Kovel Statutory Law?
No. And, if the matter goes to court, the judge does not have to accept the Kovel Letter, and your CPA can be questioned.
What if I spoke to the CPA about other issues, such as Willfulness?
Unfortunately, that information may be discoverable, and your confidentiality may be at risk.
My Attorney did Not Explain this to me?
Of course not.
Many less experienced attorneys put way too much weight and emphasis on a “Kovel Letter,” without properly explaining to you all the limitations it has.
Generally, these attorneys are sole practitioners or general tax practitioners juggling various different areas of law. They bait you in with a free 15-30 minute “free consultation,” and spend that time trying to dissuade you from speaking with, or retaining more experienced counsel.
How Can I Protect Myself?
The best way to maintain confidentiality and the Attorney-Client privilege is to retain a Dually-Licensed Attorney/Enrolled Agent or Attorney/CPA.
Understanding Legal vs. Accountant Privileges
The Attorney-Client Privilege is a serious benefit to clients. It facilitates near airtight confidentiality (short of the client indicating he or she is going to inflict death or serious bodily harm to another person).
Accountant Client Privilege
The Accountant-Client Privilege is not as awesome. While the privilege provides some protection, it does not extend to criminal investigation, and is limited in scope.
IRS Offshore Disclosure & Privileges
When a person is out of compliance for Offshore/Foreign related matters, there are various IRS offshore amnesty “voluntary disclosure” programs a person can submit to.
No matter which amnesty program a person submits to, there are generally five (5) main components to the submission:
- Evaluating and assessing the tax and legal situation in detail
- Submitting amended or original tax returns
- Submitting FBARs and International Informational Returns
- Preparing a detailed Legal Statement(s)
- Providing back-end support and defense
A Dually Licensed Attorney/EA or Attorney CPA Understands the Interplay Between Law and Taxes
Even simple tax situations are usually much more complicated than they first appear. It takes an attorney with an extensive legal and tax background (from years of legal and tax preparation experience) to effectively evaluate and asses all the tax and legal issues involving offshore disclosure, in order to piece them together properly to present your disclosure in the best light.
If the Attorney does not have experience preparing complex tax returns, they will not be able to complete this part of the task for you.
Your case is already at a disadvantage.
So what happens when your Attorney is not dually licensed, and is neither qualified to prepare your taxes nor answer your tax questions?
The attorney generally refers the case out to an accountant firm, EA, or CPA — and the trouble begins.
Misuse of Kovel in Offshore Disclosure
For many newer firms in over their head on tax related issues (usually small tax firms trying to juggle 5-10 different areas of tax), they begin to refer you to an Accountant for any tax related questions – and it can take weeks for the Accountant to come back with an answer — especially if it is during tax season, and/or International Tax is not the main area of tax the accountant practices.
You start to get nervous, and are unsure what the Attorney is actually doing for you. You want a “second opinion” about your situation — who better to ask than your accountant, right?
This has three (3) major drawbacks for your IRS offshore disclosure:
- The IRS clock is still ticking away…
- It is not covered under Kovel, and
- It significantly increases the likelihood that you may break the privilege and jeopardize your confidentiality.
Being Dually Licensed Has a Big “Real World” Benefit
When some lesser experienced attorneys are not dually licensed as an EA or CPA (and do not have the litigation or trial experience to see how privilege plays out in the real world) they are quick to dismiss the dual-license, by intentionally mis-categorizing the purpose of being dually licensed to try to fool the general public (you).
There are thousands of dually licensed Attorneys (Attorney/Enrolled Agent and Attorney/CPA) in all different areas of tax.
The main two privileges are the Attorney-Client Privilege and Accountant-Client Privilege. The Accountant privilege does not extend to legal matters or criminal investigations.
And, being dually licensed does not extend the Attorney-Privilege to Accountant related matters.
That is not the purpose of being dually licensed.
While being dually licensed does not extend the Attorney-Client Privilege to all non-legal tax related issues, there is a much bigger benefit when it involves Offshore Disclosure.
It helps protect against a client mistakenly breaking the privilege by talking about legal matters with a CPA, which are not covered under Kovel.
Common Example from Clients Who First Used a Non-Dually Licensed Less-Experienced Attorney
Your Attorney refers you off to some accountant, whom you do not really know. During your tax talk with the accountant, the accountant starts to ask some more background questions, and the conversation becomes more “casual.”
During these communications, you accidentally divulge legal information about your case that would have been protected had you told your Attorney.
Since the discussion turned to legal, those communications about your case are no longer protected as they would have been had you been talking with your dually-licensed attorney about those same legal matters.
Your Confidentiality and Offshore Disclosure Submission is Now at Risk
This is a much bigger problem: if there is any issue about willfulness that you may have divulged to the accountant — your entire case may be compromised.
While the IRS cannot interview your Attorney, the IRS has the right to investigate your CPA.
Now you have to trust that your accountant will not disclose this information if:
- Your streamlined or Reasonable Cause is audited due to legal issues involving willfulness that you may have leaked to the CPA
- The accountant’s practice is audited or investigated by the IRS (OPR) and all his or her files may be compromised, or
- The accountant needs it for leverage to defend against other investigations the IRS or other agency is taking against him/her.
And, if the IRS issues your CPA a summons or subpoenas about his files (or your file specifically) — the information you told the CPA about your legal issues or concerns are not protected.
What is to prevent the CPA from blowing the whistle on you, if he or she gets jammed up? Just look what happened to Paul Manafort.
While a Kovel Letter extends very-limited protection with an Accountant, misplaced reliance on it can get you in very serious trouble.
Now, your privilege is compromised.
Other Considerations for Selecting an Offshore Disclosure Attorney
Masters in Tax Law (LL.M.)
A Masters in Tax Law requires 15-20 graduate level tax law classes. This type of education provides a great foundation to best understand the highly complex areas of law involving international tax.
The Attorneys have Extensive Offshore Disclosure Experience
At Golding & Golding, we have handled several hundred disclosures (OVDP, IRM Voluntary Disclosure, Streamlined and Reasonable Cause) for clients around the world in nearly 70-countries.
We have the knowledge and experience to help you get compliant.
Our attorneys have handled many complex litigation cases. We are routinely retained as consultants on international tax related matters involving offshore disclosure and divorce, litigation, business and corporate matters.
Board Certified Tax Law Specialist Credential
Once an Attorney earns the prestigious Board Certified Tax Law Specialist credential, it proves to the general public that the attorney is dedicated to tax law, and has real tax law practice experience as an Attorney.
Few tax attorneys have passed the tax speciality exam (regarded as one of the most difficult tax exams in the country) — and met the additional education, experience, and recommendation requirements necessary for certification.
Once a person becomes “Board Certified in Tax,” it shows they have met the following requirements:
- Advanced tax education
- Extensive tax law experience
- Attorney & Judge recommendations for certification
In California for example, there are 200,000 active Attorneys, with tens of thousands of Attorneys practicing in some area of tax — and only 350 Tax Attorneys have successfully earned the designation.
Less than 1% of Attorneys nationwide have earned the credential.
4 Types of IRS Voluntary Disclosure Programs
There are typically four types of IRS Voluntary Disclosure programs, and they include:
- Traditional (IRM) IRS Voluntary Disclosure Program
- Streamlined Domestic Offshore Procedures (SDOP)
- Streamlined Foreign Offshore Procedures (SFOP)
- Reasonable Cause (RC)
Contact Us Today; Let us Help You.
Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver, and has also earned the prestigious Enrolled Agent credential. Mr. Golding is also a Board Certified Tax Law Specialist Attorney (A designation earned by Less than 1% of Attorneys nationwide.)
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