201712.08
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OVDP Rejected using a CPA – No Confidentiality, Are You at Risk?

OVDP Rejected using a CPA - No Confidentiality, Are You at Risk by Golding & Golding

OVDP Rejected using a CPA – No Confidentiality, Are You at Risk by Golding & Golding

OVDP Rejected using a CPA – No Confidentiality, Are You at Risk?

While using a CPA to submit an OVDP may be a less costly alternative, it may become more costly in the long-run.

No OVDP CPA Confidentiality

Why? Because using a CPA who is not retained by your attorney by way of a Kovel Letter runs the risk of compromising the confidentiality you may have thought you had with your CPA that prepared your OVDP preclearance letter.

With the number of OVDP Denials on the rise, and the IRS going after individuals who were either denied, declined or abandoned their OVDP application (and didn’t otherwise get into compliance) it is important to understand the significant risk you are taking by utilizing a CPA instead of an attorney to submit a preclearance letter.

OVDP Preclearance

A preclearance letter is not technically part of the OVDP submission. Rather, the preclearance letter is a request from the IRS to research your background briefly to determine whether you are already in the system, under examination, or the subject of a criminal tax investigation.

If any of the latter is true, then your preclearance letter will most likely be denied. If your preclearance is denied, you lose the opportunity to submit to OVDP. This may not sound like a big deal, until you come to the realization that all the information you provided to your CPA may be compromised and subject disclosure by the IRS since there is no attorney-client privilege with a CPA.

CPA vs. Attorney – Privilege

The purpose behind the attorney-client privilege is that the client should feel comfortable telling all of the facts to the attorney, so that the attorney can provide the best representation to the client. And, the client gets the benefit of knowing that the information he or she provided is considered private and confidential.

When it comes to CPA, a CPA is not a licensed attorney. As such, there is no attorney client privilege with a CPA. There may be a very limited civil privilege with a CPA,but you have to keep in mind that there is a general presumption of willfulness when submitting an OVDP (post July-2014), since you did not submit to the Streamlined Progam instead. 

As such, the information and facts surrounding the nondisclosure must be kept confidential, which means hiring an Attorney and not a CPA to handle the preclearance submission.

OVDP Denials are on the Rrise

OVDP preclearance denials are on the rise. This is mainly because in accordance with FATCA, more than 110 countries and 300,000 foreign financial institutions have agreed to report US account holder information to the IRS.

Just because Foreign Financial Institutions does not mean the IRS already has your information, but the chances of them having it are higher than it would’ve been pre-FATCA. In preparing your preclearance letter, typically your attorney will ask you questions, and many of those questions may have a hint of criminality to them — especially when it involves willfulness and the knowing or reckless disregard of non-reporting of foreign accounts.

OVDP Denials

While the majority of OVDP submissions are accepted, not all of them are. There is no way to know whether your submission will be accepted until you make a preclearance submission.  While up until recently a preclearance submission was almost automatic, times have changed.

More and more foreign financial institutions have jumped on the FATCA bandwagon and the chances of the IRS already having your information (which would lead to a preclearance denial) has increased.

Is Your Information Compromised?

If you used a CPA, than the answer is yes. It is impossible to know whether you will be audited or not as a result of your preclearance denial. But, the IRS agent will know that you already submitted a preclearance letter, and that it was submitted through a CPA — which means the agent can access that information either from you or the CPA

Therefore, if you are audited in the future, your CPA may be asked to provide any information that you provided to the CPA regarding the nondisclosure of foreign accounts. Alternatively, you may be asked to provide the information that the CPA sent to you and/or information you sent to the CPA.

Protect Yourself – Use Experienced Counsel

Making an affirmative representation that you are out of compliance with the IRS is a serious situation. It is important to use an attorney to ensure that you have the attorney-client privilege intact involving any of this information that you are providing to the IRS.

Denied OVDP – Already Under IRS Investigation?

It is becoming more and more clear that the IRS, Department of Justice and the U.S. Government as a whole have made Federal Tax Crimes involving Tax Evasion and Tax Fraud that involve Foreign Income and Offshore Accounts a key enforcement priority.

Typical IRS Criminal Tax Investigations include:

  • Offshore Tax Evasion
  • Offshore Tax Fraud
  • Offshore Money Laundering
  • Offshore Structuring

If you committed one of these types of Offshore Tax Crimes and are audited by the IRS, you have to be very careful. That is because you may not know the extent of the information the IRS already has against you, which may lead to a referral to the Criminal Investigation Division (CID) of the IRS.

Moreover, when an IRS Audit ends and depending on the strategies or tactics used by the specific agent who examined you,an IRS Investigation or inquiry by the IRS Fraud Division may start before you even know it.

The following is a brief summary of the common key tactics the IRS may use in trying to build a case against you, and/or moving your civil audit to a criminal investigation.

Contacting Your Bank Manager

It is safe to say the IRS would have no legitimate reason for speaking with the manager at the bank that you currently use, unless the IRS is trying to build a case against you.

Otherwise, why would the Internal Revenue Service take the time to go visit your bank manager? Oftentimes, when the IRS agent visits your bank manager, it is to begin comprehensive research on issues such as transfers, moving money offshore, and other matters related to your bank account.

They may want to know how often you come to the bank, and how often you request cash as opposed to other transfers. They may also want to know if there any other non-primary individuals on the account, accessing your information and if there are other accounts that the IRS may not know about yet.

Showing up at Your Home, Unannounced

When a person is not cooperating with the IRS, or consistently avoids appearing before the IRS, the IRS can get frustrated. One way the IRS relieves its frustration is by visiting by a person’s residence to try to put pressure on them.

This can be done for two main reasons: The first reason is to put some pressure on the individual to let them know that the IRS is aware of where person lives and that the situation is not going away so quickly. Second, is so the IRS can monitor how the person reacts after the IRS appears at their home. For example, as a result of the IRS visiting their home unannounced, in a person begins making significant transitions or transfers of money from one location or account to another – it may help the IRS pursue a criminal investigation.

Showing up at your Employment or Place of Business

This is a little more intense, and is usually not protocol unless a person owns their own business. We have had many clients tell us, in the pre-criminal investigation phase that the IRS showed up at their place of business to ask themselves – and other employees – various questions.

Of course, other individuals at the place of employment not required to speak to the IRS if they are not under subpoena or summons. Nevertheless, oftentimes people are so scared that when the IRS approaches, that they feel like they have to answer the question — and do. The employees mistakenly believe that by simply answering the questions it will make it go away – usually, the reverse happens and it just gives the IRS more ammunition to go after you.

Sudden Stopping of Communication From the IRS

If you are ever in an audit and the audit ends, but you are unable to obtain a closing letter or any other documentation from the IRS it may be cause for concern. That is because when a civil audit is stopped either abruptly (or with a little more tact), before it seems like the audit is complete, it is because the IRS agent believes there is a criminal issues

In a civil situation, the IRS is absolutely prohibited from asking further questions. That is because in a criminal setting, a person has a right against self-incrimination. A civil audit is not a criminal investigation, and therefore the agent does not have the right to ask criminal type questions.

Interviewing your CPA

If the IRS believes the CPA has information regarding a potential criminal tax matter, the IRS will send them a summons and bring their own “court reporter” with them to a question-and-answer session.

While the CPA has the right to counsel, it is important to understand that if the IRS is taking these types of actions against people on your behalf, then chances are the IRS is at least trying to put together all the evidence he can to determine whether there may be a criminal issue at play.

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