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Received Bad Voluntary Disclosure/Foreign Asset Reporting Advice? (Golding & Golding)

Received Bad Voluntary Disclosure/Foreign Asset Reporting Advice? (Golding & Golding)

We have been contacted many times about this same issue (So no, you are not alone — and you do not have to go at this alone). About 15% – 20% of our business comes from Attorneys who either:

  • Misrepresent their level of experience
  • Have no advanced Tax (LL.M.) or Board Specialist credential(s)
  • Have no litigation/trial experience as lead attorney
  • Have less than ~20 years representing their own clients as an Attorney
  • Are not Enrolled Agents or CPAs, along with being an Attorney.

It is not uncommon (especially in this marketplace) to receive bad voluntary disclosure advice from inexperienced counsel touting themselves as “experts” — but have little to no real voluntary disclosure experience.

Common Voluntary Disclosure Errors

It is dangerous territory for an attorney to jump into a new area of practice – especially IRS Voluntary Disclosure.

Typically, this happens when an attorney has handled a few relatively straightforward Streamlined cases, and then believes they are qualified to handle more complex Streamlined or IRM Voluntary Disclosure, but do not have the experienced to do so — often leaving the client in a worse position than when they started.

Common misconceptions about voluntary disclosure

  • If it is a small amount of money, you can go streamlined.
  • If you were only in the U.S. a few years, you can go streamlined.
  • if you were willful, you are going to jail and have no other option.
  • The Kovel Letter will protect all communications with the CPA, EA or Tax Accountant (it doesn’t).
  • The IRS will not contact your underlying CPA (they may).

Typical Example of Unethical Voluntary Disclosure Lawyering

An individual inquiries about Voluntary Disclosure. The individual is scared, and generally an ethical person —  but based on the facts is shown to be clearly willful. The client calls around to different law firms, looking for help.

Maybe the person thought they would only be in the U.S. temporarily, or learned about disclosing foreign accounts after the fact, and became too scared to disclose after-the-fact.

Threshold Question – Were You Willful?

Being willful regarding foreign accounts is not the same as committing murder — despite what some of these other sites would like you to believe. And, chances are you are not going to prison.

When a person contacts us, and lets us know they were willful (either before or after the fact) we explain to the individual that since he or she was willful, their only option is the traditional IRS Voluntary Disclosure using IRM procedures (previously, OVDP would have been the proper option).

He or she could not go Streamlined or Reasonable Cause — even if they were only in the U.S. for a few years, were on a temporary visa, or if the income was low.

Why? Because if the person was willful, and still submitted to Streamlined or Reasonable Cause (and was caught by the IRS) — the applicant may become subject to a Criminal Investigation or Criminal Penalties.

Non-Compliance in Multiple Jurisdictions

In a recent scenario, we had a person contact us to (before OVDP ended) and let us know they were willful and wanted to get into compliance.  To make matters worse, the person was also willful in another foreign country as well, and was trying to avoid a potential civil or criminal investigation in that country as well.

We explained that OVDP was the best choice. We further explained that if the person wanted to try to reduce the penalty, the applicant could try to opt-out — since there were several mitigating factors in the person’s favor.

Due to the willfulness issues, Streamlined and Reasonable Cause were not available options.

It was the same exact advice the person received from another highly experienced lawyer nearby in Los Angeles.

Unfortunately, the person also contacted an inexperienced attorney who gave them horrible, self-serving advice.

The Inexperienced Attorney Wanted to Make a Quick Sale

The inexperienced Attorney (self-proclaimed Expert/Specialist) told the individual to “just go” streamlined or reasonable cause because the amount of income was low (which is absolutely, 100% incorrect). 

The Attorney told the client everyone gets aways with it, the IRS does not care since he was not a “Big Fish,” and OVDP was not proper.

The individual decided to go Reasonable Cause.

Then Manafort (and Several Other Convictions) Happened…

The client contacted us several months later in a state of absolute panic.

Not only was the other attorney’s behavior unethical and improper, but it subjects the client to potential criminal violations since there is no attorney-client privilege with a CPA, and no Kovel Letter protection under the circumstances.

*Kovel Letters are not statutory law and have very limited applicability. They are often misused by experienced Attorneys with no EA or CPA background.

Read Here to Learn about the danger of using inexperienced counsel for IRS Voluntary Disclosure matters.

What Can You Do?

If you have been put into this situation, you should speak with experienced counsel to get a baseline understanding of your different risks and strategies for compliance.

You should also contact professional legal malpractice attorneys in the locale of the attorney you spoke with.

How to Avoid the Same Fate?

Speak with experienced counsel and understand your options before making any brash decisions — especially when dealing with the IRS. Make sure you speak with multiple attorneys, and that they have the right experience you need.

Sean M. Golding, JD, LL.M., EA – Board Certified Tax Law Specialist

Our Managing Partner, Sean M. Golding, JD, LLM, EA  holds an LL.M. (Master’s in Tax Law) from the University of Denver and is also an Enrolled Agent (the highest credential awarded by the IRS, and authorizes him to represent clients nationwide.)

He is frequently called upon to lecture and write on issues involving IRS Voluntary Disclosure.

*Click Here to Learn about how Attorneys falsely market their services as “specialists.”

Less than 1% of Tax Attorneys Nationwide

Out of more than 200,000 practicing attorneys in California, less than 400 attorneys have achieved this Certified Tax Law Specialist designation.

The exam is widely regarded as one of (if not) the hardest tax exam given in the United States for practicing Attorneys. It is a designation earned by less than 1% of attorneys.

**With a large firm (expensive) but resources at their disposal

We Specialize in Safely Disclosing Foreign Money

We have successfully handled a diverse range of IRS Voluntary Disclosure and International Tax Investigation/Examination cases involving FBAR, FATCA, and high-stakes matters for clients around the globe (In over 65 countries!)

Whether it is a simple or complex case, safely getting clients into compliance is our passion, and we take it very seriously.

Examples of areas of tax we handle

Who Decides to Disclose Unreported Money?

What Types of Clients Do we Represent?

We represent Attorneys, CPAs, Doctors, Investors, Engineers, Business Owners, Entrepreneurs, Professors, Athletes, Actors, Entry-Level staff, Students, Former/Current IRS Agents and more.

You are not alone, and you are not the only one to find himself or herself in this situation.

IRS Penalty List

The following is a list of potential IRS penalties for unreported and undisclosed foreign accounts and assets:

Failure to File

If you do not file by the deadline, you might face a failure-to-file penalty. If you do not pay by the due date, you could face a failure-to-pay penalty. The failure-to-file penalty is generally more than the failure-to-pay penalty.

The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

Failure to Pay

f you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty.

However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.

Civil Tax Fraud

If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.

A Penalty for failing to file FBARs

The civil penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign financial account per violation. See 31 U.S.C. § 5321(a)(5). Non-willful violations that the IRS determines were not due to reasonable cause are subject to a $10,000 penalty per violation.

A Penalty for failing to file Form 8938

The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 3520

The penalty for failing to file each one of these information returns, or for filing an incomplete return, is the greater of $10,000 or 35 percent of the gross reportable amount, except for returns reporting gifts, where the penalty is five percent of the gift per month, up to a maximum penalty of 25 percent of the gift.

A Penalty for failing to file Form 3520-A

The penalty for failing to file each one of these information returns or for filing an incomplete return, is the greater of $10,000 or 5 percent of the gross value of trust assets determined to be owned by the United States person.

A Penalty for failing to file Form 5471

The penalty for failing to file each one of these information returns is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return.

A Penalty for failing to file Form 5472

The penalty for failing to file each one of these information returns, or to keep certain records regarding reportable transactions, is $10,000, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency.

A Penalty for failing to file Form 926

The penalty for failing to file each one of these information returns is ten percent of the value of the property transferred, up to a maximum of $100,000 per return, with no limit if the failure to report the transfer was intentional.

A Penalty for failing to file Form 8865

Penalties include $10,000 for failure to file each return, with an additional $10,000 added for each month the failure continues beginning 90 days after the taxpayer is notified of the delinquency, up to a maximum of $50,000 per return, and ten percent of the value of any transferred property that is not reported, subject to a $100,000 limit.

Fraud penalties imposed under IRC §§ 6651(f) or 6663

Where an underpayment of tax, or a failure to file a tax return, is due to fraud, the taxpayer is liable for penalties that, although calculated differently, essentially amount to 75 percent of the unpaid tax.

A Penalty for failing to file a tax return imposed under IRC § 6651(a)(1)

Generally, taxpayers are required to file income tax returns. If a taxpayer fails to do so, a penalty of 5 percent of the balance due, plus an additional 5 percent for each month or fraction thereof during which the failure continues may be imposed. The penalty shall not exceed 25 percent.

A Penalty for failing to pay the amount of tax shown on the return under IRC § 6651(a)(2)

If a taxpayer fails to pay the amount of tax shown on the return, he or she may be liable for a penalty of .5 percent of the amount of tax shown on the return, plus an additional .5 percent for each additional month or fraction thereof that the amount remains unpaid, not exceeding 25 percent.

An Accuracy-Related Penalty on underpayments imposed under IRC § 6662

Depending upon which component of the accuracy-related penalty is applicable, a taxpayer may be liable for a 20 percent or 40 percent penalty

Possible Criminal Charges related to tax matters include tax evasion (IRC § 7201)

Filing a false return (IRC § 7206(1)) and failure to file an income tax return (IRC § 7203). Willfully failing to file an FBAR and willfully filing a false FBAR are both violations that are subject to criminal penalties under 31 U.S.C. § 5322.  Additional possible criminal charges include conspiracy to defraud the government with respect to claims (18 U.S.C. § 286) and conspiracy to commit offense or to defraud the United States (18 U.S.C. § 371).

A person convicted of tax evasion

Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000. A person who fails to file a tax return is subject to a prison term of up to one year and a fine of up to $100,000. Failing to file an FBAR subjects a person to a prison term of up to ten years and criminal penalties of up to $500,000.  A person convicted of conspiracy to defraud the government with respect to claims is subject to a prison term of up to not more than 10 years or a fine of up to $250,000.  A person convicted of conspiracy to commit offense or to defraud the United States is subject to a prison term of not more than five years and a fine of up to $250,000.

What Should You Do?

Everyone makes mistakes. If at some point that you should have been reporting your foreign income, accounts, assets or investments the prudent and least costly (but most effective) method for getting compliance is through one of the approved IRS offshore voluntary disclosure program.

Be Careful of the IRS

With the introduction and enforcement of FATCA for both Civil and Criminal Penalties, renewed interest in the IRS issuing FBAR Penalties, crackdown on Cryptocurrency (and IRS joining J5), the termination of OVDP, and recent foreign bank settlements with the IRS…there are not many places left to hide.

4 Types of IRS Voluntary Disclosure Programs

There are typically four types of IRS Voluntary Disclosure programs, and they include:

Contact Us Today; Let us Help You.