- 1 Tax Preparer Falsified Your Returns
- 2 Denise and Her Foreign Accounts
- 3 Denise’s Accountant
- 4 Foreign Account Information & Organizer Crossed Paths
- 5 Accountant Learns About the Foreign Accounts
- 6 Choose Your Own (Tax) Adventure
- 7 Offshore Tax Amnesty
- 8 Quiet Disclosure (Filing Forward)
- 9 Quiet Disclosure (Prior Year)
- 10 Is the Accountant Liable for Falsified Returns?
- 11 Accountant and Fraudulent Tax Returns
- 12 Golding & Golding: About our International Tax Law Firm
Tax Preparer Falsified Your Returns
Tax Preparer Falsified Your Returns: Are You on the Hook? The short answer is, yes. When you sign your tax return and submit it to the IRS, you are responsible for what is contained within the tax return. Therefore, if your tax preparer is making questionable deductions or making false representations within the tax return regarding various business expenses, foreign accounts, and assets, or tax positions that may be considered frivolous — you may be on the hook, but there are various amnesty programs to assist you.
Let’s walk through an example of what can happen if a tax preparer falsified your returns.
Denise and Her Foreign Accounts
Denise is a US citizen who has foreign accounts. She didn’t always have foreign accounts, but as her consulting business grew and expanded overseas, she found it easier to collect payments from clients outside of the United States if she had a bank account in that particular country, with that specific currency.
Denise’s accountant/bookkeeper is an experienced tax preparer. She has been handling Denise’s tax returns for many years — way before Denise’s consulting business took off internationally.
Recently, the accountant began using an organizer (or binder) in order to better collect her clients’ information. For some clients she has been representing for many years, she does not send the organizer and just asks the clients to update her if there has been any significant changes.
Foreign Account Information & Organizer Crossed Paths
Denise has not been reporting her offshore accounts — but not because she was willful. Denise opened the accounts before her tax preparer began using the organizer, and the accounts did not exceed the reporting requirements of FBAR or FATCA until after the tax preparer began using the organizer.
Accountant Learns About the Foreign Accounts
This year when the tax preparer collects Denise’s 1099s, she notices a 1099 from Citibank in Singapore. The accountant asks Denise about it, and Denise explains she has had the accounts for many years but it was only about four years ago that the account had any significant value. It turns out that since 2016, Denise’s annual aggregate total of foreign accounts is estimated at around $840,000.
Choose Your Own (Tax) Adventure
This is the “Choose Your Own Adventure” part of the example. (For those of you geeks like me who loved playing this game as a child, I salute you.) There are various moving parts occurring at this time in the example, which Denise and the CPA must consider:
- Should Denise enter Streamlined Program; or
- Should Denise submit to the IRS under “Reasonable Cause;” or
- Should Denise make a Quiet Disclosure?
Offshore Tax Amnesty
Despite all the fear mongering garbage you will inevitably find in your research, at this point in the analysis there is not much of an issue for Denise. She is non-willful and can either submit to the Streamlined Domestic Offshore Procedures or (depending on her specific circumstances) make a Reasonable Cause submission and seek to waive the penalty. Denise should consult with the Offshore Tax Compliance Specialist Lawyer to get the lay of the land.
Quiet Disclosure (Filing Forward)
Denise could instead take the (illegal) option of a quiet disclosure and just filing correctly from now forward. In this scenario, Denise does not report her prior accounts, but just begins filing in the current year. Not only is this illegal but the Form 8938 is built to uncover this type of reporting.
One of the key questions on form 8938 is the following:
- Was the account opened in the current year?
Since the account was not opened in the current year, and since Denise — as a self-employed consultant — is at a higher risk of audit, it could lead to unnecessary problems down the line.
Quiet Disclosure (Prior Year)
The other illegal alternative Denise could take is to go back and just mass file prior year FBARs and tax return amendments, and hope to not get caught. If Denise does get caught, it may lead to willfulness penalties along with a tax fraud investigation.
Is the Accountant Liable for Falsified Returns?
If the CPA recommends Denise to take the legitimate route forward, then it would most likely result in a no harm, no foul. Clearly there was a miscommunication due to the CPA’s procedures being put in place at a time where Denise did not believe (rightfully so) that opening some foreign accounts and having a few thousands dollars in the foreign accounts was a significant change.
Unfortunately, one major problem we find in our practice is that the CPAs also get caught in the fear mongering articles that some attorneys write — and now believe that they will get in significant trouble or lose their license.
*We specialize in this area of tax, and we have never seen that happen in a scenario like this.
Accountant and Fraudulent Tax Returns
If instead, the CPA recommends a Quiet Disclosure and Denise agrees — then they may both be subject to significant fines and penalties. For the CPA, this may include an OPR investigation and a loss of her license.
For Denise, it could mean significant fines and penalties, all which could be avoided or minimized by taking the proper route forward.
In conclusion, a taxpayer may be liable for falsified returns prepared by the CPA, if the client is aware that the strategy the CPA is recommending is improper. There are many viable and ethical offshore compliance strategies that can safely bring a taxpayer into compliance.
Golding & Golding: About our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
Contact our firm today for assistance.