- 1 Tax Preparer Fraud for FBAR/FATCA
- 2 Case Study Example
- 3 Taxpayer Learns They were Noncompliant
- 4 Taxpayer Discusses with the Tax Preparer
- 5 Filing Forward and Quiet Disclosure
- 6 Tax Preparer’s Other Clients Submit to Amnesty
- 7 VDP Submission Starts the Investigation
- 8 OPR Investigates the Tax Preparer
- 9 Proper Compliance May have Minimized or Avoided Penalties
- 10 Golding & Golding: About Our International Tax Law Firm
Tax Preparer Fraud for FBAR/FATCA
When a taxpayer utilizes a Tax Preparer, and that Tax Preparer is later investigated by the Internal Revenue Service for fraud and/or other potential tax crimes — it may trickle down to the taxpayer and result in an investigation or audit of the taxpayer’s tax return. One of the biggest misconceptions (understandably so) that taxpayers have about taxes, is that just because a tax preparer signs the tax return — that does not necessarily absolve the taxpayer from any potential tax consequences for non-compliance. This is especially true in situations involving foreign accounts. Let’s take a look at a case study of what can happen to the taxpayer when their tax preparer is investigated for foreign account fraud.
Case Study Example
Alan resides within the United States and is a US Lawful Permanent Resident who has several foreign accounts abroad. He used his CPA Veronica’s services, but she was unaware of the foreign account reporting requirements until very recently. Alan was also unaware of any reporting requirements. This year for the first time, when Alan received the organizer (aka binder or questionnaire) from Veronica, his tax preparer — there is a new section regarding foreign accounts and income.
Taxpayer Learns They were Noncompliant
Alan conducts hours of online research –and after burrowing through one rabbit hole and into the next, he comes to the realization that he is now several years out of IRS compliance for not reporting foreign accounts. At this stage of the game, Alan is probably non-willful — and could qualify for one of the non-willful amnesty programs such as Streamlined Procedures, Delinquency Procedures, or Reasonable Cause — depending on the specific facts and circumstances of his noncompliance.
Taxpayer Discusses with the Tax Preparer
Alan reaches out to his CPA, Veronica, to discuss this situation. The CPA does not want to get in any trouble either — and is worried that if Taxpayer submits to the Streamlined Program or one of the other amnesty programs, she may lose his license. Therefore, she recommends that Alan just simply start filing correctly starting from this year.
Filing Forward and Quiet Disclosure
Alan understands that the strategy of just filing correctly from this point forward is not proper. And, he is also concerned about potential penalties. The question becomes, does the fact that his Tax Preparer/CPA recommended a quiet disclosure, protect or shield the taxpayer from any potential IRS consequences? The answer is no.
Because Taxpayer knows and/or suspects that just filing forward is not proper. Therefore, Alan cannot then rely on the improper advice of his CPA — when he knew that she gave him improper advice.
Unfortunately, Veronica the CPA convinces Alan that the IRS would never find him — since they have millions upon millions of other tax returns to deal with, and Taxpayer just begins to file correctly from this point forward.
Tax Preparer’s Other Clients Submit to Amnesty
It turns out the CPA has several clients who maintained foreign accounts and realized they were out of compliance. Therefore, many of them decided to enter the FBAR amnesty program(s). As a result, and since many of the submissions came from tax returns prepared by the same CPA, the IRS realizes that many of the returns coming from this particular CPA are inaccurate.
VDP Submission Starts the Investigation
In particular, one of Veronica’s clients never reported the foreign accounts — but was aware that he should have been reporting them for many years. Since Veronica had never asked the client, he never “volunteered” the account information to the CPA — but was still aware it was required to be reported to the IRS. When this taxpayer submits to VDP and is questioned by the IRS, he informs them that his CPA Veronica recommended to submit a Quiet Disclosure instead of using one of the approved amnesty programs.
OPR Investigates the Tax Preparer
As a result of this newfound information from the Taxpayer who entered VDP, the IRS launches an OPR investigation — which is an investigation by the Office of Professional Responsibility. This in turn leads to an investigation of Veronica’s cases — and previously filed returns — which then leads the IRS to Alan (and several other of the CPA’s clients who submitted a “Filing Forward Quiet Disclosure“). Now, Alan is subject to costly audit and possibly further investigation.
Proper Compliance May have Minimized or Avoided Penalties
In conclusion, had Taxpayer simply submitted to one of the non-willful FBAR amnesty programs — depending on which program he qualifies for — he would have had either a (relatively) small penalty – or even a penalty waiver. Instead, Taxpayer submitted a Quiet Disclosure and is now staring down the barrel of a potential willful penalty and even tax fraud. In general, Taxpayers should be careful before filing a quiet disclosure or being led astray by a Tax Preparer.
On a final note, Taxpayers should also be wary of Tax Attorneys who are willing to submit them to the Streamlined Program even if they are willful — because this could also lead to significant fines and penalties.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically FBAR penalties and IRS offshore disclosure & compliance.
Contact our firm for assistance.