Paradoxically, one of the obstacles currently facing U.S. taxpayers who wish to file their delinquent FBARs and conduct a voluntary disclosure of their foreign assets are their own accountants – more precisely, the inability of many accountants to understand that FBAR disclosure is a legal matter to a much greater extent than an accounting matter.
Special Nature of the FBAR
FBAR is unlike any other information return issued by the IRS. While there are many reasons for it, I just want to point out the four most important considerations that make FBAR disclosures so radically different from other disclosures. First of all, FBAR is issued under the auspices of the Department of the Treasury, but only in the early 2000s was the enforcement of FBARs transferred to the IRS. This is why FBAR does not constitute a part of a taxpayer’s tax return and should be filed separately to a different address by June 30 of each calendar year. The importance of this distinction is that the FBAR is not a regular tax form involving tax calculations, but a legal disclosure form which the taxpayer uses to report his or her foreign financial accounts.
Second, failure to file the FBAR timely is likely to have tremendous consequences for the taxpayer. The civil penalties can be overwhelming, and there are significant criminal penalties associated with the FBAR.
Third, the FBAR penalty structure is complex and allows for many instances of mitigation and exceptions, depending on the taxpayer’s particular situation and ability of the taxpayer’s representative to recognize this situation. There are very important strategies that may be employed during FBAR disclosures to the benefit of the taxpayers.
Finally, the mode of the offshore assets disclosure (i.e. the official IRS voluntary disclosure program and its alternatives) is closely tied to other international tax issues that must be recognized by the taxpayer’s representative. It is rare for the FBAR issue to come alone; usually, the taxpayer would have other international tax issues such as foreign rental income, PFICs, foreign tax credit, foreign earned income exclusion, ownership of foreign business entities, foreign trusts, foreign gifts, foreign inheritance, et cetera. All of these factors must be carefully considered in assessing the existing FBAR penalties (see point three above) and what penalties the taxpayer is likely to face depending on the mode of the offshore assets disclosure.
Accountants Mistakenly Treat FBAR Disclosure as an Accounting Matter
Unfortunately, most accountants have not learned to distinguish the special nature of the FBARs and the enormous complications associated with offshore assets disclosure. There are many reasons for it. First, the great majority of the accountants are not trained to recognize the international tax issues and has very little, if any, familiarity with international tax issues. Therefore, they fail to understand the very special nature of the FBAR and they treat it as simply another form to fill-out, ignoring the legal nature of the disclosure.
Second, even the accountants who are more familiar with international tax obligations of US taxpayers still fail to recognize the fact that FBARs carry criminal penalties and the taxpayers must be adequately protected while discussing the FBAR matters with their representatives.
Third, many accountants are unaware or simply ignore the complexity of the offshore disclosure involving FBARs. This results in taking the simplest approach of herding their clients into the official IRS offshore voluntary disclosure program, often without adequate explanation of the consequences of such a move to their clients.
Fourth, the accountants are not trained for advocacy. Therefore, instead of analyzing their clients’ particular facts and coming up with solutions for their clients, they simply calculate the penalties and present these calculations to their clients as a fact.
Finally, many taxpayers are used to dealing with tax accountants a lot more than with tax attorneys. Similarly, the accountants are aware of these expectations and they attempt to meet these expectations even at the cost of taking on the tasks about which they have little understand and virtually no training.
FBAR is a Legal Matter and Should Be Resolved By Tax Attorneys
Yet, it is highly important to understand that, by undertaking the task of advising their clients on FBAR disclosures, the accountants may be committing malpractice because FBAR is first and foremost a legal matter, not an accounting one. This is why all FBAR disclosures should be handled by tax attorneys who have the right tools and privileges to help their clients.
Let’s emphasize some of the advantages of legal profession that make attorneys so well-fit for FBAR disclosures.
First, the taxpayers with delinquent FBARs need to be able to relate the facts of their particular situations freely to their tax advisors. Since your accountant can be forced to testify against you by the IRS, the best and only protection is the Attorney-Client Privilege.
Third – and this is a critical factor – attorneys are experienced advocates who are trained to recognize problems and develop comprehensive ethical solutions aimed to minimize the risk of adverse legal exposure of their clients. This means that an experienced international tax attorney will analyze the facts of the particular case in front of him, identify all non-compliance issues, estimate the potential penalties and look for solutions to the problems of a particular case.
Contact Sherayzen Law Office for Legal Help with Your FBAR Disclosure
If you have undisclosed offshore assets, contact Sherayzen Law Office NOW. Our experienced international tax firm will thoroughly analyze your case, estimate your potential FBAR penalties, identify all non-compliance issues, and develop a comprehensive approach to your offshore voluntary disclosure.