Archive for category: Legal Notes

For taxpayers with undisclosed offshore accounts and who are looking to do an FBAR voluntary disclosure with the IRS, it is crucially important to understand that FBAR disclosure is a legal issue that should be handled by an international tax attorney.

Confusion Over the Roles of Legal and Accounting Professions in FBAR Disclosures

I receive a large number of calls from people of various backgrounds who are utterly confused over the FBAR disclosure and whether they need an accountant or an attorney to handle it.

The confusion stems from the fact that a lot of accountants, many acting in a good-faith effort to help their clients and others because they are simply ignorant of the nature of the FBAR disclosure, reach beyond the limits of their profession and attempt to advise their clients on how to handle the disclosure. Yet, this advice is often incomplete and may lead their clients in a completely different direction.

The reason why many accountants lead so many disclosures into a wrong direction is because FBAR voluntary disclosure is a legal issue, not an accounting one. In essence, by conducting the voluntary disclosure without the help from tax attorneys, accountants play the role of lawyers without the experience and training of the legal profession.

Why FBAR Disclosure Is a Legal Issue

What is it about the FBAR voluntary disclosure that make it so unique that the accountants should defer to international tax attorneys? A detailed answer would occupy a large amount of space, but I wish to emphasize here five distinct features of the FBAR disclosure.

1. FBAR Is A Legal Disclosure Form

Unlike many other IRS forms, FBAR does not involve an accounting calculation. FBAR is issued under the auspices of the Department of the Treasury and is a legal disclosure form which the taxpayer uses to report his or her foreign financial accounts Legal disclosures are in the province of the legal profession, not an accounting one.

2. FBAR Delinquency May Result In Huge Civil and Criminal Penalties; Attorney-Client Privilege May Be Essential

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. Therefore, the taxpayers with delinquent FBARs may need to be able to relate the facts of their particular situations freely to their tax advisors. Since an accountant can be forced to testify against the taxpayer by the IRS, the best protection is offered by the Attorney-Client Privilege.

3. FBAR Disclosure Is A Complex Process That Requires Detailed Knowledge of Laws and Regulations

FBAR disclosure is an extremely complex process that involves a detailed knowledge of various laws and regulations. Unfortunately, a lot of accountants fail to recognize that they are only trained in accounting, not law. International tax attorneys who are experienced in the area of voluntary disclosures are much more likely to have a more profound understanding of the laws and regulations involved in conducting voluntary disclosures.

One of the biggest problems with the accountants that I have had an opportunity to observe is that they are not likely to be effective in explaining the consequences of entering into the OVDP to their clients. Rather, their clients often enter into the OVDP without the adequate understanding of their options and what the OVDP process actually implies.

4. FBAR Disclosure Involves A Broad Range of Issues and Complex Solutions

It is rare for the FBARs to be the only issue in a voluntary disclosure. More often, the FBAR delinquency will be tied to other issues and problems, such as PFICs, ownership of foreign entities, rental income and so on.

Therefore, FBAR disclosures involve complex interaction between various international (and sometimes even domestic) tax issues which require complex solutions. The basic training of lawyers involves “issue spotting” (i.e. identification of the issues involved in a case). Moreover, complex problems require complex legal solutions (with an accounting input, but the legal side of FBAR disclosures is the dominant force) – experienced international tax attorneys are likely to be much better at creating solutions aimed at minimizing the risks and maximizing the potential of the favorable outcome than accountants.

5. FBAR Disclosure Requires Advocacy

Finally – and this is a critical factor – attorneys are advocates. Accountants can calculate, but they are not trained in the important skill of advocacy.

In my opinion, the lack of this critical skill is one of the most damaging features of the accountants’ attempt to handle FBAR disclosures. Clients need an advocate to deliver their position to the IRS in a clear manner. Clients need an advocate to be able to interpret the law, not simply assume that what the IRS agent is saying is the only true version of the law. Finally, clients need an advocate to defend their interests with skill and persuasion.

Tax attorneys are advocates, not simply calculators. Despite the seeming confusion over the role of the two professions, an attorney’s entire approach is likely to be radically different from that of an accountant simply because attorneys are trained to think in a completely different manner.

Contact Sherayzen Law Office for Legal Help With Delinquent FBARs

If you have undisclosed offshore accounts and have not filed the FBARs for prior years, contact Sherayzen Law Office for legal help with your voluntary disclosure. Our experienced international tax law firm will thoroughly analyze your case, estimate your FBAR liabilities, propose a comprehensive solution plan and implement it (including preparation of all legal and tax forms). Throughout the entire process, Mr. Sherayzen will rigorously represent your interests during IRS negotiations.