The first example consists of a case I was not really involved in but I was brought in to consult on that case. But I really like it as an illustration of what happens when Business Lawyers fall into the Tax Professionals Equality Trap.
In that case there was a Chinese individual who came to a Business Lawyer, a Business slash Immigration Lawyer and they were starting a business in the United States and as a way for the Chinese individual to obtain his green card eventually. What happened there was they brought in an Accountant; an Accountant who the Lawyer knew for about twenty years. So, the Tax Accountant looks at this and says, “Okay, fine.” The Accountant knew about the FBARs at least. FBARs are the report of each Foreign Bank and Financial Account.
The Accountant said, “Well, he has to file the FBARs. But for these Companies, there’s nothing in particular; these are just Foreign Companies, what do we really care? For US Tax Purposes all we really need to disclose… ‘did you hear about the form 8938?’ is that they own and the company and that’s it.”
The reason why a lot more Accountants know about Form 8938 right now is because it is part of the Tax Return first of all, but second, that there has been much more awareness about this form and the Accountants have received some training on it.
So, I was invited to… something triggered my invitation, let’s put it this way, into that situation. By this time, they had already filed the Tax Returns for two years and this guy owned one company, which owned ten other companies, which owned God knows how many subsidiaries. The amount of Forms 5471….. and not Forms 8938 because 8938 only applies where Forms 5471 do not have to be filed; so the Accountant was wrong on that issue as well. On top of that there are all kinds of complex rules. A lot of these were Controlled Foreign Corporations and the Subpart F rules kicked in and it was absolutely a huge mess.
What went wrong here? What went wrong obviously was that a wrong Tax Advisor was brought in this case.