Reliance on a written advice of a tax practitioner (attorney, CPA, etc.) may provide the basis for a reasonable cause exception to imposition of IRS noncompliance or late filing penalties with respect to pretty much every single US international tax compliance requirement. In this short article, I will describe the reasonable cause written advice standard concerning how the written advice should be written in order to satisfy and strengthen your legal case before the IRS.
Reasonable Cause Written Advice Standard: What A Practitioner May Advise On
First of all, it is important to understand that a practitioner may provide a written advice pretty much on any US tax matter. In other words, a taxpayer may obtain a written advice from a practitioner on any matter concerning the application and/or interpretation of any provision of the Internal Revenue Code, any provision of law impacting the taxpayer’s US tax obligations, any Treasury regulations and any other law or regulation that the IRS administers.
Reasonable Cause Written Advice Standard: What Written Advice Should Include
When he writes a tax advice, the practitioner should make sure that he complies with some important rules:
- The practitioner should consider all relevant facts and circumstances that the practitioner knows or would reasonably know. This means that two things must happen: (a) practitioner should conduct a reasonable investigation, including an interview with the taxpayer, to secure the necessary facts; and (b) the taxpayer must disclose all facts that he believes to be relevant and/or the practitioner asked him about. The disclosure of relevant facts by the taxpayer is absolutely crucial to the strength of the reasonable cause exception argument.
At the same time, a failure by the practitioner to do a reasonable investigation of relevant facts may in of itself constitute a reasonable cause. He also should not rely on what he believes unreasonable, incorrect, incomplete and/or inconsistent representations, statements, findings, or agreements (including projections, financial forecasts, or appraisals) of the taxpayer or any other person.
- The practitioner should base his written advice on reasonable factual and legal assumptions (including assumptions of future events).
- The practitioner should apply the relevant law to the facts of the case. In other words, a written advice cannot simply state the law and assume that it should apply to the taxpayer’s case without the analysis of whether the facts of this particular case fit the relevant legal standard.
A failure to comply with all of these three rules may not necessarily be lethal to your legal case, but it may greatly affect its strength.
Reasonable Cause Written Advice Standard: Reliance on Advice from Third Parties
Sometimes, a practitioner may incorporate an advice from a third person into his own written advice. He can do it only if the advice was reasonable in light of all facts and circumstances of the case.
The IRS is clear that such reliance on a third-party advice cannot be reasonable in three circumstances. First, the practitioner knows or reasonably should know that the opinion of the other person is not reliable. Second, the practitioner knows or reasonably should know that the other person does not have the necessary competence and necessary qualifications to provide the advice. Finally, the practitioner knows or reasonably should know that the other person has a conflict of interest in violation of the IRS Circular 230.
Contact Sherayzen Law Office to Help With the Voluntary Disclosure of Your Prior US Tax Noncompliance
If you have not disclosed your foreign income and/or foreign assets to the IRS in violation of your US tax obligations, contact Sherayzen Law Office as soon as possible for professional help. We have helped hundreds of US taxpayers to bring their tax affairs into compliance with US tax laws, including through a voluntary disclosure such as SDOP (Streamlined Domestic Offshore Procedures), SFOP (Streamlined Foreign Offshore Procedures), DFSP (Delinquent FBAR Submission Procedures), DIIRSP (Delinquent International Information Return Submission Procedures), IRS VDP (IRS Voluntary Disclosure Practice) and Reasonable Cause disclosures. Mr. Eugene Sherayzen, an international tax attorney, can help you evaluate the strength of your legal case, including whether it meets the reasonable cause standard. We can help you!