Can IRS Require Your CPA to Testify About Foreign Accounts?

Can the IRS Require Your CPA to Testify About Foreign Accounts?

Can the IRS Require Your CPA to Testify 

When a taxpayer has an international tax requirement — and especially if they missed filing various international information reporting forms in prior years — there are many issues to consider before hiring counsel and submitting late-filed returns to the IRS. Many taxpayers will end up submitting to one of the offshore disclosure programs such as the Streamlined Filing Compliance Procedures, Delinquency Procedures, or the IRS Voluntary Disclosure Program. These types of submissions are very complicated and involve both tax and legal implications. That is why it is important for taxpayers to retain an attorney (preferably an experienced attorney who is Board-Certified and also licensed as an enrolled agent or CPA) in order to try to protect any attorney-client privilege that may be available to the taxpayer. While tax returns themselves are not privileged, legal communications with attorneys are (typically) privileged in both civil and criminal matters — whereas the privilege with an accountant (accountant-client privilege) is much less protected and only applies in limited purview during civil matters only. This is why engaging with a CPA or Accountant in any form of communication that may be considered legal in nature can be detrimental to protecting client-confidentiality and the attorney-client privilege. Let’s look at a few of the dangers taxpayers may face when using an Accountant/CPA for offshore disclosures.

No Attorney-Client Privilege

The first, the most important issue is that there is no attorney-client privilege. The benefit of having an attorney (even Federal Law Attorneys are licensed by the States in at least one state jurisdiction) is that almost everything the client tells the attorney is privileged — so that it will remain confidential. Therefore, by hiring an attorney, the client can be confident that the information they are telling the attorney is something that will remain confidential. It serves to provide the attorney with sufficient information to draft any necessary legal statements such as the 14654 or 14653 certification forms.

Training/Experience in Legal Writing

Attorneys are trained in legal writing. When it comes to making offshore submissions to the IRS for international offshore disclosure, they are much more complicated than meets the eye at first glance. It is important that the representative has a strong background and experience in drafting these types of statements. Most accountants are experienced in accounting and while that is a great skill it does not do much for taxpayers who require an attorney to handle the legal submission along with a professional who has tax experience (as opposed to accounting).

Called to Testify Against the Taxpayer

Since there is no attorney-client privilege between the taxpayer and the CPA, if the IRS is pursuing certain civil investigations, criminal investigations, and/or quasi-criminal investigations, the CPA may be called to testify against the taxpayer, which means the information provided by the taxpayer to the CPA would not be privileged.

Kovel Privilege is VERY Limited  

The concept of Kovel is that when an attorney requires an accountant to assist with an accounting analysis so that the Attorney may use that information to prepare a legal submission, those communications may be protected. The Kovel Letter is prepared by an attorney and not the accountant. Unfortunately, many accountants misrepresent the use and benefit of a Kovel letter/accountant to sell clients on their services, only to put the clients at great risk.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.