Tax Organizer: Is Taxpayer Confidentiality at Risk?

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Tax Organizers

Tax Organizers

Tax Organizers

Tax Organizers: Tax organizers are used by CPAs, Enrolled Agents (EA) and accountants to prepare tax returns for their clients. Sometimes the tax organizers are upwards of 50+ pages. The purpose of the tax organizer is for the accountant or tax preparer to obtain background information from the taxpayer who is having their tax returns prepared. Unfortunately, the tax organizer can be one of the most dangerous client documents that can ever end up in the hands of the IRS. The reason why the tax organizer is so dangerous is because sometimes the client inadvertently includes statements, clarifications and questions in the response, which may be confidential in nature. Conversely, if the taxpayer does not provide adequate responses on matters involving offshore assets, accounts, investments and/or income and is later audited by the IRS — it could lead to further problems for the taxpayer on issues involving willfulness.

5 Confidentiality Risks of Tax Organizers

Here are five (5) reasons why a tax organizer is very dangerous.

New Client vs. Current Client

Let’s take the (unfortunate) common example: Michelle has been working with the same tax preparer for 10 years. Michelle has foreign accounts but she was unaware she was supposed to report them to the U.S. government. In addition, the taxpayer never asked her about foreign accounts.

But, starting this year the tax preparer began using a tax organizer. Since he knows Michelle’s tax history, he only asks Michelle to complete the form if anything has changed.

Nothing has changed from Michelle’s perspective, so she does not complete the form.

Sometime down the line Michelle is audited by the IRS. She is asked whether she received a tax organizer from her CPA.

She explains that she did, but never completed the form.

In this scenario, the IRS agent may misconstrue this standalone fact to mean Michelle intentionally never reported her foreign accounts to her CPA — even though technically her CPA sent her an organizer, and technically she had an opportunity to report it to the CPA.

Attorney-Client Privilege Breach

There is no attorney client privilege between a tax preparer and their client. This includes Certified Public Accountants (CPA), Enrolled Agents, and other accountants or tax professionals.

If the tax preparer is also an attorney and the tax returns are being used as part of a larger offshore or voluntary disclosure submission, the attorney-client privilege may apply.

Otherwise, if the sole purpose of the representation is for non-delinquent tax return preparation, it may be hard to claim attorney-client privilege.

Misunderstanding the Tax Organizer Questions

Many times when a taxpayer receives a tax organizer, they only browse the information, and may unintentionally skip the question or provide an inaccurate response.

If it turns out that the taxpayer did not complete the form fully — or included inaccurate answers because they misunderstood the question — it could lead to further problems in the future if the taxpayer is audited and the IRS requests the organizer.

Offshore Accounts & Income

International tax and offshore reporting compliance are two of the most highly enforced and penalized areas of tax law.

Even for first time violations, the IRS has been known to issue significant fines and penalties.

When it comes to tax organizers and offshore tax and reporting, many times we have found that the organizers themselves were inaccurate.

For example, we have seen organizers that ask whether the taxpayer has more than $10,000 of foreign income (not in foreign account balances) — which confuses the taxpayer about the reporting and disclosure requirements,

Confidentiality of Information in the Tax Organizer

Sometimes a taxpayer may write specific questions (or ask for clarifications) directly within the tax organizer form that should not be asked of the CPA — since the information may impact client confidentiality.

If the taxpayer is audited and the IRS agent asks for any organizers or other documents sent to the CPA (noting the IRS agent can send a request directly to the CPA), the information that should have been confidential with an attorney will now be exposed to the IRS.

Golding & Golding: About Our International Tax Law Firm

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

We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.

Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.

*Please beware of copycat tax and law firms misleading the public about their credentials and experience.

Less than 1% of Tax Attorneys Nationwide Are Certified Specialists

Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.

Interested in Learning More about Golding & Golding?

No matter where in the world you reside, our international tax team can get you IRS offshore compliant. 

Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.