You get what you pay for–don’t go cheap when it comes to tax compliance

You get what you pay for–don’t go cheap when it comes to tax compliance

In July, we posted a blog regarding the importance of not just finding a tax advisor who is knowledgeable about your specific circumstances, but also about being totally honest with that advisor—not holding back or giving inaccurate information.  In that post, we discussed how failing to fully comply with IRS rules and regulations, due to not giving your tax advisor all the facts, can get you in trouble and cost you dearly.

This story is a little different.  It is about how saving money on complicated tax returns can cost you dearly in the long run.

The other night, I received a call from an attorney who occasionally refers business to us.  A couple of years ago she referred us a prospective client that was a dual-citizen who had been living abroad for over 15 years.  Most of that time he worked as an employee, but more recently he started a few foreign companies for legitimate business ventures.  He also maintained several foreign accounts, both personally and for his companies.

For privacy purposes, we will call the client Roger.  Roger was not willfully trying to shirk his tax responsibilities in the U.S., he just honestly didn’t know he was supposed to be filing tax returns or FBARs (Foreign Bank and Financial Accounts). He was clueless about these requirements. He needed to get into compliance quickly and we recommended the streamlined procedure given his sincere lack of willful intent to avoid his U.S. tax responsibilities.

After our consultation, I sent Roger off with a list of information he would need to gather so that we could complete his streamlined procedure submission.  He was also given an estimate of the fees involved for our services. The estimated cost was not a small amount because in order to prepare a streamlined procedure submission, several years tax returns and FBARs must be prepared, plus the certification of non-willfulness. Additionally, he had several foreign accounts, foreign companies, and we are not a “discount” shop. Our focus is quality and accuracy designed to keep our clients compliant and out trouble with the IRS.

Roger agreed to hire us, but then we never heard from him again. We attempted several follow-up calls to try and get the info we needed, but our messages were met with silence.  We eventually closed our file and assumed that Roger had decided to bury his head in the sand.

Back to the call from the attorney.

The reason she was calling was to tell us that Roger had surfaced and contacted her to say that he was being audited for 2014.  He needed help and she didn’t know how to help him as the tax is not her speciality.  As it turns out, Roger didn’t bury his head in the sand; he just thought our fees were too high so he hired some accountant his family knew.  The accountant filed his 2013 and 2014 tax returns, and an extension for 2015, without taking advantage of the streamlined procedure.  Because the accountant was not familiar with foreign tax issues, he totally botched the returns with numerous mistakes, and those mistakes appear to be what triggered the IRS audit.

Where does this leave Roger? Well, now he doesn’t qualify for the streamlined procedure, OVDP, or any other IRS amnesty program because the IRS already has him under audit.  He will have to fight the IRS who will likely try to impose the maximum penalties, which are quite a bit higher than the penalties under the streamlined procedure (no penalty for the procedure he would have qualified for) or OVDP. It is also quite possible they may try to indict Roger, if they can prove that he had been properly advised of his obligations and didn’t fulfil them.   Now Roger is going to face paying enormous penalties to the IRS as well as thousands of dollars to a tax attorney to represent him to try and mitigate the damage – hopefully he will stay out of jail!

When it comes to taxes, going the cheap route is not the way to go.  Save yourself money and time by doing it right the first time!

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