As the countdown to full enforcement of the Foreign Account Tax Compliance Act (FATCA) draws near, foreign banks have begun to issue stern warnings to their U.S. accountholders: disclose your foreign accounts to the IRS before we do. Just a few years ago, such a warning from a bank nestled in a bank secrecy haven would have been unthinkable.
Indeed, bank secrecy laws in such countries as Switzerland were as much a fabric of society as the Vatican is to Rhome. But now, it has become the norm. Why? Very simply, banks have too much to lose by not complying: a thirty percent withholding tax on their U.S. clients' income to be exact.
More and more U.S. citizens with undisclosed foreign accounts have begun to heed these warnings. Many have sought shelter in the Offshore Voluntary Disclosure bunker. With so many companies advertising their services to assist taxpayers in applying to the Offshore Voluntary Disclosure Program, how do you know which one is the best for you?
Consider the following when making a list of attorneys to call:
- Deal Only With Tax Law Firms. Make sure the company you retain is a tax law firm and not an accounting firm. Why? Accounting firms typically prepare tax returns. But OVDP applications involve legal issues. And legal issues go beyond the scope of services provided by accounting firms. In addition, accounting firms do not have attorney-client privilege. This is important because until you are accepted into OVDP, you could be subject to criminal prosecution or civil fraud. To that end, only speak to an attorney regarding OVDP matters.
- Examine the Law Firm's Area of Practice. Check out the firm's website to ensure that tax is one of its principle areas of practice. Assuming it is, because OVDP is such a specialized area of tax law, you will want to browse the firm's website for information pertaining to FBARs and the OVDP program. Many feature such information on their blog or news area. Only then will you be confident that they have the knowledge and expertise to handle as "high-stakes" a matter as an OVDP submission.
- How accessible is the tax attorney? Did the attorney answer all of your questions? Did he listen carefully? Was he genuinely interested in helping you or did he seem distracted by other things? Did he present you with a plan of action? Most importantly, did you feel comfortable with him?
- Does The Tax Attorney Offer A Free Initial Consultation? Most firms offer free initial phone consultations. Take advantage of it. During this consultation, the attorney should be fully attentive to your needs.
Before contacting a tax attorney, be sure to assemble the following information:
- Number of foreign financial accounts you have;
- The date(s) when each was opened;
- For each account, the maximum balance at any point in time during each year (even if it was less than ten seconds) along with the account's year-end balance and total balance. For purposes of converting foreign currency into U.S. dollars, the official exchange rate in effect at the end of the year in question must be used;
- The amount of interest that was earned in these accounts each year;
- Whether any of these accounts were jointly held or whether someone other than you had authority to deposit or withdraw money from them.
Below are some of the questions that you should ask the attorney during the initial consultation:
- Discuss the situation. The two most important things that the attorney must know are (1) whether you reported the interest generated by your foreign account(s) on a U.S. tax return and (2) whether you filed an FBAR for any year in which the maximum value of your foreign account(s) exceeded $10,000 (USD). Your answers to these questions should result in a number of follow-up questions from the attorney. For example, if you did not report the interest income from your foreign account on a U.S. tax return, did you report it on a foreign tax return? If so, was it taxed by the foreign government? If it was taxed, did you take a foreign tax credit for the taxes paid to the foreign government? After applying the foreign tax credit, was there still a tax deficiency with respect to the unreported interest?
- The Process. After gathering information, the attorney should recommend a course of action and explain what steps should be taken. If you are offered a free face-to-face consultation where the attorney offers to review your documents (i.e., tax returns, bank statements, etc.), it goes without saying that you should take him up on this offer.
- Criminal Charges & Penalties. Because there can be no greater punishment than being deprived of your liberty, the first question you ask should always be what the likelihood of criminal prosecution is. Second, find out what your maximum civil penalties would be both inside the program, assuming that you make a "noisy" disclosure, and outside of the program, assuming that you make a "quiet" disclosure. That way you can make an intelligent decision based on a comparison of the two. Beyond making a request for an assessment of maximum penalties, you should specifically ask the attorney whether you qualify for a reduction in penalties. For example, the offshore penalty is typically 27.5% of the highest aggregate balance during the disclosure period. However, under limited circumstances, it can be reduced to 12.5% and even 5%. Because of how substantial the difference in these penalties is, it can have a drastic impact on your bottom line. Therefore, it should be at the top of your list of questions to ask during the initial consultation. Similarly, to the extent that the attorney recommends making a quiet disclosure, find out whether you qualify for reduced FBAR penalties under the mitigation guidelines. The point is this: knowing whether you are eligible for a reduction in penalties is critical. And if you are, you need to know the best strategy for doing so.
- Time. Ask the attorney how long the entire process will take.
- Price. Find out how much the entire process will cost. Part and parcel of this is whether the firm will charge a fixed fee (i.e., flat rate) or bill you by the hour (i.e., for time spent and costs incurred). For those firms that adhere to the billable hour, ask the attorney for a rough estimate as to the number of hours involved. Firms that charge in this manner usually incorporate both clerical staff and attorneys throughout the process. Therefore, it stands to reason that rates will vary based on the person's skill level and expertise. This is why it is important to determine who else will be involved and what their title is in the firm, along with their rates and the services they will form. For those firms that charge a fixed fee, find out if that fee is all-inclusive. In other words, does it apply regardless of whether it takes the firm sixty hours to complete the submission process or one hundred and sixty hours?
How Do You Know Which Tax Attorney Is Best For You?
The tax attorneys at DeBlis Law are highly skilled in handling OVDP cases. We will keep you informed every step of the way and work relentlessly to help you gain entry into the program and obtain the maximum benefits conferred by it.