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How to Choose a Qualified US Tax Advisor

 

How to Choose a Qualified US Tax Advisor

By Alexey Manasuev, U.S. TAX IQ Principal

 

US tax law is complex and can apply in various scenarios, even when one might think US tax does not have anything to do with a transaction at hand. In addition to the complexity, US tax law is constantly changing. Back in 2011, the IRS Commissioner Douglas Shulman reported that there had been close to 3,500 tax changes in US tax law since 2000[1]. And, with the most recent legislative changes, that number could have doubled by the time of this article. Staying on track and keeping up with the most recent tax developments is no easy feat, and to stay on top of one’s game, it requires both expertise, experience, and resources.

 

The globalization, tax scandals,[2] G20 / OECD Base Erosion and Profit Shifting (“BEPS”) initiatives, and the Foreign Account Tax Compliance Act (“FATCA”)[3] continue to lead to enormous transparency and expanded information exchange between the Internal Revenue Service (“IRS”) and foreign tax authorities. With continued enforcement and compliance initiatives by the IRS and the U.S. Department of Treasury, and increased coordination and information exchange with Homeland Security, US taxpayers, whether or not they owe tax, find it more and more difficult to hide from an omnipresent IRS’ reach.

 

Starting from 2009, the IRS established an amnesty program that helped US taxpayers come into compliance. The programs have been evolving, with the most recent changes announced in June 2014. There are two mainstream programs currently in effect – the Offshore Voluntary Disclosure Program (“OVDP”)[4] and Streamlined Filing Compliance Procedures (“SFCP”)[5] (which in turn is divided in two programs: one – for US Taxpayers Residing in the United States (“SDOP”); another – for US Taxpayers Residing Outside the United States (“SFOP”). Although there do not seem to be any indications that the IRS would close the programs any time soon, the IRS can close the amnesty programs any time (although based on recent announcements by IRS and Treasury officials, an advance notice would be provided to taxpayers before the program is closed).[6]

 

Who is a “qualified” US tax advisor?

Contrary to the popular belief that anyone who does US tax should be treated as a qualified US tax advisor or professional, the reality is quite different.

A qualified US tax professional must have adequate academic background, experience, and expertise in US tax law, or certain areas of the discipline, to be able to provide proper and timely US tax advice. It is especially true in a cross-border context, as the complexity rises dramatically when a foreign country is involved. It takes years of learning and practice in the US tax area to gain a good understanding of how the rules operate, be able to spot issues, and provide meaningful, correct, and practical tax advice.

A qualified US tax advisor would constantly stay up-to-date with recent tax developments, provide thought leadership, have membership with relevant professional tax organizations and associations, attend professional seminars and conferences, and subscribe to US tax research databases that would allow thorough and diligent research on any client matters.

A qualified US tax advisor would also carry adequate professional liability insurance, both to protect herself/himself and her/his clients.

A CPA or a tax attorney clearly fit this description. Both CPAs and US tax attorneys can handle a variety of issues, and can represent a client before the IRS. Lawyers are usually a better choice for dealing with the IRS on examination, Appeals, or controversy.

An IRS enrolled agent can be anyone, with or without US tax experience, who took a US tax course and passed it. It is, no doubt, a challenging course, and the training that is provided as part of that course is likely sufficient to handle simple situations and tax return preparation.

 

Why do you need to choose a “qualified” US tax advisor?

No one likes paying for something that does not create value or provide immediate cash benefit (such as a tax refund). In some cases, being pro-active with US tax matters serves as an insurance policy for the client, who may not necessarily benefit from US tax advice prior to entering into a transaction. For example, US tax advice may provide an insight on applicable US tax implications and ensure following certain US tax withholding, filing and reporting requirements. Yet the client would most certainly benefit if the IRS were to audit the taxpayer, or to assess tax and penalties where no assessment seemed to be warranted.

As a result, some taxpayers either choose to do nothing, or seek US tax advice from anyone who is willing to do it cheaply. What those taxpayers do not realize is that while they are “saving” on professional fees, in most cases they would not be protected from potential penalties, if assessed. Such penalties can be as high as 20 to 40 percent of the adjustment or taxable income amount, depending on the applicable penalty.

Penalty protection may be available to those taxpayers who can show reasonable cause for non-compliance or failure to follow the applicable US tax rules. That penalty protection is known as reasonable cause defense, and is only available if, as one of the grounds, the taxpayer relied on the advice of a qualified US tax professional. Ignorance of the law, while being one of the grounds that may constitute reasonable cause, is not enough to be exempt from penalties. For instance, a Canadian tax accountant, even with dozens of years of experience, would not be considered a qualified US tax professional for these purposes. As a result, in the event that penalties are assessed, the taxpayer would not have any protection.

To conclude, you should look for a qualified US tax advisor to assist you in your US tax issues. Not only would you get it right the first time, you might also avoid severe and costly penalties in the future. A qualified US tax advisor would also spend less time on complex issues, compared to someone who does not have adequate expertise and experience in US tax law. That said, the assistance of a qualified US tax advisor is still a significant investment.

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Conclusion

Being a qualified US tax advisor is no easy feat. It is also expensive, both for the US tax advisor to achieve that designation, and for the client to retain him/her. Yet seeking advice from a qualified US tax advisor on your US tax issues is a better and pro-active way to ensure that you do not fall victim to potentially incorrect advice, or find yourself on a wrong side of the US tax law fence. We hope that the above ideas on how to choose a qualified US tax advisor can help you find your perfect US tax advisor.

[1] Nancy Anderson, How to Get Your Money’s Worth and Choose the Right Tax Preparer (the article can be viewed at http://www.forbes.com/sites/financialfinesse/2013/02/14/how-to-get-your-moneys-worth-and-choose-the-right-tax-preparer/#608d3d7b50f5 – last visited on June 10, 2016).

[2] See, e.g., Giant Leak of Offshore Financial Records Exposes Global Array of Crime and Corruption (https://panamapapers.icij.org/20160403-panama-papers-global-overview.html – las visited June 10, 2016).

[3] See https://www.treasury.gov/resource-center/tax-policy/treaties/Pages/FATCA.aspx – last visited June 10, 2016). The page has basic information on FATCA and a status of all Intergovernmental Agreements (IGAs) the United States signed with other countries (including the IGA copies currently in effect).

[4] https://www.irs.gov/uac/2012-offshore-voluntary-disclosure-program (last visited June 10, 2016).

[5] https://www.irs.gov/individuals/international-taxpayers/streamlined-filing-compliance-procedures (last visited June 10, 2016).

[6] Andrew Velarde, Still no Plans to Terminate OVDP Yet, 2016 TNT 90-15 (May 10, 2016).

[7] See https://www.lsuc.on.ca/For-Lawyers/About-Your-Licence/Lawyers-from-Outside-Ontario/Foreign-Legal-Consultant-Permit/ (last visited on June 10, 2016).

[8] See https://www.irs.gov/tax-professionals/ptin-requirements-for-tax-return-preparers (last visited on June 10, 2016).

[9] The directory can be found here: http://irs.treasury.gov/rpo/rpo.jsf (last visited on June 10, 2016).

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