Some who call me shop around after we speak seeking a less expensive tax attorney. My billing rate is at the lower range of what equally experienced AV-rated tax attorneys charge. I know how much time at a minimum it takes to properly and professionally prepare the non-willful certification statement of facts supporting non-willfulness.

What is involved in preparing the non-willful certification?
The tax attorney must conduct a due diligence inquiry to determine the client’s state of mind as to knowledge and intent. The purpose of this inquiry is to determine if the client had known of the requirement to file FBARs and made a conscious decision not to file when he or she was otherwise able to file timely.

How does the tax attorney determine knowledge and intent?
The client will almost always claim he or she did not know about the FBAR filing requirement. How do you look into their mind to determine knowledge and intent? Well, there is no X-ray or MRI that reveals what was in their brain on the FBAR filing due date for each year. Consequently, knowledge and intent or lack of knowledge and intent must be established by what is called circumstantial evidence. Circumstantial evidence includes all of the surrounding facts and circumstances related to the creation, and operation of the foreign financial account. It also includes facts and circumstances that go to determining whether it is reasonable to conclude that the taxpayer would likely have known about the FBAR filing requirement and other facts that tend to either indicate knowledge and/or intent or the absence hereof.

Some of these factors are:

• Educational background, including advanced degrees and areas of study.
o Tax and finance courses included in curriculum.
o Generally, the more educated the more likely IRS will deem knowledge and intent present. But, focus of studies is important.
•Work history and experience – did positions held bring client into contact with tax and FBAR information?
• Level of sophistication of investments – more sophisticated investor is more likely to have heard of FBAR.
• Publication subscriptions – Wall Street and Economist reader more likely to have heard of FBAR than Miami Herald and Facebook reader.
• Unusual health, family and job stresses in life that may have distracted the client from inquiring or rendering client unable to timely file.
• Communications with bank – foreign banks keep records of emails and calls. Does the client have copies of all such communications?
o Relying solely on memory is extremely dangerous.
• Communications with return preparer
o Was organizer provided? Used?
o Face to face meetings?
o Emails? Does client have copies of all written communications?
o Must confirm answers directly with return preparer.
• Self-prepared returns:
o Which software program used?
o Which version of software as different versions may have different prompts regarding FBARS?
o Do returns contain Schedule B?
o Anyone assist? Must confirm facts.
• How the account came to be opened?
o Inherited?
o Outbound transfer of funds?
o Local banking needs for expatriate.
• Where the accounts were located?
o The IRS will look closely at streamlined filings including accounts at UBS or other financial institutions on its list of enablers.
o Similarly, if the taxpayer was involved with an identified enabler individual broker, attorney or banker, IRS may look askance at a taxpayer’s claim of non-willfulness.
• Source of funds must be determined and verified
 Legal activity?
 Untaxed funds?
• Obtain account opening documents
o Hold mail instruction?
o Nominee entity title holder?
• How account operated:
o Serial transfers back to U.S. in amounts under $10,000?
o Transfers to other foreign accounts in countries where client does not reside?
• How client learned of FBAR requirements?
o When? From what source?
• What client did to come into compliance after learning about FBAR reporting requirements?
o Name, address and telephone number of each professional contact.
o Advice provided.
o Date of communication.

The above facts take considerable time to marshal and incorporate into a coherent and cogent statement for non-willfulness.

What else must the tax attorney do in representing the potential streamlined client?

The tax attorney must first analyze these facts and determine that no tax (Title 26 U.S.C.), Bank Secrecy Act crime (Title 31 U.S.C.) or other crime (e.g. Title 18 U.S.C.) has been committed. The tax attorney must then determine if the facts and circumstances establish non-willfulness. Since the Streamlined Filing Compliance Procedures are internal IRS procedures contained in the Internal Revenue Manual but not in the Internal Revenue Code or Bank Secrecy Act, returns will be processed as streamlined returns at the discretion of IRS. Thus, the taxpayer’s affidavit must establish non-willfulness to the satisfaction of IRS for the taxpayer to be entitled to the streamlined penalty relief. Of course, ultimately, should IRS assess a willful FBAR penalty, it will have the burden of proving willfulness. The National Taxpayer Advocate may be able to assist if a taxpayer is unreasonably denied streamlined filing penalty relief.

The tax attorney must also determine that the client is either a person living in the U.S. or living outside of the U.S. This is not simply a matter of where the taxpayer happens to reside at the time of filing. The test for U.S. citizens or Green Card holders involves either meeting or failing to meet a non-residency test for any one of the three streamlined years (three most recent years for which the return due date has passed). For others, residency is determined under the substantial presence test for determining income tax residency. In this regard, taxpayers who are resident aliens under the SPT cannot user a tax treaty closer connection test to escape the 5% miscellaneous offshore penalty that applies to persons living in the U.S.

Finally, the tax attorney must review the streamlined returns to make sure there is nothing facially incorrect and that the facts stated in the returns are consistent with the statements in the non-willful certification statement.

The streamlined filing should be submitted by the tax attorney with a cover letter.

How much time does will the tax attorney spend in advising a potential streamlined client?
It should be apparent to even the naïve tax filer that this process cannot be completed in a few hours. I have found it impossible to complete in less than eleven hours. Some non-willful certifications take much longer. The many non-willful certification statements I have prepared ranged from a low of six pages to a high of over thirty-five pages

What are the potential consequences of a botched streamlined filing?
I have heard stories of clients paying as little as $1,000 for preparation of the streamlined non-willful certification statement. Frankly, someone charging such a fee cannot possibly do what must be done to insure that the filing won’t exacerbate the client’s tax problems by:

• At worst getting the client charged with a tax crime, FBAR crime or perjury for filing a false affidavit which is possible if:
o .The non-willful statement is found to be false.
o The non-willful affidavit cherry-picks the helpful facts but does not include facts that are not helpful or even that work against non-willfulness.
o The non-willful affidavit makes statements that are later contradicted by others such as the bankers or return preparers.
• At best, having the returns treated like regular tax filings not covered by the streamlined filing penalty relief which are later audited.

Shopping for a tax attorney is not akin to shopping for an automobile. Autos of the same make, model and with similar options are comparable. Each tax attorney is unique in his or her knowledge, experience and ethical behavior, Clients should be suspicious when a much lower fee is suggested by a particular attorney. The old adage should warn: “If it sounds too good to be true, it is.” Bargain-basement streamlined filings may turn out to be very expensive filings if any of the above bad things happen because bad advice is received from an inexperienced “inexpensive.” tax attorney. Streamlined filings are consequential matters that should be approached with great caution and care.

© 2016 by Robert S. Steinberg, Esquire
AV rated (preeminent) by Martindale Hubbell
http://www.steinbergtaxlaw.com