Back in January, we posted a piece directed at practitioners – accountants and enrolled agents – on their FBAR reporting responsibilities. Since that post, we continue to hear from taxpayers who claim their preparer failed to file FBARs and failed to report their foreign accounts. When the IRS assesses huge penalties, the taxpayer’s first stop is usually to an accounting malpractice lawyer. If the preparer knew about the foreign accounts but ignored them, there is a much stronger case for accounting malpractice. What happens, however, if the preparer never asks?
Many taxpayers still don’t understand their foreign reporting responsibilities. The IRS believes there are more than 7 million Americans living abroad. Most don’t file tax returns in the United States. Many dual nationals and foreign green card holders living in the United States think their bank at home isn’t “foreign.” To them, their foreign account is the one in the U.S.!
All this means there is plenty of confusion and conflicting advice. Thus far, accountants are generally not required to inquire about foreign accounts. (We disagree with that position, however.) Depending on what the accountant knows, however, there may be an obligation to inquire. The “don’t ask, don’t tell” concept only goes so far.
If your address is outside the United States or if you have provided your accountant with bank statements or earnings statements from an offshore financial institution, your accountant is on notice and probably has an obligation to ask follow up questions. The same is true if your accountant knows you are a dual national, green card holder, recent immigrant, have family in another country or have foreign business interests. The inquiry doesn’t end here, however.
Simply because your preparer knows you have foreign financial interests doesn’t obligate him or her to prepare FBARs and advise you on your reporting obligations. Once a preparer has reason to know of potential FBAR issues, however, he or she must either provide the service or tell you to seek an opinion from someone specializing in foreign reporting.
We hate to see otherwise great preparers sued for accounting malpractice. It happens, however, and with increasing frequency when offshore accounts are involved. If you are a preparer, make sure you ask the right questions and if you don’t know enough about offshore reporting, refer the client to someone who does. If you are a taxpayer and think you have an accounting malpractice claim, call us.