Nor are they shielded from disclosing client data if they are subpoenaed to testify by prosecutors. The absence of an attorney-client privilege essentially means the accountant is a prospective witness against the client. Should the matter of the secret account be pursued criminally, the government will seek to establish the client's willful nondisclosure by having the accountant testify that he was never informed about the account by the client. The accountant will typically do so, not wanting to appear complicit or lacking in due diligence.
An attorney will want to retain a new accountant who will work under the attorney's direction in evaluating the tax ramifications of the client's conduct. This is important because if a voluntary disclosure is made, every item in the amended tax return must be correct, not just the items impacted by the foreign account. An independent review by a new accountant is helpful in this regard. Since the voluntary disclosure program requires that the returns and all submissions be truthful and complete, an amended return that discloses the foreign bank account but incorporates other false or fraudulent items can itself become the vehicle for criminal prosecution.
The attorney and the accountant will need to evaluate the client's tax exposure and how much he owes the government. In order to do this, they will need at least six years of account records (asset statements, income statements and capital gain and loss schedules) from the foreign institution, as well as all account opening records and other correspondence in the institution's files. Obtaining this information takes time and persistence, which is why making this request is a top priority. For the protection of the client, the attorney should decide where the documents should be sent and who should request them. Usually this will be the attorney, pursuant to a power of attorney recognized by the foreign institution. In this era of increased government scrutiny and active U.S.-based investigations of foreign institutions, the records should not be mailed or couriered directly to the client from the institution.
Finally, the account holder should "do no harm." This means a number of things in this context. No records should be altered or destroyed. The funds on deposit or the securities held in the foreign account should not be moved to another institution or into another foreign country as this could be construed as obstructing justice or, in some circumstances, money laundering. An accurate Form TDF 90-22.1 for the year 2008 should be prepared prior to June 30, the due date.
Well before September 23, the closure date for
offshore voluntary disclosures, the attorney must evaluate whether the
account holder qualifies to participate in this program. Voluntary
disclosure requires satisfaction of the following criteria:
1. The taxpayer cannot currently be under audit or notified that an audit is about to commence;
2. The taxpayer cannot be under criminal investigation for any crime, whether or not it's related to taxes;
3. The funds or assets in the secret account cannot have originated from illegal sources;
4.
The taxpayer must be willing to cooperate with the IRS, including
meeting with CI agents and making a full and complete disclosure;
5. The taxpayer must pay or make arrangements to pay the tax, interest and penalties.
Once it's determined the client has met all the criteria, the voluntary disclosure can be commenced at the federal and state level. When the process concludes, the account holder will have come into compliance with U.S. tax law and can then decide whether to maintain or move the account, including to the U.S. if so desired. If the account remains foreign, the holder must file an FBAR each year by June 30 of the succeeding year and report any income earned in the account in his tax returns. Best of all, the taxpayer will be able to sleep at night without fear of possible criminal prosecution.
Barbara T. Kaplan is a shareholder of the international law firm of Greenberg Traurig LLP and chair of its New York tax department. She concentrates her practice in tax controversy, tax litigation and criminal tax matters.