A tax attorney recently shared this story with us. It illustrates the complexity of the Internal Revenue Code and how ignorance of the tax laws can be devastating for someone who doesn’t use a tax professional for tax preparation or tax planning.
The client consulted with this tax attorney about an issue that was totally unrelated to a much bigger tax issue. During the discussion of the client’s initial tax question, the attorney learned that the client’s father worked in the USA decades ago and that his son (the client) was born while the father worked in the USA. That made the son a US citizen. US citizens are required to file an annual Form 1040 tax return and report their world-wide income to the IRS. In addition, if a US citizen holds bank accounts, investment accounts, retirement accounts, and cash value of permanent life insurance policies and the cumulative value of those accounts total $10,000 or more on any day during the calendar year, the US citizen has to report those accounts to the U.S. Treasury (often referred to as FBAR or FinCEN filing requirements). Failure to file US tax returns and the disclosures regarding the ownership of foreign accounts can result in VERY SIGNIFICANT and ONEROUS penalties. The client, a citizen of India, never gave any thought to his US citizenship and was thus unaware of his tax filing responsibilities and the huge tax liabilities he was accruing (in the tens of millions of dollars in this case).
Likewise, it is not uncommon in our practice to work with a new client who had been preparing his or her tax returns using TurboTax or some other tax preparation software or using one of the three major tax preparation franchise firms and we discover that the taxpayer was unaware of a tax liability or tax filing requirement. For example, a couple of years ago we worked with dual citizens of the USA and Canada who were unaware that they were required to disclose their Canadian retirement plan holdings to the US Treasury Dept. Had they engaged an experienced tax professional to prepare their US tax returns rather than self-prepare their returns, this reporting responsibility would have been addressed in year one rather than several years later when the imposition of significant penalties had to be addressed for failure to disclose their foreign holdings.
If you want to discuss your tax preparation or tax planning concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.