Form 5471 and penalty abatement question

Technical topics regarding tax preparation.
#1
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Hi there.
I have very little understanding of international tax.
I got a new client (23 yo kiddo) who came to the US in the middle of 2021. He received his US citizenship at birth, but up until 2021 he lived in Canada. He has dual citizenship. So, first I thought it would be an easy return, but then it turned out that he has two corporations in Canada. They were both set up in 2016 and at this point are both dormant.
I shopped around and was given a quote for 10K. 10K will cover six years of returns and the abatement process.
I feel bad for the kiddo because he is in school and does not have an income.10K in his age is a lot of money. I also don't think his corporations will ever become active or come up anywhere.
So, I am going to let him go and before doing so, I will explain to him about his filing requirements and chances of getting caught. And I will give him two options: 1. either hire a tax attorney or 2. close your corporations and never talk about them with your new tax preparer.
What would you do? Are there any other alternatives?
Thank you
P.S. Yes, I know, my behavior is not very "ethical".
Last edited by deactivated-01 on 22-Jan-2022 6:40pm, edited 2 times in total.
 

#2
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As bad as you feel for the kiddo, and I applaud your empathy, I wouldn't suggest any such thing. It's certainly not worth taking any risks to your livelihood. I know it feels yucky but it is not your fault that the lawmakers made the rules so egregious.

The truth has strange ways of scratching it's way to the surface, and thus you might not even be doing him a favor, and you might be taking risks to your practice.

He might qualify for a streamlined offshore procedure anyway which is generally safe and easy (not 100% sure without more details).

Send him to a tax attorney who specializes in these things or even an experienced "cheaper" firm like Greenback, Taxes for Expats, Bright Tax etc.

If you lose sleep over the tough spot that the kiddo faces, that just means you are human. But the responsibility of his tough spot is not on your shoulders to shrug off in an unethical manner.
 

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darena wrote:So, I am going to let him go and before doing so, I will give him two options:....2. close your corporations and never talk about them with your new tax preparer.


Yeah I would never do this.

Your profile says you're a CPA. You're bound by Circ. 230 and AICPA professional standards.

Meet your applicable obligations under those then disengage if you want.
 

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ItDepends wrote:If you lose sleep over the tough spot that the kiddo faces, that just means you are human. But the responsibility of his tough spot is not on your shoulders to shrug off in an unethical manner.


How often have we all felt like we've been in this place? This is good advice.
More generally, I think this dynamic keeps professionals from disengaging when they know they should. Unfortunately, in too many cases, it enables the behavior rather than helping to resolve it. Just a thought...
~Captcook
 

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If he is a US citizen, why does he need an immigration attorney? Is USCIS questioning his citizenship?
 

#6
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Oh sorry. Not the immigration attorney. The tax attorney to file for an abatement of penalties. I myself don't have any experience in this area.
 

#7
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ItDepends wrote:As bad as you feel for the kiddo, and I applaud your empathy, I wouldn't suggest any such thing. It's certainly not worth taking any risks to your livelihood. I know it feels yucky but it is not your fault that the lawmakers made the rules so egregious.

The truth has strange ways of scratching it's way to the surface, and thus you might not even be doing him a favor, and you might be taking risks to your practice.

He might qualify for a streamlined offshore procedure anyway which is generally safe and easy (not 100% sure without more details).

Send him to a tax attorney who specializes in these things or even an experienced "cheaper" firm like Greenback, Taxes for Expats, Bright Tax etc.

If you lose sleep over the tough spot that the kiddo faces, that just means you are human. But the responsibility of his tough spot is not on your shoulders to shrug off in an unethical manner.

Yeah, I've tried to talk to a couple of attorneys. I suggested that I can file the forms. But they both said they themselves want to file the tax returns.
 

#8
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darena wrote:
ItDepends wrote:As bad as you feel for the kiddo, and I applaud your empathy, I wouldn't suggest any such thing. It's certainly not worth taking any risks to your livelihood. I know it feels yucky but it is not your fault that the lawmakers made the rules so egregious.

The truth has strange ways of scratching it's way to the surface, and thus you might not even be doing him a favor, and you might be taking risks to your practice.

He might qualify for a streamlined offshore procedure anyway which is generally safe and easy (not 100% sure without more details).

Send him to a tax attorney who specializes in these things or even an experienced "cheaper" firm like Greenback, Taxes for Expats, Bright Tax etc.

If you lose sleep over the tough spot that the kiddo faces, that just means you are human. But the responsibility of his tough spot is not on your shoulders to shrug off in an unethical manner.

Yeah, I've tried to talk to a couple of attorneys. I suggested that I can file the forms. But they both said they themselves want to file the tax returns.

I am going to contact the firms you mentioned and ask for the quotes.
 

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ManVsTax wrote:
darena wrote:So, I am going to let him go and before doing so, I will give him two options:....2. close your corporations and never talk about them with your new tax preparer.


Yeah I would never do this.

Your profile says you're a CPA. You're bound by Circ. 230 and AICPA professional standards.

Meet your applicable obligations under those then disengage if you want.


You would never do what? Disengage? Or refer him to a qualified tax professional in this field? I am obviously not filing his tax returns. I am brainstorming for solutions on how this kiddo can get out of it and still have a life ahead of him debt-free.
 

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I would never advise the prospect to close your corporations and never talk about them with your new tax preparer.
 

#11
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Deactivated?
 

#12
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Don't feel bad, I would assume there is family money somewhere that might be accessed in order to make the proper filings. Most kiddos that age are not running around with ownership of private corps.
 

#13
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Yeah, I've tried to talk to a couple of attorneys. I suggested that I can file the forms. But they both said they themselves want to file the tax returns.


As an attorney who practices in this area (delinquent international forms), usually I would refer the tax prep to an accountant. I would draft the reasonable cause statements and any other forms that should be drafted, for example the forms for the streamlined program. I would also advise on the filing requirements for the international forms if the accountant has questions.
 

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supdat wrote:As an attorney who practices in this area (delinquent international forms), usually I would refer the tax prep to an accountant. I would draft the reasonable cause statements and any other forms that should be drafted, for example the forms for the streamlined program.


That has been my experience as well. However, OP mentioned: I have very little understanding of international tax.

Even though the foreign corps are both currently dormant according to OP (unclear what the past holds), I don't think its wise for OP to wade into these particular compliance waters.

IMO, she should punt to a tax attorney or one of those online firms ItDepends mentioned that have experience fixing situations like this and do it for a reasonable price.

It is particularly kind to look out for a prospect's best interest, and great service considering the prospect isn't a client. But, IMHO it's a mistake to take a personal interest in the matter and shield from consequences or advise on how to skirt or avoid consequences. Just my two cents. Maybe OP misspoke or didn't fully think it through, but it didn't come across well for me.
 

#15
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But, IMHO it's a mistake to take a personal interest in the matter and shield from consequences or advise on how to skirt or avoid consequences.


I agree. I tell the delinquent filers the requirement, the cost, and the potential consequences if they don't. Then it is their choice of what to do.

I didn't realize OP said they didn't have international tax experience (they knew enough to ask detailed questions about citizenship). I would only refer an accountant who was experienced in filing international forms.
 

#16
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I will handle generic streamlined clients without any intent issues myself. If the client doesn't qualify for streamlined or has issues, I will start pushing to bring in an attorney. A Reasonable Cause defensive legal strategy is complicated and their can be no assurance that it will be successful. The Streamlined and FBAR requirements have been out so long, that new clients are now having difficulties establishing lack of intent.
 


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