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Megan L. Brackney Authored Two-Part Series For Procedurally Taxing Blog Entitled “The IRS’s Aggressive Enforcement Of Foreign Information Return Penalties Has Created Ethical Dilemmas For Practitioners”

Megan L. Brackney guest authored a two-part series for the Procedurally Taxing Blog entitled “The IRS’s Aggressive Enforcement Of Foreign Information Return Penalties Has Created Ethical Dilemmas For Practitioners.” The two posts raise important questions about practitioners’ ethical responsibilities when confronting clients’ potential exposure to penalties for failing to file foreign information returns. Previously, Megan wrote about the problems with the IRS’s administration of these penalties in a separate series for the Procedurally Taxing Blog. Megan’s latest posts discuss how these same problems raise challenges for practitioners wanting to effectively and ethically represent their clients.

The blog posts note:

The IRS’s practice of assessing penalties against taxpayers who voluntarily attempt to get into compliance with their filing of foreign information returns puts tax practitioners in a difficult position. Most practitioners understand that they have an obligation to the tax system and genuinely strive to comply with that obligation to assist their clients with compliance. And, indeed, most taxpayers believe in tax compliance. See Comprehensive Taxpayer Attitude Survey, 2017 Executive Report, Practitioners also have duties to their clients to ensure that they are not recommending actions that will cause them to unnecessarily incur penalties. In the past several years, as the IRS continues to impose the maximum level of penalties against taxpayers who file untimely or incomplete foreign information returns, it is getting harder for practitioners to recommend that clients should self-correct, as the outcome is the same if they do not self-correct and are later audited.

Most of us would agree, for instance, that a young person who received a reportable (but nontaxable) gift from a foreign relative for the first time and who prepared her own return and did not know about the Form 3520 requirement at the time of filing, but then filed it 6 months after learning about the filing requirement should not have to pay a penalty of 25% of the foreign gift to the IRS. The IRS, however, would assess this penalty without a second thought – and indeed does so with regularity.


Click here to read Part 1 in its entirety.

Click here to read Part 2 in its entirety.