I just got off the phone with a new client, "Kat," from San Diego. This is part of her story — I make no claims of its veracity. This is simply what she has told me. I invite a spokesman from H&R Block to leave their input.

 

The taxpayer claims H&R Block tax preparer error led her to not report foreign income; requiring her to enter into the IRS OVDP.

 

In 2007, Kat came to the United States from Austria on a green card. She always had H&R Block prepare her returns because as she put it, she trusted the nation's largest tax preparation company. For years, she had a bank account in Austria that would routinely pay about $500 and its account value was always over $30,000. She was always told that because the interest was under $1500 a year, she didn't need to worry about reporting the income.

 

Just last Friday, Kat goes to H&R Block to get her 2013 1040 completed. For the first time, she sees a pop-up come on her tax preparer's screen. She claims the screen says that she must report the interest income from Austria. She asks her tax preparer what to do about it. The preparer tells her not to worry about reporting the income but does inform Kat that she needs to file an FBAR form and that would take care of the problem.

 

Something wrong with H&R Block FBAR reporting advice and Form 8938?

Kat thinks something is wrong, but still she signed the return without her reported income. When she gets home, she starts googling about the FBAR Form, finds the FINCEN website and ultimately comes to our 2014 OVDP Series on YouTube. As she watches the videos she becomes livid as she learns that nearly everything her H&R Block taxpayer preparer told her was false and the consequences are severe. 

 

In particular, she has just learned:

• You do have to report worldwide income no matter how little it is. The exception is only if your entire income falls below the filing threshold. If you do have to file, any amount of income must be reported.
•  You do have to check the box in part III of Schedule B if you have a foreign bank account, regardless of how much money is in the account.
•  You do have to file an FBAR form if your foreign accounts add up to $10,000 or more.
• If you have unreported income from unreported foreign accounts over $10,000 then you do have to enter into the Offshore Voluntary Disclosure Program ( OVDP) if you want to end worries about the IRS coming around later to assess horrific FBAR penalties.

 

Now, why would a tax preparer give such wrong advice? Some possibilities I could offer:

• The training for a tax preparer is relatively minimal. Before one can prepare a return, they must take a class that is akin to taking just one 4 credit college class.
• These folks work part-time. And seasonal. They aren't around all year long to see changes to the systems. They don't understand what it takes to solve a tax problem.
• Their exposure to international tax issues may be very limited.
• These companies look at the IRS as good guys — the IRS is always giving refunds to their clients. Tax filing time is a time of the year for extra money for everyone; taxpayers and tax preparers. This seems to be the company culture. Tax time is a great time to get money! Now compare this attitude with a full-time tax accountant, tax attorney, or CPA who knows the IRS is not your buddy or pal — but a huge massive beast that completely deserves its intimidating status.

 

Oh, and yes, we were able to help Kat get into compliance with no penalties. If you need assistance filing, or coming into compliance with misfiled or unfiled reporting requirements, contact us. We can help.

 

UPDATE: I have heard the H&R Block initial training does inform taxpayers that they have to report worldwide income. Rather it appears it has been the default custom not to report the worldwide income as some experienced preparers go their entire career without seeing the issue, and mistakenly advise newer preparers "not to worry" about FBARs and reporting foreign income.

 

UPDATE II: I see that a lot of H&R Block Offices have visited this page. If anyone wishes to contact me directly in confidence please send an email to aep@irsmedic.com

 

UPDATE III: Apparently H&R Block has Ex Pat services located in St Louis Missouri. I have been told that the head of this department is quite knowledgeable about foreign income and Offshore Voluntary disclosures and has been properly advising taxpayers when they need to consult with an attorney in order to make the correct type of OVDP. So it appears that the problem could be that his knowledge is not getting down to the front lines.