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Tax

Qualified tax adviser a key partner for U.S. taxpayers in Canada

While U.S. taxpayers living in Canada might be tempted to hire any preparer to file their tax return south of the border, a qualified U.S. tax adviser can help them navigate this complex and constantly evolving landscape and ensure their personal and business objectives are met, Oakville-based U.S. tax attorney (NY, DC) Alexey Manasuev tells AdvocateDaily.com.

A qualified U.S. tax adviser, explains Manasuev, principal of U.S. Tax IQ, is an individual who can represent taxpayers before the IRS. Currently, this can be a U.S. tax attorney, a Certified Public Accountant (CPA), or an enrolled agent.

Although the U.S. tax system may seem similar to Canada’s, and a question may appear simple at first, he says, a “quick question” often leads to a series of matters that need to be resolved and that hinge on several factors. These issues benefit from the analysis and experience of a qualified U.S. tax adviser.

“For example, if a client wants to buy U.S. real property, and they say, Well, how can we best structure it?’ And it's unfortunate that in the marketplace the perception is that this is a simple matter that has long been settled. Indeed, what can be easier than to structure it individually, through a trust, a corporation or a partnership. All this is only potentially true, but everyone has their own story.”

“Everyone has their own objectives, and you need to consider the income tax side of things, the U.S. estate and gift tax, any non-tax considerations, such as limitation of liability, as well as the cost of maintaining the structure and giving life to any business entities that are formed or created as a result of that structuring,” says Manasuev.

The taxpayer will also need to consider the purpose of their investment — is the property to be rented out or bought for personal use? Is the main objective to address U.S. estate tax or address income tax concerns during the life of the investment or is the exit strategy the main focus?

“That’s an example where a simple question becomes a series of questions and answers, and then structuring and objectives and tax impacts as a result,” he says.

“Ultimately, a good qualified U.S. tax adviser would know what questions to ask, and will go through all of those questions before recommending any structure.”

When it comes to filing a tax return, Manasuev says, the IRS has certain standards that have to be met before the return is filed, including the fact that any tax return preparer has to develop a tax filing position, and in some cases, they need to document it.

“What we find and what we see in practice, in many cases, people just file their return and see where it leads them, they just try to wing it. Whereas in fact, a good qualified U.S. tax adviser would develop their tax positions today in such a manner that they can defend their clients in the future if the IRS were to challenge those tax positions.”

As opposed to hiring tax preparers with expertise in Canadian tax who may file occasional U.S. tax returns, taxpayers who work with qualified U.S. tax advisers benefit from protection from potential penalties.

“The taxpayers are able to use reasonable cause defence to be exempt from potentially applicable penalties, and they would use the reliance on a qualified U.S. tax professional as one of the grounds for granting penalty relief. Everybody makes mistakes, but if you’re working with someone who is not qualified to do U.S. tax work, then your ability to be protected from penalties because of likely mistakes is very limited,” says Manasuev.

When looking for a qualified U.S. tax adviser, Manasuev notes both CPAs and tax attorneys can handle tax situations, with CPAs having preference over attorney when it comes to preparing and filing tax returns.

“A U.S. tax attorney would be helpful when you need attorney-client privilege, and that is critical in some cases, especially when it involves potential challenges such as dealing with taxpayers who want to come into compliance and use one of the IRS amnesty programs, or when you need to evaluate whether there is any exposure to criminal liability or charges,” he says.

U.S. tax attorneys also effectively represent clients during the IRS examination or on appeals.

In all cases, says Manasuev, it is important to find an adviser with a proper U.S. academic background, U.S. tax work experience and the necessary qualifications. Also, inquire as to where and how they got their experience, he says — in Canada, in the United States, or a combination of both countries? Ask them how long they studied, at what level and where?

“There’s also a difference between advisers and whether or not they have the experience and knowledge to advise businesses. Many advisers assist individual taxpayers, but there is limited U.S. tax knowledge for businesses in the marketplace,” he adds.

Taxpayers should also be sure to ask advisers how they keep up with constantly evolving U.S. tax law, in terms of research databases and how they approach their continuing education.

Although some clients may believe that working with a U.S. tax attorney will cost them more than hiring a CPA, Manasuev says that is not necessarily the case.

“I think U.S. taxes, in general, are much more expensive, so you need to consider that. How much you pay depends on the matter that you are addressing. If you are filing tax returns, then it won’t be any different. If you are defending the client on audit or, for example, requesting penalty abatement or otherwise addressing the client’s situation based on intricacies and complexity of U.S. tax law, then it may be more expensive on audit. It really depends on the adviser and their fee structure.”

Finding a qualified U.S. tax advisor is not an easy task. It requires research and due diligence on part of taxpayer — but the effort is worth the result, he says.

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