October 13, 2009 - Phil Hodgen

Small tax liabilities, paperwork problems, and fear

I get a flood of calls and emails from people who have minor foot-faults in their IRS paperwork. These are people who just woke up to the fact that their fideicomiso in Mexico is a foreign trust, and they have Form 3520 and Form 3520-A to file. These are people who had no clue about foreign bank account reporting. Or the intricacies of tax-qualified pension plans and the treatment and reporting of these when you move from one country to another.

There is no good answer I can give. All I can tell you is that it is a signal that the U.S. tax system is abysmally broken.

When ordinary people are losing sleep over trivial amounts of money and they fear life-altering tax penalties and even prison? The IRS is writing the rules wrong, enforcing them wrong, and communicating in an extraordinarily ineffective way.

So for the two people who have called me this morning so far (before 8 am my time), sorry. I wish I could help. But I’m slammed against the wall trying to get stuff out the door.

Even in saner times the cost to fix the tax problems you describe will be many times greater than the tax cost.

Right. Got that off my chest. Back to assembling Form TD F 90-22.1, Form 3520, and their ilk.

US Real Estate Investments Voluntary Disclosure