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How Advisors Protect Themselves by Informing Clients
Manage episode 510279933 series 3330317
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When does technical advice cross into criminal risk—and how can advisors protect themselves?
If an advisor tells a U.S. client:
“Yes, Svalbard’s unique status means a financial institution there may not report to the IRS under FATCA. But this does not eliminate your personal obligations. You must still report on FBAR, Form 8938, and Forms 3520/3520-A—and failure to file carries severe penalties.”
That advice is accurate, complete, and defensible. The advisor is informing, not concealing. The key element of willfulness—intent to defraud—is missing.
But even with compliant advice, risks remain:
- Abusive Tax Shelter Risk: If the advisor exaggerates benefits, promotes a sham trust, or ties fees to secrecy, they could be penalized.
- Aiding Evasion: If the client ignores reporting duties and the advisor knowingly helps prepare false returns, liability follows.
- Step Transaction Doctrine: The IRS may disregard the structure if it exists solely to achieve an unlawful result.
- Negligence: Incorrect or sloppy advice can trigger civil penalties.
Bottom line: Advisors protect themselves by being accurate, complete, and transparent—always reminding clients that structures may affect reporting, but never erase it.
#FATCA #AdvisorLiability #TaxCompliance #WealthManagement
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