| Outsourcing,
at least that of tax returns, now has the tactical
green signal from none other than the Internal Revenue
Service (IRS) -- United State's Treasury department.
This
nod from the IRS follows the 'understanding' expressed
by the American Institute of Certified Public Accountants
(AICPA) regarding the need of its members (accountancy
firms) to outsource processing of their client returns
to India. Generally, the US accountancy firms play
a supervisory role and also finalise and sign the
tax returns.
Even
on the most conservative estimate more than 100,000
tax returns are being processed in India this season,
a four-fold increase from 2003.
Responding to the concern raised by Edward Markey,
co-chairman of the Congressional Privacy Caucus
that risks arise as foreign parties to whom work
is outsourced may not be knowledgeable about US
tax laws or may not have the skills and training
of a US CPA, the IRS chief Mark Everson states:
"We have no information suggesting that federal
tax returns that foreign individuals prepare are
less accurate that tax returns prepared by commercial
tax return preparers in this country (US)."
"The
law does not prohibit foreign individuals from receiving
taxpayer information or assisting returns preparers
located in US. Nonetheless, I recognise that taxpayers
may have legitimate concerns about their ability
to hold foreign individuals accountable for violations
of privacy and confidentiality protections provided
by US law," added Everson.
In
this regard, the IRS chief explains that civil and
criminal penalties apply for improper disclosure
or misuse of tax payer information. Action can even
be taken against the foreign party which helped
prepare the tax returns. If the foreign party does
not pay the penalty imposed the same can be collected
from any assets the foreign party may have in US,
or through available international legal mechanisms.
As
regards criminal penalties, the matter would be
referred to the Office of the Treasury Inspector
General. Similarly, penalties would also be imposed
for failure to comply with the IRS code. For example,
return preparers would be subject to penalties if
they willfully understate the tax liability on the
return, or if such understatement is due to their
recklessness, added the IRS chief in his letter.
The
regulations under section 7216 permit a tax return
preparer to disclose without a client's consent,
information received from the client to a second
tax return preparer that provides auxiliary services
in preparing the returns. Although IRS generally
has interpreted these provisions to permit a return
preparer to disclose taxpayer information to a third
party who assists in the preparation of a return,
the Treasury department and IRS's current guidance
priority list includes a project to revise these
regulations.
Perhaps
in the days to come, it may be mandatory for a US
accountancy firm to disclose that the return is
being processed in India. Or the legislative change
may be much more than mere disclosure. For the time
being however, the writing on the wall is clear.
US tax returns can be processed in India. However,
the long arms of the IRS can reach out to an errant
Indian party that has processed the returns.
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