My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned.

Monday, September 12, 2011

Income Tax problems and Voluntary Disclosure - Should you hire a lawyer or an accountant?


I am often amused, if not slightly irritated, by the radio advertising wars between lawyers and accountants over taxpayers with income tax evasion or non-reporting issues. The lawyers argue that they can provide you with solicitor-client privilege and the accountants say they have previously worked with the Canada Revenue Agency (“CRA”) and/or deal with the CRA on a consistent basis and thus know their way around the system.

The lawyers who specialize in this market niche appear to have clearly won the marketing wars, as they seemingly have convinced people that legal protection and briefing for future court battles is the only way to protect yourself from prosecution. I even had a former client with a very simple issue of non-reported income who was convinced by a lawyer that he would be making a huge mistake in using me and that a lawyer was the only way to go for his voluntary disclosure (I was just about to abbreviate voluntary disclosure, but thought better of it :). Even though I had no desire to undertake the voluntary disclosure work, on principle, I told the client if he used the lawyer I would be his ex-accountant as there was absolutely no need for a lawyer in his situation. This client however had drunk the legal kool-aid and was so convinced that I was not a practical alternative that he decided to move forward with the lawyer anyways. I must give credit where credit is due; certain lawyers have marketed this issue so well that the general public believes they are the only viable alternative.

On a practical basis, I have been involved with multiple voluntary disclosures over the years. The conversation with the CRA always starts on a no-name basis and the CRA has always been true to their word once my clients have provided full disclosure. In general, I have found the voluntary disclosure agents very fair.

So how do the lawyers create this fear of the CRA and the urgent need for their assistance? Three words: solicitor-client privilege. Lawyers who deal with people with income tax problems market this privilege as a hugely important tool in dealing with the CRA on voluntary disclosure matters. However, a voluntary disclosure is essentially just a financial disclosure exercise and privilege is a total red herring in almost all cases in my opinion. Where your client is a former contract killer who found god and wishes to catch-up on his taxes, then solicitor-client privilege would be a good thing.

If you have evaded income tax or mistakenly not reported income and have no criminal activity attached to such, I would suggest that if you have an accountant who has been through the voluntary disclosure process he or she is more than capable of helping you. Where you have a criminal issue attached to your disclosure, or information you want privileged, I would definitely recommend using a lawyer.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

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