The True Cost of Cheap Tax Preparation: Why International Tax Expertise Matters

When it comes to international taxation, cutting corners on professional expertise can lead to expensive, and frustrating consequences. For US citizens with foreign connections, the stakes are particularly high — minimum penalties starting at $10,000 for missed filings. That's right, "start".

At McGowin Tax, we see this all the time. Somebody walks in from H&R Block, or they've been using Turbo Tax, and they filed a tax return all wrong. Worse, they may have been filing incorrectly for years, or missing key reporting requirements. They missed their foreign informational filing, maybe for their foreign corporation or trust, and now they’re looking at $10,000 or more in penalties.

In addition they often fail to claim essential tax credits and deductions, such as the Child Tax Credit and the Foreign Earned Income Exclusion - which are crucial for reducing their U.S. tax liability. Honestly, in a lot of cases, it’s way more than that.

When good accountants aren't enough

You can have a great accountant that doesn’t know international tax work. They can be fantastic with regular US taxes, but when you start moving into that international world, you really need somebody that specializes in that area. Otherwise, you’re just setting yourself up for unnecessary penalties.

Consider this scenario: I have a client that invested in a rental property outside the US. They have a local business in Carolina where they’ve had the same accountant for years. This accountant does a great job with their work—handles all their business accounting, personal accounting—but then my client invests in a foreign rental property.

That accountant doesn’t have any other clients in that situation. A responsible professional would recognize this is outside their expertise and recommend finding a specialist. But often, that’s an important client to the CPA firm, and they don’t want to lose them over one international piece. So they’ll try to do it themselves.

A lot of the times they aren't intentionally doing something wrong — maybe they just don’t know what they don’t know. Just like if somebody asks me about business valuation questions, I refer them elsewhere because I don’t do that work. The same principle applies to international tax work. If you don’t do it all the time, you’re not going to recognize the pitfalls.

"But, what about software? Serve serve tax tools have come a long way in recent years."

Reasonable Cause: Why "my accountant didn't know" doesn't work

Before we dig into the new digital options, let's finish up with what happens when an experienced local tax professional makes a mistake on your taxes.

To escape potential penalties, the only option is typically a reasonable cause request—essentially saying: “We had legitimate reasons. We tried to file correctly and hired professionals who made mistakes.”

Time and time again, we’ve seen that reliance on a tax preparer does not meet the standard of reasonable cause. The IRS puts the responsibility on you to hire somebody with the right experience who can do your tax return correctly. The IRS doesn’t care that your regular accountant tried their best—they care that you didn’t find somebody who actually knows international tax and understands the importance of filing taxes to address U.S. tax obligations, even if you reside outside the U.S.

Using self-service software for international taxes

Many taxpayers believe tax software will guide them through all necessary filings. This assumption can be dangerously incorrect for those with international tax obligations.

If you use TurboTax online, expecting it to identify all your international filing responsibilities - you're taking an incredible risk. This just isn't considered reasonable cause in the IRS's view. Remember,

It is possible to learn about international taxation and all of the requirements, but it puts more of the burden on you to know what you have to file and when — and to explicitly tell those people or that program what's required.

Case Study: Immigrant family faces $25,000 penalty

There's a

They received a $25,000 penalty just for filing one year late.

Their argument? TurboTax asked if they had received a foreign gift (they answered yes), but the software didn't prompt them to complete the required form. That's part of their reasonable cause argument, but reliance on TurboTax is unlikely to get them out of the penalty.

Common mistakes in expat & immigrant taxes that software can make

Foreign Gifts

The international tax system is generally filled with nuanced rules that simple questionnaires can’t capture...

What if a person receives gifts from three unrelated people for $50,000 each? The rule requires filing Form 3520 if you receive gifts from a person or related persons totaling more than $100,000. In this case, there’s no 3520 requirement if you receive three separate $50,000 gifts from unrelated people—but the odds that tax software will understand this nuance are slim.

At the end of the day, our tax system—particularly its international components—is very difficult to reduce to a simple computer code of question/answer pairs. It’s just not that straightforward.

Business structure mistakes

Perhaps the most expensive mistakes occur during the initial setup of international structures. These early decisions can have significant long-term tax consequences.

I end up doing a lot of fixing, but sometimes there's not much that can be fixed. I have clients who set up foreign corporations 20 years ago to hold property, and now they want to sell. We can't go back 20 years to change the structure—it is what it is.

If I had structured it originally, I would have made it a flow-through entity, allowing the couple to utilize the $500,000 exclusion on a principal residence or at least maintain capital gain treatment. Instead, they're paying 37% tax on the entire sale because it wasn't structured properly from the beginning.

It's not complicated to set things up correctly from the start, but doing so can save you a fortune down the road. This applies not just to real estate but international businesses as well. You can't assume things work the same way internationally as they do domestically—because they usually don't.

The Value of Specialized International Tax Expertise

When international elements enter your financial picture—whether through property ownership, business activities, or relocation—the complexity increases exponentially.

Especially when I work with people buying in Costa Rica or other foreign properties. Often they're not international business people — they're just normal individuals who suddenly have an international component to their lives. And the accountants they've been using in their local town aren't international tax specialists either.

Even though it might not seem like much has changed in your life when everything stays the same except for owning property outside the US, that one change significantly alters your tax reporting requirements.

Proactive Planning vs. Reactive Problem-Solving

To me, it's no different than starting any new venture. You really need to make sure you get everything set up properly from the beginning, or it costs way too much to fix later.

At McGowin Tax, we've built our practice around providing specialized international tax expertise to both individuals and businesses. Our approach emphasizes getting it right the first time rather than fixing expensive problems later.

Protecting Your International Investments

If you have questions about your international activities—whether you're living abroad, have foreign investments, foreign assets, or foreign companies—don't assume you'll get the right answers from ChatGPT or Google. Reach out to someone with experience in international tax work.

You can connect with us directly on our website for a free cross-border tax diagnosis. We're here to ensure your international activities are structured optimally and your compliance obligations are fully satisfied.

Think about how much you could save with the right tax advice from the beginning.