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The IRS is Criminally Prosecuting Taxpayers Whose Behavior was Willful and Made a Streamlined Voluntary Disclosure

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The IRS is Criminally Prosecuting Taxpayers Whose Behavior was Willful and Made a Streamlined Voluntary Disclosure

Reports of Foreign Bank and Financial Accounts (FBAR) and income tax regulations require a taxpayer to report offshore income they gained in foreign financial accounts across the world. Some taxpayers are still figuring out their reporting obligations when it comes to FBAR, which is the reason that the Internal Revenue Service distinguishes between willful and non-willful violations. However, a recent case has indicated that the IRS is ready to pursue criminal prosecution against those who feign that their FBAR violations were non-willful when in fact their behavior was willful. The dually licensed California Tax Attorneys and CPAs from the Tax Law Offices of David W. Klasing are assisting our clients in navigating through possible FBAR filing mistakes that could lead to criminal prosecution. We want to inform you about how the IRS is criminally prosecuting taxpayers that demonstrate criminal tax and foreign information reporting behavior, indicating to the IRS that their streamlined voluntary disclosures are falsely certified as non-willful.

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Criminal Cases for Willful Violations of FBAR Streamlined Voluntary Disclosure

The U.S. government and federal courts have recently communicated a few changes to the way that criminal prosecution for FBAR offenses may be handled. Specifically, in Alexandria, Virginia, a federal grand jury issued an indictment for Azizur Rahman, a resident of Herndon, Virginia, who is accused of failing to file his FBARs and submitting false tax forms to the IRS.

Allegations

The allegations in the Rahman case are as follows. The indictment states that Rahman had an interest and authority over at least 20 foreign financial accounts. These foreign accounts were held in multiple countries like the United Kingdom (UK), Switzerland, Bangladesh, and the Republic of Singapore. The issue is that Rahman allegedly had a financial interest in these foreign accounts from 2010 to 2016 and that he did not document this information on his annual FBAR filing. Also, Rahman faces allegations that his individual tax returns between 2010 to 2016 did not contain accurate information regarding his foreign accounts and the income he earned from them.

Another major criminal offense Rahman is accused of is that he utilized the IRS Streamlined Domestic Offshore Procedures to make a false submission. This program is solely intended to be a tool that non willful taxpayers may use to pay get back into compliance as to previously unreported offshore taxable income and related non-willful FBAR and other offshore reporting obligation failures. Rahman allegedly used the streamlined procedures to further conceal instead of fully disclose all reportable offshore income related to his previously undisclosed foreign financial accounts.

Analysis

These allegations are a rare moment where the IRS has shown that it will employ heavy scrutiny to taxpayers that use the streamlined voluntary disclosure program with intentions to defraud the administration. Due to this, a taxpayer may end up being the target of a criminal tax and foreign information reporting investigation rather than receiving a break on mandatory non-willful FBAR violation penalties and other favorable program terms.

In this particular case, Rahman is facing several years in prison if he is convicted of these offenses. Every count of filing a false tax return could equal up to three years in prison. Penalties for FBAR offenses could reach a maximum of five years for each violation. The penalties are also subject to change depending upon the willful or non-willful component of the violation.

Our dually licensed California Tax Attorneys and CPAs will provide you with knowledge as to why the IRS chose to prosecute Rahman for these offenses and why they might go after other taxpayers in a similar manner.

How the IRS Streamlined Voluntary Disclosure Program Must be Used to Avoid Criminal Tax and Foreign Information Reporting Prosecution

The goal of the IRS streamlined voluntary disclosure procedures is that a taxpayer who has negligently (not willfully) failed to report foreign financial accounts can inform the IRS of their mistake and pay taxes, reduced, or eliminated FBAR and other foreign information reporting penalties and interest resulting from that mistake. This program permits taxpayers to accomplish the following:

  • Opportunity to file amended (U.S. Resident) or delinquent tax returns (Expat).
  • Enjoy favorable program terms to calculate their additional taxes, foreign information reporting penalties & interest with a degree of certainty.
  • Understand how the IRS will require their additional tax, penalties, and interest to be paid.

Note that a key factor of using the streamlined disclosure system is that the taxpayer must not have committed the offshore FBAR and unreported foreign income violations willfully. To show that an FBAR offense was not willful, the taxpayer will need to present written evidence that the violation occurred because of negligence, mistake, or another good faith reason. For example, if the taxpayer hired a tax professional to help to file their taxes and the person or firm hired did not inquire about foreign income generating assets, businesses, trusts, estates, or foreign financial accounts, this may be valid evidence to show non-willful conduct. The danger here is that most reputable tax preparers have been routinely inquiring about offshore income generating assets and disclosable foreign financial accounts for several years now and the IRS would be well within their rights to inquire with the original preparer on this issue. The preparer has a vested interested in protecting their right to practice and cannot be counted on to admit their own short comings or to support your assertions of non-willfulness that they know for a fact to be false based on your responses to their systematic inquiries. Matter of fact your previous preparer is likely to be government witness number one to establish your willfulness if the government should choose to prosecute whether they want to or not. This is the largest reason you should only discuss your foreign noncompliance with an International Tax Attorney under his or her Attorney Client privilege.

Alternatively, if a taxpayer has filed incomplete FBARs for years and continually withheld information on some financial accounts along with failing to report substantial amounts of taxable foreign income, this may show that they were willful in their actions.

In the case of Rahman, there is the question of whether the IRS would have sought prosecution if Rahman had fully disclosed his overseas accounts via the streamlined voluntary disclosure but still asserted that his actions were non-willful. There are no certain answers to this question, so it is important to keep an eye on the Rahman case and future cases that deal with false non willfulness assertion within streamlined procedures.

Note: As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed foreign information returns coupled with affirmative evasion of U.S. income tax on offshore income) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosurebefore the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply. 

Note: The full blown offshore voluntary disclosure program is a very different program than a Streamlined Voluntary Disclosure!!!

  • 6 years of amended returns – not 3
  • 50% FBAR penalty – not 5%
  • Guarantee audit with highly likely criminal tax or foreign information prosecution if you get caught cheating in the process of getting clean.
  • Pre check procedure to determine if you qualify for the program.
  • Do not ever discuss potentially criminal offshore tax and information reporting behavior with anyone other than an international tax attorney because of the need for attorney client privilege and to prevent the potential creation of government witness number one out of your non attorney tax advisor.

It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney Client Privilege and Work Product Privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.

Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.

As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, KovelCPAs and EAs, our firm provides a one stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth. See our Testimonials to see what our clients have to say about us!

The dually licensed California Tax Attorneys and CPAs at our firm are extensively experienced in all the various government programs to ensure that our client’s willful or non-willful failures to file annual FBARs or other foreign information returns along with failing to report related taxable offshore income does not result in a criminal tax or foreign information reporting prosecution.

Learn Why the IRS is Criminally Prosecuting Taxpayers that Commit Willful FBAR Violations and Use Streamlined Voluntary Disclosure

If you are concerned about the possibility of criminal tax liability for a streamlined voluntary disclosure, call our dually licensed California Tax Attorney and CPA immediately. The Tax Law Offices of David W. Klasing is highly experienced with handling FBAR regulation matters for our clients. We recognize the dangers of an incorrect FBAR filing and want to make certain that you comply with old and new regulations. Call our firm at (800) 681-1295 or use our website to schedule a consultation.

Questions and Answers About Foreign Tax Audits

Questions and Answers about FBAR Compliance and Disclosure

Questions and Answers about Offshore Voluntary Disclosure Initiative (OVDI)

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