When a taxpayer who has failed to report the existence of a foreign bank account for one or more tax years has decided to come forward, every step of the process can be nerve-racking. Determining the method by which you will disclose your previous omissions to the government, filling out the sometimes-onerous documentation, and making several certifications prior to admission into the program leave many taxpayers bewildered, confused or frustrated.

The streamlined offshore disclosure program is advantageous for taxpayers as there is a single penalty of 5 percent (of the foreign account balance) that is due if admission into the program is granted. A taxpayer would likely prefer this program over the standard Offshore Voluntary Disclosure Program because although the OVDP protects against criminal prosecution, it requires a taxpayer to pay more penalties and fees associated with the non-disclosure.

One of the most important questions that are “certified” to the taxpayer in a streamlined offshore account disclosure is whether the prior non-disclosure was non-willful. It carries so much weight because participation in the streamlined program itself requires that the taxpayer not have willfully failed to disclose, and pay taxes on, their foreign bank accounts.

To date, the IRS has refused to elaborate on a one-sentence definition of the meaning of the term non-willful. If a taxpayer applies to participate in the streamlined program and certifies that their conduct is non-willful, but the IRS later determines that their conduct was indeed willful, the applicant will not only be excluded from the streamlined program but will have also tipped off the IRS of their activity.

The one-liner, referenced above, attempts to describe non-willfulness as being “For purposes of the streamlined procedures, non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.” As you can tell, although the definition provided by the IRS is more detailed than the word it describes, it lacks helpful elements like key factors or examples.

Another important requirement for both the streamlined procedures and the OVDP is that an applicant cannot be currently under examination or investigation for any tax issue. With foreign banks turning over U.S. accountholder information every day, U.S. taxpayers are facing an expedited decision: come forward or face criminal prosecution.

The IRS Responds to Requests for a Detailed Definition

When asked at an American Bar Association event whether the IRS had any plans to issue any guidance regarding the definition of the word “non-willful”, John McDougal, a special trial attorney for the Office of the Chief Counsel said that “[t]here’s not going to be anything further on that”. Those are certainly words that tax practitioners and taxpayers alike did not want to hear.

In defending his statement, McDougal said that it would be difficult for the Service to create such a list because of the extensive case law that has already come down on the issue. He said that in the end, it is tax practitioners that must decide what position a taxpayer should take with regard to their particular facts. This position is likely to be questioned by tax attorneys and other professionals with knowledge of recent case law on the issue of willfulness. There have been several incidents from courts around the country that involve inconsistent rulings based on nearly identical facts. This uncertainty does not sit well with tax professionals or their clients.

The Solution: Find an Experienced Tax Attorney

What is a taxpayer to do if they are concerned about whether their conduct is willful or not? Because the IRS has made it clear that they will not issue any further guidance on the issue, tax attorneys that have extensive experience in the practice of the streamlined disclosure program, as well as the Offshore Voluntary Disclosure Program, offer taxpayers the best chance of correctly identifying their “willful status”. Practitioners that have helped clients through the programs have an enhanced knowledge through experience of how the Service is likely to determine willfulness.

At the Tax Law Offices of David W. Klasing, we have a wealth of experience in assisting taxpayers get back on the right track with the IRS. We know the common traps of the process and make sure that our clients do not get stuck in them. Our team of highly-qualified tax attorneys and professionals are the best that you can have in your corner whenever you are dealing with the IRS or Department of Justice. Contact us today at (800) 681-1295 or online for a reduced-rate consultation.