Charles Rettig, you are always brilliant!! Great article written in Forbes.com as a follow up to your other article on the Streamlined Procedure written earlier in June. Read his stuff!! Rettig discusses the critical issues that relate to the streamlined procedure in a way that a good criminal tax lawyer thinks. Further, his article demonstrates the uncertainty that exists, as we advise and discuss this new option with our clients. Only time will really tell criminal tax lawyers how the government implements this procedure and whether it will be successful for those clients willing to jump in and take the risk to enter their voluntary disclosure through this process.
The Streamlined Procedure was introduced on June 18, 2014, when the IRS issued revisions to its Offshore Programs to ease the burden and help more taxpayers to come into compliance. For purposes of the streamlined procedure, non-willful conduct is defined as conduct is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law according to IR-2014-73.
The streamlined procedures “certification” process requires that a taxpayer “provide specific reasons for your failure to report all income, pay all tax, and submit required information returns, including FBARs. If you relied on a professional advisor, provide the name, address and telephone number of the advisor and a summary of the advice. If married taxpayers submitting a joint certification have different reasons, provide the individual reasons for each spouse separately in the statement of facts.”
Mr. Rettig makes several very valid points in his article that were thoughtful and intelligent. First, the certification process and the subsequent analysis and determinations are going to be difficult and subjective for the government to make. He aptly points out that the majority of taxpayers having previously undisclosed foreign financial accounts or assets are likely to believe that their inadvertence in meeting compliance obligations was “non-willful”. Thus, how does the lawyer or the taxpayer assure himself that the government will agree with this non-willful certification? Good question!
Secondly, to further cloud the analysis on the government’s side, that it can use information it obtains in the procedure that could lead to or raise the issue of “willful blindness” or the legal concept of attributing willfulness to a person that has made a conscious effort to avoid learning about their legal duty. This concept of willful blindness with regard to FBARs is often discussed in relation to person that did not check the box on Schedule B, Line 7a, regarding “whether at any time during the year did the taxpayer have a financial interest or signatory authority over a financial account located in a foreign country” or if a taxpayer did not fill out a tax organizer that the accountant provided correctly. The natural question, is whether this person should have questioned their obligations and investigated further beyond this schedule? If the question arose in a tax organizer, should they have questioned the accountant further to find out about what type of should be listed.
Under this concept of willful blindness, the question that the government seeks to find out is really whether the person made a conscious effort to avoid learning about the FBAR filing and reporting requirements? Mr. Rettig points out, that it is unclear how this will be analyzed or applied on a universal basis. I agree with him, and am left in also left with him in his cloud of confusion along with the other issues and questions that he raises.
Finally, Rettig leaves us with is an important message — “the overall integrity of the government announcements and programs is far more important than searching throughout the forest to find that overly aggressive taxpayer(s) who dared falsely certify their knowledge (or lack thereof) of their foreign reporting obligations, under penalties of perjury…” He is right. If you lie and you get caught, the wrath of the government could lead you to criminal investigation, prosecution and civil penalty, so why bother trying to mislead if you are doing the program….so go into OVDP if that is your situation. Who needs to live with this grief and aggravation if you are willful and they can prove it?
My thought is to go streamlined if you think you did nothing wrong, i.e., you got some bad advice from the CPA, you checked the box YES that you had the foreign account but did not know to fill out the FBAR form, filled out the forms wrong, but attempted to disclose correctly, etc. and the government cannot prove that you did anything wrong.
The bottom line is this is serious stuff. Every scenario is factually dependent and one must consult with experienced legal counsel if you are in this situation. When looking for an attorney that practices in the criminal tax / OVDP / Offshore area make sure that you talk with one that can explain to you all of your options and understands your fact pattern.