Taxpayers confess their intent, but what about the IRS?

Streamlined procedures require taxpayers to certify their non-willful avoidance of paying taxes, but the IRS intent is yet to be proven.

Jeffrey S. Freeman, J.D., LL.M

The IRS offshore disclosure programs were created to bring those with unpaid taxes from their offshore accounts to rectify their errors. Intentional or not, the offshore voluntary disclosure programs (OVDP) still hit individuals with penalties ranging from 27.5-50%, but they are protected from further audit and criminal liability. The OVDP protects taxpayers from possible criminal charges stemming from tax evasion or concealing tax payment, filing false returns, and failing to file income tax returns.

A recent addition to the offshore disclosure programs, streamlined procedures, allows individuals that can certify that their tax compliance was non-willful to pay a lesser penalty. As with any new program, many questions have been raised as individual taxpayers work with their legal counsel to determine if the streamlined procedures is truly an option for them.


To take advantage of the streamlined procedures you must certify that your conduct was “non-willful.” For IRS purposes “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. More than stating “I was non-willful,” taxpayers must cite specific reasons for failing to report all income and submitting all required information and forms. Married taxpayers must provide individual reasons and any tax professional consulted in the original filing must also be included.

Proving what you didn’t know in the past, but now have come to understand is difficult. Now is not the time to omit additional information from the IRS either. If you are claiming to be non-willful and additional information comes to light blatantly disproving your claim there will be harsh penalties.

Willfully Blind

The Internal Revenue Manual sets the definition to test “willfulness” in the FBAR context as a determination of whether there was “a voluntary, intentional violation of a known legal duty.” The IRS holds that if you have a foreign offshore account you have a responsibility be informed and read the government tax forms and instructions. If you chose not follow-up or get professional advice, this could be enough to claim you were willfully blind. The IRS notices suspicious conduct like filing some forms and not others, using another passport, or omitting details from your tax preparer are signs that you were willfully evading your tax obligations.

What is the IRS intent?

How lenient will the IRS be in determining if those that apply to through the streamlined procedures are willful or non-willful as they claim to be? With challenges in proving that taxpayers true non-willful conduct many may be concerned if they have suffucient evidence to convince the IRS of their intent.

Many are hoping that the streamlined procedures were designed to simply provide taxpayers that were not quite willful and easier alternative to come into compliance and encourage future compliance. Time will tell, if their motives are to entice taxpayers to step up to the guillotine. One thing is certain, thoroughly discuss your conduct with a trained legal professional before taking part in the Streamlined compliance program.

About Freeman Tax Law

Freeman Tax Law (FTL) is a boutique law firm consisting of a multi-disciplinary team of tax professionals including tax attorneys, CPAs and a professional staff that have vast experience with foreign tax compliance and regulatory matters for financial institutions. FTL consults with both FFIs and USFIs with regard to Foreign Account Tax Compliance Act (FATCA) and related regulatory matters and assists them developing procedures on how to comply with these laws. FTL provides a multidisciplinary approach for filing offshore voluntary disclosures. Working to help clients prevent future tax headaches we offer a complete wealth management and estate planning team. As an experienced firm with wide reach, Freeman Tax Law provides immediate assistance to our clients planning for and resolving all tax related challenges.

Freeman Tax Law

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