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"Non-willfulness" under Streamlined Domestic or Foreign Offshore

Since the inception of OVDP, there has been a lot of talk within the tax community about the definition of "non-willful" FBAR violations. Verifying and supporting a Taxpayer's "non-willfulness" became even more important with the IRS published new guidance on the Streamlined Program. Under the new Streamlined Domestic Offshore Procedures ("SDOP"), those who qualify can elect to be considered under the new rules by certifying non-willfulness. Accepted applicants would be eligible for a 5% offshore penalty. For those residing outside the United States, the Streamlined Foreign Offshore Procedures ("SFOP") is available. If successful, those Taxpayers living abroad pay $0 penalty for their failure to file the FBAR.

Taxpayers considering this program sometimes fret about the requirement for a written statement signed under penalties of perjury. This statement must certify non-willfulness with respect to all foreign activities and assets. It must demonstrate why he or she did not report foreign income, pay tax or file FBARs. However, it appears that the IRS is keeping the definition of "non-willfulness" purposefully vague.[1] Individual Revenue Agents and their managers are given the opportunity to decide whether a Taxpayer was "non-willful", while Taxpayers and their representatives are left with little published guidance on the issue. Taxpayers are left in the dark as to how forcefully to support their position, whether they will be subject to interviews with the IRS, or even how long the process takes.

For those who are worried about entering the Streamlined Program either as a new applicant or by electing transitional treatment from the Offshore Voluntary Disclosure Program ("OVDP") should seek advice from a tax professional with experience with this program. A tax professional who has successfully counseled clients through the Streamlined Program and through opt-out will be able to present the best and most effective case.

[1] See Allison Bennett, "IRS Won't Define 'Non-Willful' Behavior Under Streamlined OVDP, BNA, Inc., www.bna.com

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