Willful vs. Non-Willful FBAR Penalty & the IRS
Willful vs. Non-Willful: Analyzing willful vs. non-willful is a complex undertaking. The IRS has not issued a bright-line test to determine if a person qualifies as non-willful with respect to offshore disclosure. The analysis of determining whether a person qualifies as willful or non-willful, is a very detailed evaluation. When determining whether a taxpayer is willful vs. non-willful, and should submit to either the streamlined procedures or OVDP (New 2020 version), it is important that the taxpayer speaks with highly-experienced counsel. This is especially true, since the Internal Revenue Service is taking an aggressive position on matters involving foreign accounts compliance and unreported offshore income.
The failure to get into compliance timely, may result in significant offshore fines and penalties.
What is Willful vs. Non-willful?
When a Taxpayer learns that they are out of compliance for not properly reporting offshore accounts, assets, investments, and income – they get understandably nervous. The Internet is peppered with inexperienced tax attorneys who use fear mongering and scaremongering to try to goad taxpayers into hurried representation.
Oftentimes, these attorneys will simply mislead the taxpayer and submit them into the streamline program even when they are willful, and a streamlined submission is not warranted. This makes an otherwise complicated situation infinitely more complex.
*Here is a case study example of the perils of going this route with less experienced counsel.
Common Misconceptions about Willfulness & Non-Willfulness
There are many misconceptions about willful vs. non-willful.
Since there is no bright line test to determine willful versus non-willful, one method for helping taxpayers understand the analysis is to debunk some of the misconceptions out there involving offshore disclosure and foreign bank account/asset amnesty.
A. “No” On 1040 Schedule B is Automatic Willfulness
Just because a person checked “No” for Schedule B does not presume willfulness. There can be many reasons why a person checked “No.” In fact, some tax programs include “No,” as the automatic default. Therefore, marking “no” on 1040 Schedule B is not automatic willfulness.
B. Non-Transfer of Overseas Money to the U.S. is automatic Non-Willfulness
Many times a client will come to us and presume they are non-willful — solely because the money was never transferred to the U.S.
This fact does not presume non-willfulness. For example, if a taxpayer intentionally hides money outside of the U.S., the mere fact that they have not accessed the (if they knew about the reporting requirements) does not presume they were non-willful.
C. Willfulness Requires Intent
Willfulness does not require intent. There are lower-levels of willfulness such as reckless disregard (which does not require intent) or willful blindness (which does not require actual knowledge). If a person is found to meet one of the lower levels of willfulness, they are still subject to the full FBAR willfulness penalty.
D. Minimal Unreported Income is Always Non-Willful
The amount of unreported income has no (direct) bearing on whether a person acted willful or non-willful. In other words, a person could have minimal unreported income, but had the actual knowledge that they were supposed to report the foreign accounts and income – this would presumably be considered willful.
E. OVDP was Terminated, with no “Willful” alternative
OVDP was terminated, but the traditional voluntary disclosure program was expanded to include new updated procedures for submitting to voluntary disclosure (VDP) in lieu of OVDP.
The above-referenced facts are just some of the common misconceptions involving willful vs. non-willful.
We Specialize in Streamlined & Offshore Voluntary Disclosure
Our firm specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20-years experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Our lead attorney is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Offshore Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
Interested in Learning More about our Firm?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
We specialize in FBAR and FATCA. Contact our firm today for assistance with getting compliant.