The recent case this month in the US District Court sends a clear message to US taxpayers: Make a full, transparent voluntary FBAR disclosure to the IRS or face the consequences. The case has shed some light into a backlog of lawsuits against the IRS regarding FBAR reporting requirements and the Offshore Voluntary Disclosure Program or OVDP.
The central issue in offshore account, asset and income disclosure and FBAR compliance is the question of “willful” or “non-willful” conduct on the part of the US taxpayer. If the taxpayer acted willfully to avoid paying US taxes, the only viable option is the OVDP. The penalties associated with the OVDP are quite steep (27.5% to 50%) when compared to the Streamlined Domestic Offshore Procedures (5%).
The problem for many taxpayers is being revealed in recent court cases: many US taxpayers attempted to claim the streamlined option based upon “non-willful” conduct. This seemed to be easy to claim and provided a much less expensive penalty. However, the IRS is holding taxpayers accountable. In the present case, the Court sharply criticized the taxpayer for many misrepresentations on their tax returns and for making “unbelievable assertions” at trial.
The Court backed the IRS who asserted the couple’s position that they were “unaware of their responsibility to file,” and they had “attempted to file the OVDP but it was too complex” were simply not credible. In effect, the Court supported the IRS’ statement that “You are able to run a successful camera shop, and open up and maintain 3 offshore accounts, but you are unable to understand your responsibilities as a taxpayer?” The IRS’ conclusion: willful conduct on the part of the taxpayers. The Court clearly upheld this position as well, and lowered the “standard of proof” required for the IRS to reach its own determinations.
The law requires you to make a full, transparent voluntary FBAR disclosure to the IRS or face the consequences. Recent Court cases have all gone in favor of the IRS. If you have not yet come into compliance with the IRS and FBAR disclosures we invite you to contact Allen Barron for a free consultation at 866-631-3470. We can help you to understand the requirements of the IRS, the options available to you as a US taxpayer and the best course forward.