What is it that constitutes “willful” or “non-willful” behavior from the perspective of FBAR and the IRS? This question is at the heart of compliance for US taxpayers with offshore accounts and assets. The difference in that legal distinction represents an exponential difference in the penalties and interest a US taxpayer will have to pay related to their offshore activities. The legal distinction between “willful” and “non-willful” behavior from the perspective of FBAR and the IRS is also one of the murkiest areas of US tax law at this point in time.
Willfulness is generally characterized as a purposeful, or intentional violation of a known legal obligation or “duty.” The IRS has defined a “Willful Intent to Defraud” in several internal guidelines and publications as “an intentional wrongdoing with the specific purpose of evading a tax believed by the taxpayer to be owing.” One argument a taxpayer may consider is “I wasn’t aware of the requirement to (fill in the blank here – file an FBAR, list all foreign banks, etc).” The IRS will not accept ignorance of the law as an example of “non-willful” conduct. If a US taxpayer was sophisticated enough to open a foreign bank account or accounts, and invest money offshore then they should reasonably be expected to read publications regarding their obligations regarding taxes to the US government.
The matter has received a lot of coverage in the media, and foreign banks and institutions have sent multiple notifications at this point. The real question at the heart of the “willful” versus “non-willful” discussion is this:
“What is your appetite for risk?” Are you willing to risk criminal tax evasion charges and jail time, as well as penalties that would dwarf the amount you would pay under the OVDP?
These are complex matters, and we invite you to contact the experienced tax attorneys at Allen Barron for a free consultation at 866-631-3470. We will conduct a thorough review of your unique history and help you to evaluate the risks and benefits of each option that is available to you.