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What Constitutes Willful Conduct From the Perspective of the IRS

What Constitutes Willful Conduct From the Perspective of the IRS

What is it that constitutes willful conduct from the perspective of the IRS as it relates to offshore financial activities and the FBAR?  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 financial activities and disclosures to the IRS.  The legal distinction between “willful” and “non-willful” behavior from the perspective of FBAR and the IRS remains as one of the murkiest areas of US tax law at this point in time.

The definition of what constitutes willful conduct from the perspective of the IRS 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 of what constitutes willful conduct from the perspective of the IRS 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 normal disclosures?

These are complex matters, and we invite you to contact the experienced tax attorneys at Allen Barron or call today to schedule 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.