What is willful blindness in IRS FBAR cases and how is the IRS attempting to use this to make non-willful FBAR violators appear to be willful? Why would this matter? The legal standard of “willful or non-willful” is an important distinction, especially as it relates to FBAR violations and penalties. The failure to completely, accurately and transparently disclose all offshore bank accounts, investment accounts, assets and real property exposes a US taxpayer to potentially draconian penalties. The penalty is between 27.5% and 50% for a “willful” violation which has been disclosed under the Offshore Voluntary Disclosure Program or OVDP and 5% for those who successfully convince the IRS their actions were “non-willful” while using the Streamlined Domestic Offshore Procedures to come into FBAR compliance.
However, the IRS has a new strategy: “willful blindness.” The IRS uses the legal argument of willful blindness to combat US taxpayer claims of non-willful conduct in FBAR reporting omissions or failure to file. In essence, the IRS argues “It was your responsibility to understand your responsibilities as a taxpayer, and you MUST have made a conscious effort not to learn about your responsibilities and the associated reporting requirements under FBAR record keeping and reporting requirements. Generally speaking, the more educated, well traveled, and financially savvy a taxpayer is the greater the likelihood that the IRS will simply assert “You should have known better. Your conduct represents a willful blindness in IRS FBAR cases regarding your FBAR reporting and the associated payment of taxes owed.
Recent court cases have demonstrated the veracity with which independent IRS auditors assume and pursue willful misconduct during an FBAR audit. The reason is simple: the IRS knows the cost of fighting the legal battle and defeating the determinations made during your audit are enough to deter most taxpayers.
Allen Barron’s experienced tax attorneys have specific strategies to battle this abuse of power and to hold the IRS accountable to the letter of the law. It begins with the supporting documentation one must provide to support your reasons for being unaware of FBAR reporting requirements or the failure to list an asset or account here or there. The financial implications quickly mount into the hundreds of thousands for many taxpayers. If you are concerned about FBAR compliance or have been contacted by the IRS for an audit or FBAR review we invite you to contact us for a free consultation at 866-631-3470. Protect yourself against willful blindness in IRS FBAR cases and the aggressive tactics of the IRS.