There is a concerning trend we’re seeing with FBAR taxpayers who are placing too much hope on the streamlined domestic offshore procedures option within OVDP. The core issue is what the IRS will declare to be “willful” versus “non-willful” conduct as it relates to prior reporting of offshore income, accounts and assets. Too many well intentioned accounting and tax preparers (and in some cases even attorneys) are encouraging clients to file under the streamlined program, in the hope that the IRS will let their past behaviors fall into the “non-willful” bucket of behavior as it relates to the reporting of foreign banking and investment accounts, real estate and other offshore assets.
Hope is not a strategy, especially when one is dealing with the IRS.
If you prepared your own returns and missed a balance here or there you might be a genuine candidate for non-willful status as it relates to correcting past FBARs. The savings in penalties and interest offered in the streamlined program is quite attractive, and that is the source of “hope.”
But the IRS has access to most offshore account and asset information, and they can tie it back to your taxpayer ID. If your taxes were prepared by a third party, and FBAR reporting was not accurate, the first question the IRS will have will be directed to the preparer:
“Did you discuss the issue of foreign accounts, assets and interests in foreign companies with the taxpayer?” The preparer will of course have to protect themselves and answer with “Yes, we asked the questions and asked for information from our client.” This information will then be immediately subpeonaed by the IRS and the next question will be “why is the amount reported different than the information provided to us by the offshore financial institution or sovereign tax agency?”
There will only be two potential scenarios:
- The taxpayer provided inaccurate information to the provider, or
- The provider erred in preparing the return
Neither will be considered “non-willful” conduct by the IRS, and the return will be pulled out of consideration for streamlined, and subject to a full audit. The penalties and interest will not be covered by either the OVDP nor the streamlined option, and criminal tax evasion charges will be on the table.
The IRS weilds immense power, and this is a substantial opportunity to gain large revenue from back taxes, penalties and interest. The risk these taxpayers are assuming is daunting, and requires serious consideration. The resulting question that most taxpayers are avoiding, “hoping” they will slide past the review of the IRS, is this:
“Are you prepared to face the genuine possibility that the IRS will make their own determination that your actions were actually willful, and you are therefore not only open to a huge tax bill, but facing criminal tax evasion charges?”
Several US taxpayers are consulting multiple advisors, listening to the siren’s song of “oh, just file under the streamlined program and you should be fine.” Understand the real and genuine risks. There is simply too much at stake to “hope” that the IRS will turn the other way and accept all of the streamlined filings. The consequences require serious reflection and discernment.
We invite you to contact us at 866-631-3470 for a free consultation regarding your offshore accounts, assets and interest in foreign companies or corporations. We can offer protections under the “attorney-client” privillege that will protect you when the IRS wants to start digging into every note, communication, email and document associated with your offshore activities.
Yes, there are times when the streamlined option is the best choice for a taxpayer based on all of the facts, their financial strength, and their appetite for risk. But the simple fact is that many who are filing under the streamlined program will face heavy penalties and risk their very freedom, by placing their hope in the illusion and perceived promise of the easy way out.