There continues to be confusion regarding what constitutes a willful or non-willful attempt to avoid US taxes as it relates to offshore bank accounts, investments, assets and income. The IRS has purposefully failed to clarify this issue over the past 7 years. This is the first piece of evidence a taxpayer should consider. The second piece of evidence is the example of Bernhard Gubser, who failed to list one Swiss Account on his FBAR report for a single tax year. Mr. Gubser filed under the Streamlined Domestic Offshore Procedures, claiming that the missing bank account was simply one oversight in one year, qualifying as non-willful behavior. Mr. Gubser paid the IRS $10,000 under his streamlined application and considered the matter closed.
Three years later, the IRS rejected his streamlined application and pursued a full audit claiming willful intent by Mr. Gubser resulting in a finding of $1.35 million. Mr. Gubser sued, claiming the IRS had not provided US taxpayers with clear instructions, and that his actions were non-willful. He lost. Mr. Gubser also sued the IRS claiming it had no legal right to impose the FBAR regulations and reporting requirements established under FATCA. That case was tossed out by the judge.
To this day, the IRS has yet to provide a single example of what it would consider to be “non-willful” conduct. However, within the past several months, the IRS changed the Streamlined application form, adding a substantial biographical and historic profile component requiring the taxpayer to provide the IRS with extensive details on personal background such as education, travel, financial experience, sources of funds, reasoning behind every account and every investment and how proceeds were used. All under penalty of perjury.
The question of the willful or non-willful attempt to avoid US taxes is the heart of the IRS FBAR controversy. The decision to file under the OVDP or Offshore Voluntary Disclosure Program and higher penalties versus the Streamlined Domestic (Foreign) Offshore Procedures and a 5% penalty is solely based upon the “willful” versus “non-willful” issue. The IRS has purposefully left the issues vague, and holds all the cards as a result.
If you have yet to come into FBAR compliance with the IRS or have questions about what constitutes a willful or non-willful attempt to avoid US taxes we invite you to call 866-631-3470 for a free consultation.
