“I didn’t know” won’t get you very far with the IRS during an audit, especially when you have undisclosed foreign financial accounts….
Jeffrey S. Freeman, J.D., LL.M
Whenever you play Monopoly you eagerly await the Get out of Jail free card so your stay can be brief and painless. The IRS doesn’t play by the Boardwalk or Park Place rules. Ignorance to the tax laws is not an excuse that the IRS will acknowledge. Actions speak louder than words and often the IRS will use you actions to show if your mistake was willful or not, thus determining how serious your consequence will be.
Willful or Not?
If you didn’t know you had a legal duty to report income or a foreign bank account, how can you be prosecuted? It’s not that simple.
You can be proven to be willfully evading your tax responsibility by your conscious choice to not comply with the tax code. Even if you did not mean to harm or cheat anyone, failing to learn of the filing requirements for reporting offshore income and bank accounts combined with having such an account could be enough for the IRS to find you willful.
According to the IRS if you have a foreign account you should be informed and read the government tax forms and instructions. If you chose not follow-up or get professional advice, this could be enough to claim you were willfully blind.
Same rule applied if you didn’t know about FBARs. It is illegal to not file your FBARs, but even if you claim you didn’t know your conduct is an important piece of the willful puzzle. Suspicious conduct like filing some forms and not others, using another passport, or omitting details from your tax preparer are signs that you were willfully evading your tax obligations.
Come into Compliance
For those that truly are non-willful the IRS recently announced a change to the offshore disclosure programs to allow for more individuals with offshore assets to come into compliance. Streamlined compliance procedure is now available to both U.S. and non-U.S. residents that can certify their tax noncompliance was non-willful. The new streamlined procedure offers a lesser penalty (5% on foreign assets that caused the non-compliance issue) than the 27.5-50% in the OVDP, but does not offer the same audit and criminal liability protections since all omissions were non-willful .
Thoroughly discuss your conduct with a trained legal professional before taking part in the Streamlined compliance program. Claiming that you were non-willful when you were in fact willful is a crime. Never represent yourself before the IRS alone.
About Freeman Tax Law
Freeman Tax Law is equipped to handle all domestic and international tax law matters. At Freeman Tax Law, the attorneys and professional staff have vast experience with foreign tax compliance, international tax planning, and resolving tax controversies involving offshore banking matters. Freeman Tax Law helps taxpayers and foreign entities become in compliance with laws such as Foreign Account Tax Compliance Act (FATCA), Offshore Voluntary Disclosure Program (OVDP) and Streamlined Procedures. In addition to handling complex tax controversies, the Freeman Tax Law team has extensive expertise in assisting clients with wealth management and estate planning.
Freeman Tax Law