The recent changes to the limited-amnesty program discussed on this blog contained good and bad news. Our previous post explained how penalties are going to increase for some taxpayers in the Offshore Voluntary Disclosure Program.
A new "streamlined procedure" provides the good news especially for American ex-pats who will no longer have to pay a penalty. For anyone living in the U.S., the penalty is limited to five percent of the account balance. To participate, a taxpayer files three years of back tax returns along with six years of disclosure forms (Foreign Bank Account Reports or FBARs) for any offshore account that contained more than $10,000.
Another requirement is to sign a form acknowledging that the failure to file was a mistake and not willful conduct. What is willful conduct?
This distinction between non-willful and willful is an important one.
Willful appears throughout the tax code in regards to various criminal tax conduct. The IRS explains that willfulness depends on the unique circumstances of each case. That doesn’t help much when serious penalties and possible criminal prosecution are on the line.
A family member asking you to keep an account secret is probably not a valid excuse. But some evidence of non-willful conduct could be a smaller account balance with few withdrawals. Checking the wrong box or not checking one at all on a form probably is not willful.
Rather clear examples of willful conduct include asking for cash withdrawals, meeting a banker in an airport, moving money between foreign banks or setting up a corporation or trust. As more people take advantage of the offshore account streamlined procedure, the IRS will likely be looking closely for large accounts.
An experienced tax attorney can provide specific guidance. In some cases, it may even make sense to file correct returns going forward without entering the program.
Source: The Wall Street Journal, "The Hazards of Offshore-Account Disclosure," Laura Saunders, June 27, 2014