IRS Audit After Entering Streamlined Offshore Disclosure?
- 1 IRS Audit After Entering Streamlined Offshore Disclosure
- 2 2019 IRS Streamlined Audit & Going Forward
- 3 IRS Streamlined Filing & Lawyer Fees (Flat-Fee, Full-Service)
- 4 A Few Reasons Why Your Streamlined May be Audited
- 5 Willful Blindness – What Does that Mean
- 6 Reckless Disregard & Streamlined Audits
- 7 IRS Audit for Streamlined Cases
- 8 What is the 6-Year Statute?
- 9 6 Year Statute is More Complex
- 10 Even Worse…No Statute of Limitations
- 11 Golding & Golding, A PLC
IRS Audit After Entering Streamlined Offshore Disclosure?
Even if you submit to, and are accepted into the IRS Streamlined Offshore Disclosure Program, you can still be audited. And, the IRS has recently indicated that just because you entered the Streamlined Program, that will not necessarily shield you from audit.
Still, entering the program puts taxpayers in a much better position, than doing nothing at all — and risking willful penalties for reckless disregard or willful blindness (lower thresholds of willfulness, resulting from non-compliance).
IRS Audit After Entering Streamlined Offshore Disclosure
Just because your disclosure was rejected does not mean you are willful, or that you cannot remedy the submission – you can.
While it obviously doesn’t provide you with a warm and fuzzy feeling knowing you were rejected by the IRS (who likes rejection?) – and if you let your thoughts stray too far (e.g., reading fear mongering websites), you may believe that you have no chance to fix your disclosure – but that is incorrect.
By entering the Streamlined Program (aka Streamlined Domestic Offshore Procedures or Streamlined Foreign Offshore Procedures) you are voluntarily reporting foreign assets, accounts and income to the IRS.
Since you are submitting through an approved “Streamlined” Program, you are reducing the chance of a surprise audit or increased penalties.
It is important to keep in mind that even though you have made a “safe” and “legal” disclosure, your Streamlined submission can still be audited.
2019 IRS Streamlined Audit & Going Forward
If your Streamlined Procedures submission is “rejected” that is different than if the submission is audited:
IRS Streamlined Audit
A Streamlined Audit means your Streamlined Disclosure submission was audited. On its face, this does not mean the submission is bad or wrong — people get audited all the time.
But you need to speak with experienced counsel to get the “lay of the land.”
IRS Streamlined Filing & Lawyer Fees (Flat-Fee, Full-Service)
All Streamlined and Reasonable Cause cases should be Flat-Fee, Full-Service for both Tax and Legal.
This is simple: While not everyone gets audited. It is impossible to know if you will be audited, but if you are, it can be a very costly.
Since the Statute of Limitations can be 6-years (or longer), who wants to be surprised 2-years later when your Attorney wants to charge you hourly for audit representation.
A Few Reasons Why Your Streamlined May be Audited
There are many reasons why your Streamlined Disclosure may be audited. Sometimes it is bad luck, and sometimes it is more than that.
Was Your CPA’s Practice Audited?
CPA firms get audited. Sometimes, the OPR (Office of Professional Responsibility) audits CPA and other Accountant firms to asses overall compliance. I
Will the Kovel Letter Protect You?
A Kovel Letter will not protect you if you discussed legal issues with your CPA, and Kovel Letter can be rejected.
If the CPA was an employee of your CPA that is not the same as your Attorney referring you out to a CPA with a Kovel Letter, and not attending each and every meeting with you.
Are You More “Willful” than “Non-Willful”
Willfulness does not mean intent.
There can be “lower” forms of willfulness, which do not require willful or intent — these additional willful standard are referred to as:
If you have any concern of willful vs. non-willful, It is crucial that you consult with an experienced Streamlined and Offshore Disclosure Lawyer before making any submission.
Willful Blindness – What Does that Mean
Willful Blindness is a form of “deliberate ignorance.” It is the concept that a person could readily obtain information, which if they did, would inform them that their actions could be criminal. Instead of seeking out the information, they “intentionally” avoid learning the information (aka burying their head in the sand).
It means you are “willfully” staying ignorant to a fact that would inform you that your actions are illegal.
Is it a Crime to be Willfully Blind?
Yes. It is a substitute for willfulness. In other words, while you may have not intended to cause a crime, the fact that had you made yourself uninformed to the fact that your actions were illegal — takes you over the willfulness threshold.
What is Deliberate Ignorance?
Deliberate ignorance is essentially a synonym for willful blindness.
Law School 101 Definition for Willful Blindness
Outside of the world of FBAR Penalties, the willful blindness standard is nothing new.
Here’s a typical example you learn in your first-year criminal law and procedures class:
David and his friends are hanging out in a seedy part of Tijuana. A Gentlemen approaches them and tells David and his two buddies that he will pay them each $1 million if they drive a car across the border.
None of the individuals ask the man why he is paying them that much to drive a vehicle for a few hours. Clearly, they should have some questions, but the money is just too good.
Therefore, David and his friends avoid asking any questions, believing if they do not ask, then they cannot know what is in the car – and that will absolve them from liability.
When they get pulled over and the police discover 50 pounds of cocaine in the car, the fact that they “didn’t know about the drugs” would not matter — since they were “willfully blind.”
Reckless Disregard & Streamlined Audits
Reckless disregard is a lower standard of willful. It does not require intent, but rather behavior which shows the U.S. person could have known and/or could have filed the FBAR.
How do the Courts Define Reckless Disregard?
Reckless Disregard In offshore disclosure, essentially means: “I Could have known better.”
The court in Bohanecs summarizes reckless disregard as:
“Although Defendants assert that “willfulness” encompasses only intentional violations of known legal duties, and not reckless disregard of statutory duties, no court has adopted that principle in a civil tax matter.
Where willfulness is an element of civil liability, the Supreme Court generally understands the term as covering “not only knowing violations of a standard, but reckless ones as well.” Safeco, 551 U.S. at 57.
– Recklessness” is an objective standard that looks to whether conduct entails “an unjustifiably high risk of harm that is either known or so obvious that it should be known.” Safeco, 551 U.S. at 68 (internal quotation marks and citation omitted).
– Several other courts, citing Safeco, have held that “willfulness” under 31 U.S.C. § 5321 includes reckless disregard of a statutory duty. See United States v Williams, 489 Fed.Appx. 655, 658 (4th Cir. 2012); United States v. Bussell, No. CV15-02034 SJO(VBKx), 2015 WL 9957826 at *5 (C.D. Cal. Dec. 8, 2015); see also United States v. McBride, 908 F.Supp. 2d 1186, 1204, 1209 (D. Utah 2012).”
IRS Audit for Streamlined Cases
While the typical statue of limitations is 3-years from the date of filing (unless the filing is made prior to the April deadline in which the Statute commences from the April filing date, the IRS can extend the time to audit to 6-years.
*Therefore, even with the earliest submissions (2014), in most cases, the IRS would have until 2020 to audit.
What is the 6-Year Statute?
Substantial omission of items
Except as otherwise provided in subsection (c)—
(1) Income taxes: In the case of any tax imposed by subtitle A—
(A)General rule: If the taxpayer omits from gross income an amount properly includible therein and—
- such amount is in excess of 25 percent of the amount of gross income stated in the return, or
- (ii)such amount—
(I) is attributable to one or more assets with respect to which information is required to be reported under section 6038D (or would be so required if such section were applied without regard to the dollar threshold specified in subsection (a) thereof and without regard to any exceptions provided pursuant to subsection (h)(1) thereof), and
(II) is in excess of $5,000,
the tax may be assessed, or a proceeding in court for collection of such tax may be begun without assessment, at any time within 6 years after the return was filed.
6 Year Statute is More Complex
There are two main scenarios in which the IRS can go after you for 6 years:
-You underreported your income by more than 25% (It may be from underreporting income or over-reporting deductions which artificially reduced your income by more than 25%).
-You have foreign income or assets that generate income, and the income generated is in excess of $5,000. As you can see, the IRS is really gunning after individuals with unreported Foreign Income, so if you have unreported foreign income of more than $5,000, you must presume you may be audited for up to 6 years.
Even Worse…No Statute of Limitations
There are 3 main instances in which the IRS statute of limitations may have no limitation:
Willful Attempt to Evade Tax
In case of a willful attempt in any manner to defeat or evade tax imposed by this title (other than tax imposed by subtitle A or B), the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time.
Golding & Golding, A PLC
We have successfully represented clients in more than 1,000 streamlined and voluntary disclosure submissions nationwide and in over 70-different countries.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.
Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.