If you knowingly or intentionally failed to tell your prior CPA or Tax Accountant about foreign accounts or foreign income, then you are considered to be “willful.” It does not matter that you were unaware of the fact that there was something called FATCA or FBAR.
Instead, the fact that you intentionally withheld information regarding your foreign accounts would generally mean that you knew or should’ve known that you were required to report the accounts to the IRS — and therefore you are most likely going to be considered willful.
If you are considered willful and are seeking to get into voluntary compliance to proactively limit your penalties, you must enter OVDP instead of the streamlined program.
The reason you would have to enter OVDP instead of the streamlined program is because you knowingly or intentionally failed to provide the information to the CPA. As such, you cannot fault the CPA or tax accountant for failing to file the necessary forms. Rather, because you did not provide the necessary information to the CPA, the responsibility will fall on your lap.
You May have Been Non-Willful – Here’s Why
Please keep in mind that the mere fact that you did not provide the foreign account or income information to the CPA or prior Accountant does not make you per se willful. Rather, in order to have been willful, it must be because you understood you were required to provide the information to the CPA, but knowingly or intentionally failed to provide the information; this is not always the case.
Here are a few examples scenarios in which you may have been non-willful:
- You did not properly understand the question;
- English is not your first language and you misinterpreted the request;
- You misunderstood what the Accountant by “foreign accounts” or “foreign income”
- You may have had foreign accounts, but thought the accountant meant foreign income – and you did not receive any foreign income.
In other words, there are legitimate explanations for failing to provide your CPA with accurate information. Therefore, before making any submission to OVDP, you should speak with an experienced offshore voluntary disclosure lawyer to evaluate the facts and circumstances of your situation.
Want to Learn More About Willfulness?
Willful or Non-Willful (OVDP) – Offshore Disclosure is the process of coming forward and disclosing overseas assets and foreign income to the IRS in exchange for (in most cases) a waiver of prosecution by the Internal Revenue Service.
Whether a Taxpayer is Willful or Non-Willful will determine which OVDP offshore disclosure program the taxpayer should enter — and what their penalty will be.
Whether or not you will have to pay an OVDP penalty (and if so, how much you will have to pay) will depend on a few different factors – with the most important factor being whether you acted willful or non-willful.
The Willful Taxpayer – What if I Knew I was Required to Disclose but Did Not Disclose?
If you knew you were supposed to report and disclose your foreign income and assets but chose not to, chances are your actions were willful and you will be required to submit to OVDP instead of the Streamlined Program. In other words, if you knew you had a duty to report the information on an FBAR (Report of Foreign Bank and Financial Accounts) or to the IRS on a U.S. Tax Return (8938 – Statement of Specified Foreign Assets), but intentionally did not report your accounts, then you acted “willfully.”
While there is no strict definition of the word willful, it generally boils down to knowledge of the requirement to disclose. Alternatively, if you did not know that you were required to report your foreign accounts, then technically you could not have “willfully” failed to report the accounts, because you did not know about the requirement to do so in the first place.
– If you were willful, then you should be careful not to enter the IRS Streamlined Program (in order to take advantage of reduced penalties), because if you are “caught” entering Streamlined when you were actually willful, there can be very stiff civil and criminal penalties. Rather, you should enter the Offshore Voluntary Disclosure Program. If for no other reason, then because you were willful and you will require IRS Tax protection from criminal prosecution. If at the conclusion of the OVDP you disagree with the penalties, you will have the opportunity to “Opt-Out” at that time.
– While the penalty for OVDP is high, consider the alternatives: would you rather admit willfulness, pay a 27.5% penalty (or 50% penalty) for one-year’s worth of high-balance and both prevent a future audit and almost always prevent criminal prosecution, or would you rather live in constant fear of being audited, pay upwards of $1 million in fines and penalties, have a “felony” on your record, and do 5 to 20 years in federal prison with real criminals if you get caught?
Non-Willful – I was unaware that I was required to Disclose my Foreign Income and Assets
The IRS is aware that many people simply did not know of the requirement to report. Unlike OVDP, where generally individuals are earning active income overseas or are intentionally placing money overseas, if a person is Non-Willful, they qualify for the Modified Streamlined Program – which has a significantly reduced penalty structure.
There are plenty of people who have overseas accounts for legitimate reasons. For example, they may have immigrated or relocated to the United States from another country, or maybe received a foreign inheritance and have no idea regarding IRS reporting requirements. These are not the people the IRS is seeking to prosecute, since they were “Non-Willful”.
– Therefore, the IRS modified a small streamlined program (now called “Streamlined Offshore Compliance Filing Procedures”) that authorizes pretty much anyone who was non-willful to enter the program. There are several benefits of this program, including a reduced if not forgiven penalty, as well as strict limitations as to what items can be penalized, and which items will not be penalized.
– Under the traditional OVDP program pretty much any type of asset that earns income is subject to the penalty; under the modified streamlined program only items that are included on an FBAR or 8938 are generally included in the penalty computation. For example, income generating real estate is excluded from the penalty computation.
What is the First Step in Resolving my Foreign Account Issues with the IRS?
Deciding whether to disclose your foreign income and assets is a big decision but a decision which overall is beneficial to you and your family. Why? Because with the implementation and enforcement of the new FATCA laws (Foreign Account Tax Compliance Act) 100+ foreign countries and 1000’s of Foreign Financial Institutions have agreed to report US taxpayer information to the IRS – whether they were willful or non-willful. In fact, foreign banks are pretty much reporting everybody who they have in their records to maintain a U.S. address.
– That means that even if you are only living in the US temporarily. there is a good chance your foreign financial institution will report you to the IRS. And, if it turns out that you are required to file a W-9 instead of a W-8 BEN, this can cause a major problem for you down the line, as well as an issue if you are seeking future Legal Permanent Resident status or Citizenship/Naturalization.
– It is important to note that if the IRS contacts you first, then you are normally disqualified from the program (whether you were willful or non-willful) Moreover, if you are under audit from the IRS for any reason involving foreign or domestic tax issues you’re disqualified from the program as well. In addition, the IRS can terminate the program at any time, and history has shown that the penalty amount increases almost every year.
– Further, the Department of Justice recently issued a bulletin letting individuals know that they will be seeking strict enforcement against anybody who is found entering into the streamlined program when they should’ve entered into the traditional OVDP.
We can assist you with all of your OVDP and International tax law questions!
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.