Willful vs. Non-Willful (2019) - Basics of OVDP & IRS Streamlined Program (Board-Certified Tax Law Specialist)

Willful vs. Non-Willful

Willful vs Non-Willful & the IRS

Willful vs. Non-Willful: The comparison of willful vs. non-willful is complicated. That is because the IRS makes it infinitely more complex by refusing to provide a “bright-line” test for non-willfulness.

Moreover, the Internal Revenue Service also lowered the bar for willfulness does not require intent (Reckless Disregard) or actual knowledge (Willful Blindness).

And, with the Internal Revenue Service making foreign accounts compliance and unreported offshore income a key enforcement priority, it is crucial for taxpayers to stay in offshore reporting for offshore accounts, assets, investments, and income.

How to Compare Willfulness & Non-Willfulness

What’s the Difference between willful vs. non-willful? It boils down to a totality of the circumstance test. Let’s start with non-willful.

Non-Willful

There is no bright-line test to determine non-willfulness.

It is a ‘Totality of the Circumstance(s)” test based on whether or not your specific facts and circumstances reflect that you knew, or should have known that you were required to disclose and report your foreign accounts and offshore income — and made the decision not to disclose.

Generally, if a person was unaware that there was a foreign account/foreign income/foreign asset reporting requirement, the client begins in the “non-willful” category, but more analysis is needed.

How to Analyze Willful vs. Non-Willful

  • What is your U.S. status?
  • How long have you been in the United States for?
  • How many years have you filed U.S. tax returns?
  • What types of investments do you have overseas?
  • Do you utilize a financial planner?
  • Do you have a CPA or EA?
  • Is your CPA or EA experienced in international tax?
  • Did your CPA or EA send you questions in writing asking about Foreign Accounts or Income?
  • Did you respond truthful to the CPA or EA?
  • Did you complete a schedule B?
  • Are you tax compliant in the country in which the accounts are maintained?
  • Did you have unreported income as well?

Filed Timely Tax Returns

It is important to note that you cannot file original tax returns with the Streamlined Domestic Offshore Procedures — only amended returns.

Streamlined Non-Willful vs. Lower Standards of Willfulness 

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 reckless disregard and willful blindness.

What is Willful Blindness?

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).

What does Willful Blindness Mean?

It means you are “willfully” staying ignorant to a fact that would inform you that your actions are illegal.

Is Willful Blindness a Crime?

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 the Mens Rea of Willful Blindness?

The idea of Mens Rea of Willful Blindness is the idea that the knowledge of the crime is presumed, due to the intentional lack of knowledge on the part of the participant.

What is Deliberate Ignorance?

Deliberate ignorance is essentially a synonym for willful blindness.

Willful Blindness Law School 101 Definition

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.”

What is Reckless Disregard?

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 provided the following:

“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).”

 

Golding & Golding (Board-Certified Tax Law Specialist)

We specialize exclusively in international tax, and specifically IRS offshore disclosure.

We have successfully represented clients in more than 1,000 streamlined and voluntary offshore disclosure submissions nationwide and in over 70-different countries. We have represented thousands of individuals and businesses with international tax problems.

We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.

*Please Beware of less experienced tax and law firms trying to misled you about offshore disclosure.

Less than 1% of Tax Attorneys Nationwide Are Certified Specialists

Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.

Recent Golding & Golding Case Highlights

  • We represented a client in an 8-figure disclosure that spanned 7 countries.
  • We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
  • We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
  • We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
  • We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Streamlined Counsel?

How to Hire Experienced Streamlined Counsel?

How to Hire Experienced Offshore Counsel?

Generally, experienced attorneys in this field will have the following credentials/experience:

  • Board Certified Tax Law Specialist credential
  • Master’s of Tax Law (LL.M.)
  • Dually Licensed as an EA (Enrolled Agent) or CPA
  • 20-years experience as a practicing attorney
  • Extensive litigation, high-stakes audit and trial experience

Interested in Learning More about Golding & Golding?

No matter where in the world you reside, our international tax team can get you IRS offshore compliant. 

Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.

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