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OVDP: Willful vs. Nonwillful Violators

Offshore Account Update

Posted in on September 18, 2014

Investors with offshore or foreign accounts have an obligation to file the Report of Foreign Bank and Financial Accounts (FBAR) with their income taxes each year. A failure to file the FBAR can result in penalties based on a percentage of the money kept offshore as well as the number of years of non-reporting, with some violators assessed penalties that exceed the total value of money kept in their offshore accounts. Failure to file the FBAR can also result in criminal prosecution.  

Individuals who did not file their FBAR have the opportunity to come forward through an Offshore Voluntary Disclosure Program (OVDP) and the IRS has promised limited penalties for a failure to file FBARs in the past. However, the limited penalties are only for violators who are considered non-willful. There is significant risk of applying for participation on the OVDP because if you are classified as a willful violator, you will not be eligible for the reduced penalties and you could be subject to large fines.  A New Jersey IRS amnesty attorney should be consulted to help you determine whether you will be classified as a willful violator or a non-willful violator.  

Willful vs. Nonwillful Violators and Participation in the OVDP

A recent Forbes article discussed the classification of taxpayers who seek to participate in the OVDP as either willful or nonwillful. Taxpayers who want to use the streamlined OVDP procedures to report their accounts and pay reduced penalties must “certify under penalties of perjury that their conduct was ‘non-willful.’”  

Nonwillful conduct is specifically defined by the IRS as conduct that was the result of:

  • Negligence
  • Inadvertance
  • Mistake
  • A good faith misunderstanding of the FBAR reporting requirements. 

Taxpayers who claim that their failure was a nonwillful one not only must certify that they acted unintentionally under penalty of perjury, but they also have to provide specific reasons for their failure to report their offshore income and submit required forms. If they relied on a professional advisor or any type of financial guidance from a professional, the taxpayers must provide the advisor’s name and contact details as well as a summary of the advice that they received, warns your IRS amnesty attorney. 

Unfortunately, it can be very difficult for taxpayers to provide proof that they didnt know something, because this requires proving an absence of internal knowledge. As Forbes says, “The ability to prove something that simply did not exist is difficult, at best.”

 The vast majority of taxpayers, especially those who want to participate on the OVDP, likely believe that they acted unintentionally or as a result of a mistake. However, it is not a taxpayers belief that will determine whether they can participate in the streamlined disclosure process and receive the reduced penalties. 

It is the assessment made by the IRS regarding whether the taxpayer’s conduct was willful that will be determinative. Willfulness can also be attributed to individuals who made a conscious effort to avoid learning about the FBAR requirements. 

Because of the significant risks that the IRS will determine you acted willfully in failing to disclose your accounts, it is imperative to consult with a New Jersey IRS amnesty attorney at Thorn Law Group before you take steps to participate in the OVDP.


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