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OVDP: Willful vs. Nonwillful Violators

Posted in Hot Topics, News, Offshore Account Update on September 25, 2014 | Share

If you have any offshore financial accounts, you are required to file a Report of Foreign Bank and Financial Accounts (FBAR) to alert the Internal Revenue Service to your foreign investments. A failure to file FBARs can led to financial penalties, which in some cases have exceeded the value of the money kept in the foreign account. There is also the potential for criminal prosecution if the IRS determines that you violated the law by failing to report your investments.  

The IRS and the Department of Justice are cracking down on foreign banks and reaching deals where banks turn over information on investors. The IRS has also created a program, the Offshore Voluntary Disclosure Program (OVDP), to make it possible for investors with offshore accounts to come forward and admit their past failures to file an FBAR.  

The OVDP has a streamlined procedure for alerting the IRS to offshore investments that limits fines and allows you to avoid criminal penalties. However, only non-willful violators are able to take advantage of the streamlined OVDP procedure. You need to speak with a Washington DC IRS voluntary disclosure lawyer about whether you will be considered streamlined and about your options for minimizing penalties for disclosure of your offshore accounts. 

Willful vs. Nonwillful Violators

Forbesrecently wrote about the difficulties faced by investors who want to take advantage of the streamlined OVDP procedures for nonwillful violators.  While the vast majority of taxpayers with previously undisclosed foreign accounts likely see themselves as nonwillful violators who inadvertently failed to follow the rules, the Internal Revenue Service may classify them differently.  

Applicants for the OVDP must swear under penalty of perjury that their failure to file FBARs was inadvertent and/or the result of negligence, lack of knowledge of FBAR requirements, or mistake. Willful blindness, or an intentional failure to learn about FBAR requirements, will not be considered an inadvertent error to file and the IRS will not allow people who intentionally failed to learn the rules to take advantage of the streamlined OVDP process. 

In addition to swearing they did not intentionally fail to comply with their tax obligations, applicants for the OVDP must also provide “specific reasons” for the failure to “report all income, pay all tax, and submit all required information returns, including FBARs.”  

If married spouses are submitting a joint certification and have different justifications for their failure to file FBARs, each must submit their own separate justifications in their independent statements of facts. If the taxpayers received professional guidance or advice, they also must provide the contact details of their professional advisor. 

The problem, of course, is that it is difficult to find objective evidence to “appropriately demonstrate a lack of personal knowledge by the taxpayer about their reporting requirements.”  As Forbes points out, how do you prove you didn’t know something?

A Washington DC IRS voluntary disclosure lawyer can provide assistance to individuals who are seeking to participate in the OVDP and who want to make the strongest possible application to the IRS. Call Thorn Law Group today to speak with a tax attorney who can help you to prove you were a nonwillful violator. 


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