Monday, October 13, 2014

Chuck Rettig Article on Certification of Non-Willfulness (10/13/14)

Chuck Rettig, here, a major player in the criminal tax and offshore account arena, has published an article on the certification of non-willfulness in the recent Streamlined Procedures and the OVDI/P transition to partial Streamlined treatment.  Charles P. Rettig, OVDP and Streamlined Procedures: Am I Non-Willful?, J. Tax Prac. & Proc. 17 (August-September 2014), here.

Key excerpts:
Taxpayers and their representatives must be cautious when certifying non-willful status to the government. The vast majority of taxpayers having previously undisclosed interests in a foreign financial account or asset likely believe they are more “non-willful” than not. The issue at hand in the streamlined procedures is whether the IRS will agree. Feel lucky? 
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How does a taxpayer actually provide “specific reasons” in his certification confirming that he did not know of the FBAR filing requirements? The ability to prove something that simply did not exist is difficult, at best. Will the government discount statements by the taxpayer attempting to disprove knowledge as self-serving unless accompanied by objective supporting evidence? What objective evidence might exist to appropriately demonstrate a lack of personal knowledge by the taxpayer about their foreign reporting requirements? 
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Taxpayers recently attempting to transition from the OVDP into the streamlined procedures are receiving some degree of pushback from the government. Transitional treatment has been denied for many on the basis of “willful blindness” where the government believes the return preparer “likely” inquired about the existence of a foreign account or where the taxpayer simply failed to advise their return preparer of the existence of an interest in a foreign financial account (whether or not the preparer inquired about such an account). 
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Those who are now eligible to transition into the streamlined procedures but came forward to enter the OVDP before the streamlined procedures were revised should be treated in a similar manner to those who now enter the streamlined procedures directly. Th e streamlined procedures clearly define the term for “non-willful conduct” as conduct that is “due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.” The relatively more culpable standard of “willfulness” or “willful blindness” is not referenced in the streamlined procedures. 
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If, as some believe, the streamlined procedures are being used to entice unsuspecting taxpayers into placing their heads onto the FBAR chopping block, the government should be held accountable. However, if, as most believe, the streamlined procedures were designed to provide not quite willful taxpayers an opportunity back into compliance through a simplified and expedited process, the IRS should respect the vast majority of streamlined submissions (and requests for transitional treatment) and move on. Long-term, the overall integrity of government announcements and programs is far more important than searching through the forest to find that overly aggressive taxpayer(s) who dared falsely certify their knowledge (or lack thereof) of their foreign reporting obligations, under penalties of perjury. Those who dare consider taunting the government should be aware that the government possesses considerable information and may be able to relatively quickly determine submission of misleading or false certifications. Setting forth false or misleading information in a streamlined procedures certification in an effort to minimize a distasteful civil FBAR penalty could lead to an even more distasteful criminal investigation or prosecution. 
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Non-resident taxpayers might be better positioned to achieve their goal of a non-willful, no penalty resolution under the streamlined procedures. Their “foreign” account is actually in their own neighborhood; it is only “foreign” in the sense that it is located outside the territorial boundaries of the United States. The existence of the account does not, by itself, somehow represent an acknowledgment of tax noncompliance by the nonresident taxpayer. The streamlined procedures seem to represent the first attempt by the government to acknowledge that at some point, nonresident taxpayers become residents of their home state, emotionally even if perhaps not technically. 
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If there are any uncertainties or potentially difficult factual scenarios involved, consult with experienced counsel. In this environment, such counsel may well provide advice that seems anything but user friendly. The purpose of seeking experienced counsel is to learn the seriousness of the situation at hand and to be guided into the best possible resolution at the least overall cost. If looking for a friend, get a dog.

1 comment:

  1. I am posting the Comment under what appears to be the most relevant Blog Title

    Updates on OVDP Transition request for 2 taxpayers :

    TP 'A' Complex business Account- tax owed >$100K over 8 years ( not a great amount relative to the value of the account). Transition was denied- the specific reason given was that the amount owed was too high. Blackseal, you may be getting tarred with the same brush, though I hope you can argue that your property should be excluded from the penalty base.

    I don't think denial of transition is indicative of will-fullness or would necessarily affect Opt out outcomes. It seems there is a threshold of taxes due and/or account value and exceeding this means a greater chance of transiton being denied (similar to Blackseal's case). Opt out remains a viable option in these cases where there is no fraud. The case moves up to another IRS reviewer and it seems, both the taxpayer and the tax preparer (if there is one) will be interviewed and the IRS may ask for the tax files.
    This is not necessarily something to fear, though trepidation is understandable.
    Bottom line, do not pay the 27% penalty if you are non -willful- the statute of limitations clock is ticking in your favor

    TP 'B' Individual , taxed owed <~20K over 8 years, good facts, clearly benign accounts established from existing assets when TP was a foreign citizen

    I hope case #2 gives readers of this blog hope- I will release more facts as the 906s are finalized.

    The cases were reviewed by the Revenue Agent, Agent's manager. and a Technical Advisor

    In both cases, responses were received back from the IRS (via phone call) between 10- 12 weeks.

    A reader had asked if the IRS would contact him in case there were any questions about the Transition request. My recommendation would be for the reader to take the initiative and call the IRS agent himself after allowing some time for review (in 6-8 weeks).
    The IRS would not give any indication on whether they thought Transition would be approved or denied, but it did'nt hurt to call to offer clarifications

    I know people have a lot of fear and misgivings about contacting the IRS, but its better to face the beast yourself. And there is a lot of fear mongering from both lawyers and the IRS - OVDP 2009,2010, 2012- though the IRS seems to realize the damage to its credibility with the OVDP programs as evidenced by the SDOP and SFOP


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