We are taking particular interest if we find evidence of an account holder claiming non-willful conduct in a streamlined compliance filing or delinquent submission only to find that evidence produced by the Category 2 banks suggests otherwise. We are using information gleaned from the program to open new investigations, pursue new targets around the globe, and we will continue to do so as the information is developed.For previous blogs on the certification process:
- IRS and Practitioner Comments on the Streamlined NonWillful Certification (Federal Tax Crimes Blog 11/1/14), here.
- It's So Easy to Say No -- The IRS Often Gets to No for Streamlined Transition Relief in OVDP (Federal Tax Crimes Blog 8/7/14; 8/11/14), here.
- Article on Risks of Certifying NonWillfulness (Federal Tax Crimes Blog 7/26/14), here.
- In certifying nonwillfulness in streamlined (not the streamlined transition in OVDP), the risk that will linger until all statutes of limitation run out is that the IRS will contest the certification. Nothing happens in completing the streamlined submission to tell the taxpayer that the IRS disagrees. If upon reviewing of the certification and the narrative, the IRS can determine to audit the certification. The taxpayer may not know of that for a couple of years. By putting the certification in play, the IRS can then put willfulness in play and the potential for civil fraud with respect to the income tax (potentially resulting in open statutes of limitation and the civil fraud penalty).
- Inside OVDP, the same certification is made to get the streamlined transition relief. The taxpayer does get a closing agreement if the streamlined certification is accepted. The closing agreement states that it is "final and conclusive" except, in pertinent part, "the matter it relates to may be reopened in the event of fraud, malfeasance or misrepresentation of a material fact." I think this is broad enough to re-open if the taxpayer is subsequently found to have committed fraud in the original events (the years during which there was offshore tax and FBAR noncompliance) or if there were fraud in the certification of nonwillfulness as to income tax and FBAR noncompliance.
- As to the certification of nonwillfulness in either straight streamlined or transition streamlined in OVDP, I think of the certification as a spectrum with willfulness at one end and nonwillfulness at the other. That spectrum has three principal shades with blendings. At the left is the dark red shade of willfulness, at the right is the dark green shade of nonwillfulness, and in the middle is yellow, so that the left blends into the yellow and the right blends into the yellow. Experienced practitioners should be able to determine in most cases, on a relative scale (which is what this spectrum represents) and in broad strokes which quartile in the spectrum the taxpayer's fact pattern best fits. If in the left-most quartile, the taxpayer is probably willful or at high risk of being determined to be willfull. In the right-most quartile, the taxpayer is probably nonwillful and at extremely low (probably negligible) risk of determining to be willful. It is those taxpayers in the middle quartiles that require the most focus and potential risk. Now to continue this imperfect analogy, it seems to be that taxpayers in the middle quartiles who certify are at risk at best of having their certification denied, not necessarily because they are willful but because the facts are not clear enough to establish that they are nonwillful. Then they would be subject to audit or, if the certification were made in OVDP, they would have the choice of completing OVDP or opting out. But those taxpayers probably would not be criminally prosecuted for a false certification. I suspect that those who will be prosecuted are those who certified who fall into the far left quartile -- those who were clearly willful and made a false certification of nonwillfulness. Keep in mind that, since the taxpayer has to offer a narrative supporting the certification of nonwillfulness, the narrative for the willful taxpayer falsely certifying nonwillfulness will probably contain some false or misleading representations in the narrative in support of the certification of nonwillfulnes.