Packman on State of Offshore Voluntary Disclosure, Particularly Due Diligence for Streamlined NonWillful Certification (12/14/16)

I call readers' attention to a blog entry by Kevin Packman, here, a significant player in offshore account representation.  Kevin Packman, The High Cost of Being Noncompliant with the Internal Revenue Code (Tax Compliance Blog 12/7/16), here.

In the blog entry, Kevin surveys current key issues for the IRS's offshore voluntary compliance programs.

The whole entry is worth a read, but I point out particularly the continuing concerns about the propriety of nonwillful certifications in the Streamlined programs.  Kevin cautions practitioners to test their clients certifications of nonwillfulness to insure that the narrative support for the certification and the real underlying facts support the certification.  Kevin notes (footnotes omitted):

The Government is reviewing the taxpayer streamline certifications, which makes it more crucial for taxpayers to be truthful and not stretch the truth.  Thomas E. Bishop, Director of Field Operations (International) spoke on a panel at the 4th annual International Tax Enforcement and Controversy Conference in Washington DC on October 28, 2016 (DC Conference).  During his comments, Bishop warned practitioners to challenge the taxpayer's assertion of nonwillful behavior.  He stated, "[j]ust keep in mind that we are looking at the actual account documents, the things that we see that show that the particular account holders are acting in a knowledgeable and intended way to conceal their wealth and income from the IRS." 

Caroline D. Ciraolo, Principal Deputy Assistant Attorney General in the Justice Department Tax Division also spoke at the DC Conference.  Ciraolo mentioned that "it's our job to make sure that those people who chose the streamlined program chose appropriately."  She indicated that those who "lied their way through a streamlined narrative," would be prosecuted. Additionally, Ciraolo noted that the Government has a great deal of information that it has received from the banks, which it can compare against the certifications.  More chillingly, they are following the money that left Switzerland "into jurisdictions around the world" and looking at institutions other than banks, such as "asset management companies, corporate service providers financial advisers, and insurance companies." 

A few days after the DC Conference, Ciraolo delivered the keynote address on November 2, 2016 at the American Bar Association's 27th Annual Philadelphia Tax Conference.  During her prepared remarks, she reiterated the warning to taxpayers thinking they can skirt through with a streamline filing.  She indicated that the "Tax Division prosecutors are reviewing certain streamlined filings and will investigate and prosecute taxpayers who willfully submit false statements in an effort to obstruct and impede the IRS and evade the payment of tax due."  She also referenced that DOJ has three dozen FBAR cases currently being litigated.  

On November 14, 2016, Ciraolo was at the American Institute of CPAs National Conference and speaking again about taxpayers inappropriately using streamline when she said "these are potential criminal investigations and we're pursuing them." 

It is not just the possibility of having your certification challenged that should worry taxpayers it is the fact that the false certification can lead to a prosecution.  Tino M. Lisella, Assistant Chief of the Western Criminal Investigation Section of the Tax Division stated at the DC Conference a false streamlined submission could "lead to charges under section 7206(1) for filing a false document signed under perjury, section 7212(a) for tax obstruction, and evasion under section 7201." 

These warnings from Government officials must, however, be weighed against those from John McDougal, special trial attorney and division counsel, IRS Small Business/Self Employed Division.  On October 21, 2016 when speaking at the University of San Diego School of Law-Procopio's International Tax Institute annual conference he said that taxpayers who were grossly negligent could use streamline. McDougal said, "[as long as you were not fraudulent or willful in the FBAR sense...even gross negligence is an appropriate basis for filing streamlined"

I add to this litany of warnings on due diligence a warning just within the last week by Mark Daly, a senior DOJ criminal tax litigator, at a tax crimes seminar.  I am advised that he said (this quote may not be exact, but I am told it is close):  "Attorneys are not doing enough to verify the accuracy of their clients' statements with streamline submissions.   Attorneys should be checking with 3rd parties as part of their diligence."  I did not attend the conference and only have this quote or paraphrase from a colleague.  I do think most practitioners have done some due diligence (such as check with return preparers for their files (such as organizers) and memory of interactions with clients bearing directly or indirectly on offshore accounts).

I would note that given the consistent drumbeat on this issue from DOJ Tax and the IRS, I would expect criminal prosecutions shortly based on false nonwillful certification.  I have no bases for that prediction other than I what I infer from the consistent drumbeat.