Good Article on the Non-Willfulness Certification for Streamlined and Related Issues (6/30/14)

I have written on the risks in the non-willful certification to get the Streamlined program benefits.  See The New Streamlined Processes' Requirement of Certifying Non-Willfulness (Federal Tax Crimes Blog 6/19/14; rev'd 6/21/14), here.  Readers interested in this subject will find the following article helpful:  Laura Saunders, The Hazards of Offshore-Account Disclosure (WSJ 6/27/14), here.

Key points:

1.  People certifying non-willfulness can be at risk of "severe penalties and criminal prosecution."

2.  Willful / non-willful is a facts and circumstances test requiring careful judgment.

3.  Loser Arguments for Certification of Non-Willfulness:

Scott Michel, a criminal tax lawyer at Caplin & Drysdale in Washington, says people often assume they weren't willful if they had "compelling emotional reasons for not declaring the account," such as safeguarding assets from expropriation, or that they were told by a relative never to reveal it. "If those are your only reasons, they're losers," he says.

4.  Evidences / indicia of willfulness include:

having an account in a country with bank secrecy rules; holding the account in a trust, foundation or other entity typically used to conceal ownership; moving the account from a firm under U.S. pressure to another, presumably to avoid disclosure; making large cash withdrawals; instructing a firm not to mail statements to the U.S., or communicating in code with it; or having secret meetings with advisers or account representatives.

5.  Size Matters (Maybe, Well Likely but not Certainly):

The amount of money at stake also is important, says Edward Robbins, a criminal tax lawyer at Hochman, Salkin, Rettig, Toscher & Perez in Los Angeles. "In the real world, the biggest factor determining willfulness is the size of the account," he says. "If a person has a $10 million account, I don't want to hear he was nonwillful, and neither does the government."

* * * * 

Mr. Robbins says that although IRS resources are severely strained, he expects the agency will keep an eye out for taxpayers with large accounts making fraudulent claims in the streamlined program and punish them severely to send a warning.

 6.  Evidence of Non-Willful Behavior:

Experts say that evidence of nonwillful behavior could include having a small account, especially in comparison to the taxpayer's other assets; an account on which no U.S. tax is due; a foreign government-sponsored savings or pension account; minimal or no withdrawals; and no prior U.S. tax filings.

7.  Following on a go-forward strategy:

While the streamlined program offers a welcome option for many taxpayers with undeclared accounts, other ways to address past noncompliance remain viable, experts say. Both Mr. Robbins and Bryan Skarlatos, a criminal tax lawyer at Kostelanetz & Fink in New York, say they sometimes counsel people with smaller undeclared accounts—say, $500,000 or less—and little evidence of willfulness not to enter a program but simply to file correct returns going forward. 

"I say, 'If it blows up on you, call me,' but none of them ever has," Mr. Robbins says. "The important question is not 'What can the IRS do to me?' but 'What will the IRS want to do to me?'"

I know her quoted sources and they are top practitioners in this area.  If I disagree with the article and the quotes, it would be only in nuance and not overall thrust.  I think there is a smallness factor for the go-forward strategy in paragraph 7, but $500,000 would be pushing the limits in terms of hitting the IRS radar screen.  Note the "sometimes" qualification.  And, of course, if the taxpayer has a good non-willful story to tell, even that may not be a practical limit except to the extent as suggested in paragraph 5 that size does matter.