Voluntary filing: streamline procedures v. offshore voluntary disclosure.

• Author: Galyan, Ani
• Position: Taxation issues

The IRS has several programs available for U.S. taxpayers living in the United States who wish to voluntarily come forward and cure prior failures related to foreign assets and unreported foreign income. In servicing clients, tax advisers need to be cognizant of future filing obligations related to offshore assets of the client and how to advise on a proper cure for prior misconduct.

U.S. taxpayers living in the United States who have undisclosed foreign accounts, unfiled information returns or undisclosed foreign entities may file an offshore voluntary disclosure under either the Offshore Voluntary Disclosure Program (OVDP) or the Streamlined Domestic Offshore Procedures (Streamlined Procedures). Note that the IRS also offers a Streamlined Foreign Offshore Procedures for those U.S. persons who reside outside the United States and meet the residency requirement as set forth in the settlement program.

The risk of a Streamlined Procedures filing is greater than filing an OVDP, as taxpayers are required to certify under penalty of perjury that their failure to file FBARs and report foreign source income was due to non-willful conduct. Taxpayers whose conduct arises to willful are not eligible for the Streamlined Procedures, but may file under the OVDP. Further, there is no Closing Agreement provided as part of a Streamline Procedures filing.

The determining factor between choosing the OVDP and the Streamlined Procedures is whether the failure to disclose foreign financial assets and income was as a result of willful or non-willful conduct.

Non-willful conduct is defined as conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirement of the law.

The test for willfulness is whether there was a voluntary, intentional violation of a known legal duty. Willful acts must be voluntary rather than accidental or unconscious United States v. McBride, 908 F.Supp 2d 1186, 1205 (2012)]. Evidence of willful intent may be proved by circumstantial evidence and reasonable inferences drawn from the facts. Id.

Willfulness also may "be proven through inference from conduct meant to conceal or mislead sources of income or other financial information" [United States v. Sturman, 951 F.2d 1466, 1476-77 (6th Cir. 1991)].

Factors to Consider for Willful

When advising clients about differences between the OVDP and the Streamlined Procedures, practitioners need to take adequate steps to...