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March 13, 2015

Certification of Non-Willful Conduct an Important Aspect of Offshore Account Disclosure

The tax attorneys at Nardone Law Group in Columbus, Ohio, are committed to keeping taxpayers updated and informed about the various programs the Internal Revenue Service offers that allow taxpayers to disclose foreign accounts, assets, or entities, and resolve any tax and penalty obligations. In our prior articles on the Offshore Voluntary Disclosure Program and the Streamlined Filing Compliance Procedures, we provided an overview of the recent expansions of those programs, as well as the qualification requirements and benefits of each. To qualify for participation and to take advantage of the various benefits that each program provides, it is important that taxpayers are aware of and fully understand these requirements. 

Under the Streamlined Filing Compliance Procedures, taxpayers are required to certify that their failure to report all income, pay all tax, and submit all required information returns, including FBARs, was due to non-willful conduct. The certification requirement also applies to taxpayers who are receiving transitional treatment under the Offshore Voluntary Disclosure Program. While this article provides a brief overview of the certification requirement, we strongly advise taxpayers to consult with an experienced tax attorney before making this certification to the IRS.

When is Conduct “Non-Willful”?

When utilizing the streamlined filing procedures, the taxpayer must certify that their failure to report all income, pay all tax, and submit all required information returns, including FBARs, was due to non-willful conduct. The IRS defines “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 “non-willful conduct” certification requires taxpayers to provide specific reasons for their failure to comply with the relevant reporting obligations. This is often more difficult than it sounds. Taxpayers may believe that their conduct was “non-willful,” however, the IRS must agree. Additionally, this applies if a taxpayer was “willfully blind” regarding a duty to report. The taxpayer cannot actively choose to ignore a duty, when they are aware that such a duty exists. For example, if a taxpayer is aware of an FBAR reporting requirement and consciously chooses not to file the FBAR, that is sufficient to constitute a “willful” violation.  

Why is this so important? When a taxpayer certifies that their conduct was non-willful, they do so under penalty of perjury. Intentionally falsifying this certification or negligently failing to conduct the necessary due diligence to determine whether a particular taxpayer qualifies, may place the taxpayer in significant harm. For example, if the taxpayer ultimately does not qualify for the Streamlined Filing Compliance Program, the taxpayer will not be eligible for the Offshore Voluntary Disclosure Program. Furthermore, if the IRS determines that the taxpayer intentionally falsified the certification, the taxpayer might be subject to criminal prosecution.

Contact Nardone Law Group

Nardone Law Group routinely represents clients before the Internal Revenue Service. As you can see, it is crucial that the certification of non-willful conduct be reviewed and thoroughly understood before making such certification. If you have an undisclosed foreign account, asset, or entity, you should contact one of our experienced tax attorneys today. Nardone Law Group’s tax attorneys will thoroughly review your case to determine which options and alternatives are available, including transitional treatment under the Streamlined Filing Compliance Procedures.

Contact us today for a consultation to discuss your case.

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« Ohio Department of Taxation Sales Tax Audits: Contesting the Use of Purchase Markup Analysis When Primary Sales Records Maintained by Vendor | Main | Transitional Treatment under the IRS Offshore Voluntary Disclosure Program »

March 13, 2015

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