So What Does “Non-Willful” Really Mean Under The Streamlined OVDP?

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It appears that whatever Non-Willful means outside of the OVDP streamline program; it is certainly being applied differently in evaluating a Taxpayer’s ability to transition from the OVDP program into this new 2014 streamline program.

Below I’ve attached two excerpts one from Forbes and one from BNA Daily Tax Report, both verifying that taxpayers who are currently in the OVDP program are having very little success in proving “non-willfulness” during their requests for transition into the new 2014 streamline procedure.

1. Am I Non-Willful Under The OVDP Streamlined Procedures?
Taxpayers recently attempting to transition from the OVDP into the streamlined procedures are receiving some degree of push back from the government. Transitional treatment has been denied for many on the basis of “willful blindness” where the government believes the return preparer likely inquired about the foreign account or where the taxpayer simply failed to advise their return preparer of the existence of an interest in a foreign financial account (whether or not the preparer inquired about such an account).

2. Questions Surround Standards of Willful Conduct Under Streamlined OVDP
The IRS may be setting tough hurdles for taxpayers to qualify for the newly expanded streamlined version of its Offshore Voluntary Disclosure Program, tax practitioners say. In a series of interviews, practitioners say guidance would be welcome on both procedural aspects of applying to the program and possible guidelines on the type of conduct the IRS might consider willful. One litmus test could be the government’s apparently strict view on willfulness in cases where taxpayers are trying to transition from the formal version of the OVDP to the streamlined version.

Whether the IRS will apply the same restrictive a view of “non-willfulness” to taxpayers who apply for the 2014 streamline program after July 1, 2014 remains unknown?

As a pure guess, in attempt to explain the IRS’ almost like a blanket denial of taxpayer’s proof of “non-willfulness,” one may wonder whether the IRS is applying the “high compliance risk” or “low compliance risk” analysis formally associated with the 2012 streamline program to this new 2014 streamline program?

If they are, then we need to consider that some taxpayers who were “not willful” may not qualify for the new streamline program where they have a a lot of offshore income, a lot of assets offshore or where they have tax planning associated with their offshore assets?

Items that may be considered “high compliance risk,” and now possibly a/k/a inability to prove non-willfulness, may include:

1. Higher Risk. In general, the risk level will rise as:

a. The income and assets of the taxpayer rise,

b. If there are indications of sophisticated tax planning or avoidance.

c. If there is material economic activity in the United States.

2. Additional Risk Factors include:

a. Any additional history of noncompliance with US tax law and

b. The amount and type of United States source income.

What Do You Think? Need Help With the OVDP Program? Connect with me on TaxConnections.

Original Post By:  Ronald Marini

Mr. Marini concentrates his practice in Representation before the IRS and All Other Tax Authorities, IRS Collections, Offers in Compromise, Installment Payment Plans, Appeals, Sales Tax Audits, International and Tax Law, Asset Protection and Estate Planning.

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