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“Non-Willful” and Using Streamlined Procedure? IRS Wants the FACTS!

Apparently, in applying to the Streamlined Foreign Offshore or Streamlined Domestic Offshore Procedures with the benefit, respectively, of no penalties or a significantly reduced penalty, many taxpayers have been providing certifications with little or no explanation to demonstrate that their tax noncompliance was “non-willful”. This has not gone unnoticed by the IRS which responded last month by revising the Streamlined forms.

The IRS recently re-released the Streamlined certification forms making clear that taxpayers “must provide specific facts on this form or on a signed attachment explaining [the taxpayer’s] failure to report all income, pay all tax, and submit all required information returns, including FBARs.  Any submission that does not contain a narrative statement of facts will be considered incomplete and will not qualify for the streamlined penalty relief.”

You can learn more about the Streamlined Procedures at my tax blog post here.

View the new Streamlined Certification forms here (Form 14653 Streamlined Foreign) and here (Form 14654 Streamlined Domestic). The Form describes the required Statement in significant detail:

“Provide specific reasons for your failure to report all income, pay all tax, and submit all required information returns, including FBARs. Include the whole story including favorable and unfavorable facts. Specific reasons, whether favorable or unfavorable to you, should include your personal background, financial background, and anything else you believe is relevant to your failure to report all income, pay all tax, and submit all required information returns, including FBARs. Additionally, explain the source of funds in all of your foreign financial accounts/assets. For example, explain whether you inherited the account/asset, whether you opened it while residing in a foreign country, or whether you had a business reason to open or use it. And explain your contacts with the account/asset including withdrawals, deposits, and investment/management decisions. Provide a complete story about your foreign financial account /asset. If you relied on a professional advisor, provide the name, address, and telephone number of the advisor and a summary of the advice. If married taxpayers submitting a joint certification have different reasons, provide the individual reasons for each spouse separately in the statement of facts.”

Taxpayers should undertake some serious due diligence and obtain professional advice before signing a certification of non-willfulness and entering the Streamlined Program.  The certification must be signed under penalties of perjury, which if found to be false can itself result in prosecution for submitting a false sworn statement.  Significantly, the Streamlined procedures provide no protection from criminal prosecution if the IRS determines that the failure to  disclose a foreign account was “willful”.

 

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