Non-Willfulness for Streamlined Disclosure: SDOP & SFOP | International Tax Lawyer Minnesota
Hello and welcome to Sherayzen Law Office video blog. My name is Eugene Sherayzen and I’m an international tax attorney and owner of Sherayzen Law Office, Ltd.
Today, I’m continuing my series of vlogs from St. Paul, Minnesota. This series is devoted to offshore voluntary disclosures. In the previous vlog, I discussed Streamlined Domestic Offshore Procedures and in particular, the factors in both the SDOP eligibility and I mentioned that one of the most important factors is non-willfulness. Non-willfulness with respect to your income tax non-compliance, non-willfulness with respect to your noncompliance with various US information tax returns.
Today, I would like to discuss this topic of non-willfulness because it is very important in understanding whether you’re eligible or not to participate in the SDOP.
What is non-willfulness? Non-willfulness is basically the lack of willfulness, meaning if you’re not willful, you are non-willful. Outside of the voluntary disclosure, the burden of proof to establish willfulness falls on the IRS. Inside of the voluntary disclosure, the burden of proof shifts on you to prove and establish non-willfulness.
If you want to discuss and understand what non-willfulness is, we have to establish what willfulness is in the first place. Willfulness is an intentional or reckless disregard of a known duty. When we are talking about FBAR noncompliance, for example, if the taxpayer knows about the FBAR requirement, but chooses intentionally not to file his FBAR, this can mean only one thing: that he intentionally decided not to comply with this requirement. At this point, in this spectrum, the possibility of willfulness arises. If the taxpayer negligently did not file an FBAR, that would be non-willfulness under the SDOP rules. If the taxpayer did not know about the FBAR, although it’s really difficult to be willful when you don’t know about something, unless you’re reckless in your noncompliance. One of the best examples of recklessness is willful blindness. You close your eyes, you close your ears. ‘I don’t want to see anything; I don’t want to know anything; I don’t want to hear anything’ etcetera; you are intentionally closing off all possible venues for learning about your US international tax reporting requirements.
Non-willfulness is basically the absence of willfulness as I had said and there are various non-willfulness factors that indicate that lack of willfulness. For example, a taxpayer indicates on Schedule B that he has foreign accounts but fails to file an FBAR. If you indicate that you have foreign accounts, that’s already a disclosure of some type. That is possibly a non-willfulness factor. If the taxpayer reports all foreign income but does not report the assets, that is a non-willfulness factor.
The complexity of the form is taken into account in the determination of non-willfulness. For example, if we’re talking about the FBAR reporting which is a more known requirement versus a form 3520 for reporting an inheritance. That is a relatively unknown requirement. A person’s education, work history, obviously if the person is a CPA, for him it’s going to be much harder to establish non-willfulness than it would be for a person who is a carpenter.
A person who is a professional with great financial means is going to have a harder time establishing non-willfulness verses a person who has more limited means. A person who received education in accounting or law will have greater difficulty establishing non-willfulness than someone who does not have that kind of exposure. Even a person with exposure to general reporting, general business law or standards might be in the more difficult position. For example, someone who has an MBA, will have and be in a more difficult position than someone who does not. In other words, non-willfulness is an absence of willfulness and there is a huge number of factors that may support or damage the case for non-willfulness. This is why it is very important to explore your client’s case in depth. This is why I request copies of the resume’, copies of education history, work history, where and how many countries the person lived in, whether it was a territorial jurisdiction or whether was it a jurisdiction that requires worldwide income tax compliance – all of these are factors.
If you would like to learn more whether your noncompliance was non-willful, you can call me at (952) 500-8159 or you can email me at [email protected]
Thank you for watching, until the next time.
