Alison Bennett of Bloomberg BNA’s article “Questions surround Standard of Willful Path Conduct under Streamlined Version of OVDP” (9/17/14), summarizes some of her interviews with tax lawyers around the country concerning the Streamlined Filing Compliance Procedures announced by IRS on June 16, 2014.

I’ve questioned the usefulness of the Streamlined Process for U.S. persons in prior blog posts and my colleagues interviewed by Ms. Bennett have similar reservations. Some of the comments are summarized below, namely:

  • The government may take a stricter view of non-willfulness for those trying to transition out of the OVDP into the Streamlined Process under the transitional rules also announced on June 16, 2014.
  • One practitioner’s experience is that most transitional applications are being rejected by IRS.
    • Apparently, as I’ve discussed in earlier posts there is no appeal of this IRS decision.
  • The IRS seems to be interpreting non-willfulness using a stomach test: Did you know in your gut that you had a legal obligation to report the foreign accounts?
    • But that test goes to knowledge of the legal obligation and should not necessarily mean per se that the failure to disclose was willful.
  • The Streamlined Process is laden with risk to the taxpayer who is going out on a limb by giving an affidavit under oath.
    • There is no guidance from IRS about how it will apply the willfulness standard under the Streamlined Process. For example:
      • Will U.S. persons be held to a tougher standard than expats? I would not be surprised if that is the case, but IRS is silent.
      • Willful Blindness: What will constitute in the eyes of IRS a conscious effort to avoid learning about the reporting requirements?
        • The IRS Internal Revenue Manual says not checking the box on Schedule B of Form 1040 will not alone establish willful blindness, but does not say what facts will?
      • Look back period for facts to establish willfulness: Though a taxpayer must only file three years of income tax returns and six years of FBARS under the Streamlined Process, will IRS go back further searching for badges of fraud or other acts indicative of willfulness?
        • IRS could go back to the opening of the account.
    • Can one, knowing the frailties of memory, make, under oath, an affirmative certification of non-willfulness?
    • I am certain that most, if completely honest with themselves, will not be able to make that assertion in good faith or with any degree of intelligent certainty.
  • All who represent clients in Voluntary Disclosure matters would like to see IRS at least publish some broad brushstroke guidance on how the view thewillfulness issues, such as
    • Will the standard be differently applied for U.S. persons versus expats?
    • Under what circumstances will willful blindness be asserted?
    • What are the largest factors in the eyes of IRS leaning towards willfulness?
    • What are the largest facts leaning towards non-willfulness?
    • Are there any safe harbors on which practitioners can rely in advising clients?
  • To date the IRS has been want to provide guidance because it says, the facts in every case are so divergent. While this is true, some broad guidance would be helpful.

Robert S. Steinberg, Esquire


Posted in 214 OVDP, TAX | Tagged , , , , , , , , | 1 Comment


A New Hampshire U.S. District Court decision U.S. v. Baker 13-cv-213-PB2014 DNH 176, August 22, 2014) highlights some important lessons about the priorities of a divorce decree against a federal tax lien on one of the spouses.

The facts of the case

  • Mr. and Mrs. Baker filed for divorce on 2/28/08, after ten years of marriage.
  • The Bakers owned two parcels of land in New Hampshire as tenants with rights of survivorship.
  • The two properties had been purchased by them in 2000 and a quitclaim deed recorded with the Register of Deeds reflecting their ownership rights.
  • The Massachusetts state issued a divorce judgment on 2/28/08.
  • The divorce judgment became final on 5/29/08.
  • The judgment of divorce approved and incorporated the Baker’s separation agreement.
  • The Massachusetts court found the separation agreement to be “fair and reasonable and not the product of any fraud, duress or coercion.”
  • The agreement states in part:
    • The Wife shall own solely the piece of land located at Micion Rd., Campton, New Hampshire (“Land”). Within thirty (30) days following the date of the Agreement the Husband shall execute a deed transferring and conveying to the Wife all of his right, title and interest in and to the Land, free and clear of all existing liens. The Husband hereby waives and releases any and spousal rights in the Vacation Home, which he may have or acquire under the present and future laws of any jurisdiction.
  • Neither the divorce judgment nor a deed conveying the Land to Mrs. Baker was recorded with the Register of Deeds subsequent to the divorce.
  • On May 14, 2009 the U.S. assessed unpaid income taxes against Mr. Baker.
  • On October 21, 2009 the U.S. sent a levy notice to Mr. Baker.
  • The IRS then recorded its federal tax lien in the amount of $2,458,609 on November 9, 2009.
  • The IRS later assessed additional taxes against Mr. Baker and send to him a second levy notice on 7/29/10 and on 8/9/10 recorded a second notice of federal tax lien for $1,133,687.
  • On May 1, 2013 the U.S. sued both Mr. and Mrs. Baker seeking a judicial sale of the Land transferred to the Wife under the divorce decree as partial satisfaction of Mr. Baker’s tax liability now totaling over $4 million.

Government’s Argument and Court’s decision

The government argued that the failure to execute and record the deed as required in the Separation Agreement invalidates the conveyance to the Wife. The government argued that since the deed was not recorded, a subsequent bona fide purchaser for value would have priority over the wife’s interest in the property.  The Court rejected the government’s argument.  That Mr. Baker could defeat the Wife’s interest by making a fraudulent transfer to a purchaser without knowledge of the earlier transfer who pays full value is irrelevant.  Mrs. Baker could still enforce her full title rights against Mr. Baker.

Under New Hampshire law (applied as the property is located in NH) the Separation Agreement effectuated an immediate severance of the Joint tenancy and transfer of Mr. Baker’s interest to Mrs. Baker.  The deed requirement was not intended in the Separation Agreement to be a condition precedent. The Separation Agreement  did not require that the deed be recorded before Mr. Baker ceased to have an interest in the Land.

“Mr. Baker lost his right to own, transfer or encumber the properties when the divorce judgment became final.” NH law did not give him any enforceable right to the properties after that date.

Whether one has an interest in property is determined under state law. Whether the federal tax lien attaches to such property interests is a matter of federal Law.  In U.S. v. Baker, the U.S. District Court found that Mr. Baker ceased to have any property interest in the Land conveyed to Mrs. Baker under the divorce decree upon entry of the divorce judgment.  Thus, there was no property interest of Mr. Baker against which the federal tax lien could be enforced.


  • The result could in this case be different for property located in a state with a race to record statute.
  • Mrs. Baker prevailed in this case, but the dispute would have been averted if she had simply made sure that the deed was recorded.
  • The Lesson: Record all divorce conveyances that can be recorded. Record both the judgment and deed or other document of transfer.
  • In this case the tax lien arose and was recorded after the divorce judgment had been entered. But, don’t assume there are no income taxes unpaid or no tax liens recorded. Spouses should obtain federal and state tax transcripts and conduct a search for tax liens before signing a Separation Agreement.
  • A tax attorney knowledgeable on federal tax liens and state property law should resolve issues of tax lien priority.   A CPA is not trained to make these legal determinations.

© 2014 by Robert S. Steinberg, Esquire
All rights reserved

Posted in SUITS TO COLLECT TAX, TAX | Tagged , , , | Leave a comment


“A will-o’-the-wisp is an atmospheric ghost-light seen… at night, especially over bogs, swamps or marshes. It resembles a flickering lamp and is said to recede if approached, drawing (sojourners) from the safe paths.”(Wilkipedia).  Most clients with unreported offshore accounts who contact me these days want to enter the new IRS Streamlined Filing Compliance Program and insist that their conduct was and is non-willful. They are moved by the lower 5% penalty for U.S. persons, much less severe than the OVDP 27.5% penalty or 50% penalty for those having accounts with banks on the DOJ’s under investigation list.   But, non-willfulness like the will-o-the-wisp is a fickle fire.  You may see it but IRS may not, for non-willfulness or willfulness to a great extent is in the eyes of the beholder.  There is significant uncertainty about how IRS and the courts will apply the willfulness element of FBAR civil violations. Two court decisions have implied there may be strict liability when a return is signed without reporting a foreign financial account.   IRS has not provided guidance on what specific factors will influence it to accept or reject a Certification of Non-Willfulness.  At a June Tax Controversy Forum John McDougal, special trial attorney and division counsel, IRS Small Business and Self-Employed Division, was quoted to have remarked: “The concept of willfulness is well documented in the case-law…. We’re depending on the practitioners to help clients work their way through what the risk is of criminal prosecution and significant penalties.”

In light of this uncertainly and ambiguity in IRS’s position on willfulness, the Streamlined Process could become a swamp some will come to rue having entered. Why? Because those entering the new Streamlined Process must certify under penalties of perjury that their conduct was non-willful, that sly will-o-the-wisp again.

In determining non-willfulness, one must, in effect, rule out willfulness.   The rule of law is easy to state.  Conduct is willful when there is a voluntary, intentional violation of a known legal duty.

To decide that the failure to file an FBAR was willful, a court must find:

  • That there was a legal duty to file imposed on the taxpayer.
  • That the taxpayer had knowledge of the legal duty to file, and
  • That the taxpayer voluntarily and intentionally did not file as required.


Legal duty

In the case of an FBAR, the Bank Secrecy Act Sec. 5314 broadly imposes a duty to file on those U.S. persons having an interest in or authority over one or more foreign financial accounts the aggregate value of which exceeds $10,000 at any time during the calendar year.  The report is due by June 30 of the following year to which it relates.  This question of whether one has a financial interest in a foreign account can, itself involve a complex web of tax and foreign law, but I shall not discuss that question in this post.

Knowledge of legal duty

The next question is did the person know of that obligation?  The Fourth Circuit Court of Appeals (Williams case) and District Court  for the Southern District of Utah (McBride case) on facts replete with evidence of willfulness, held that a taxpayer is presumed to have read his or her return and is charged with knowledge of the information contained in the return.  Thus, the taxpayer is charged with knowledge of the FBAR requirement because Schedule B asks “do you have an interest in a foreign financial account,” and refers taxpayers to the instructions that explain the FBAR filing requirement.’’  This is the concept of “willful blindness,” that is, taking steps to prevent acquiring knowledge of the filling requirement (in the case discussed, failing to read the return and instructions). These two decisions  found that willful blindness not only established knowledge but willfulness as well because the conduct of signing a return without reading explicitly referenced instructions about the FBAR requirements showed a reckless disregard that establishes willfulness..  But, both Williams and McBride had so many overt acts of bad intent that the court did not need to base its decision on the Schedule B question alone; and, it is uncertain whether the suggested strict liability proposed in those two cases will apply on more innocent facts.

Intentional violation

Putting aside the Schedule B question for the moment, in analyzing willfulness or whether the violation was intentional, it is helpful to think of the bell curve.  Conduct at the two extremes is easy to characterize, but conduct in the middle of the bell curve is more difficult.  Usually, one begins to add up overt acts indicative of willful conduct until the pile of willful acts becomes a mass, which taken together convinces that the failure to file was volitional.  These acts could include:

  • Using a coded or numbered account.
  • Using a structured investment with a nominee title holder.
  • Using an intermediary who has been indicted or is under investigation.
  • Using a bank under DOJ criminal investigation, has been indicted or has entered into a non-prosecution agreement or deferred prosecution agreement.
  • Using a bank in a country with strict bank secrecy laws.
  • Making systematic withdrawals of cash just under $10,000.
  • Instructing the bank to hold mail and not send statements to the U.S. address.
  • Having a very large account balance.
  • Having large unreported income compared to reported income on your U.S. return.
  • Telling your tax return preparer who asks about foreign bank accounts, that you have none (whether asked in person or in a tax organizer provided by the preparer).
  • Lying to or evading questions posed by a Revenue Agent or attempting to impede the examination.
  • Checking the “No” box as to the foreign bank account question on Form 1040, Schedule B (But, may require some of the above other acts evidencing willfulness in addition).


Burden of proof

The burden of proof has two elements:

  1. Who must sustain the burden as to the level of proof required?  and,
  2. What level of proof is required to establish willfulness?

Who must prove willfulness?

In determining eligibility for the Streamlined Process, it is the taxpayer who must establish the facts supporting non-willfulness or that his conduct was due to negligence, inadvertence, mistake or conduct that is the result of a good faith misunderstanding of the requirements of law.  In the end, however, the government to convict in a criminal case or successfully collect the FBAR penalty will have the burden of proof.  If that is the case, what difference does it make that the taxpayer must establish non-willfulness for eligibility under the Streamlined Process?   For one thing, the failure to file, failure to pay, and accuracy-related penalty will be in play even if the result of a trial is that the taxpayer is found to have been non-willful.  A court will not likely second guess the IRS on its decision to reject a taxpayer from the Streamlined Process because the IRS did not have to offer the relief and the taxpayer did not have to apply.  Thus, a low threshold is likely to apply to IRS actions on eligibility questions.

On the other hand, the burden of proof is on the government in all criminal cases, in penalty cases under the Internal Revenue Code, and in FBAR penalty actions under the Bank Secrecy Act.

Level of Proof

The District Courts in both Williams and McBride held that the government must prove willfulness by only a “preponderance of the evidence”.  This means that the greater weight of the evidence must indicate that the taxpayer’s conduct was willful.  These were cases in which the penalty was assessed and the government sued the taxpayer to obtain a judgment for the debt on which it could then seek to collect.  “Preponderance of the evidence” is a much lower standard than “beyond a reasonable doubt” required in criminal prosecutions or even “clear and convincing evidence”, as required in civil fraud penalty cases under the Internal Revenue Code.  “Clear and convincing” proof falls in between a “preponderance of the evidence” and “beyond a reasonable doubt:”

A 2006 IRS Chef Counsel’s Memorandum and its Internal Revenue Manual indicate that IRS believed “clear and convincing evidence” was necessary to establish willfulness in an FBAR collection suit.  Now, however, IRS is arguing that the lower “preponderance of the evidence” burden applies.  Since only two district courts have ruled on this issue, uncertainty will prevail until higher courts rule.

When will I know if IRS has accepted my “Certification of Non-willfulness?”

Unlike the OVDP, IRS will not acknowledge your Streamlined submission or enter into a closing agreement (Form 906) with you.  Thus, you will not initially know if IRS has accepted you submission under the Streamlined process.  Rather, you will wait.  Wait for what?  For the statute of limitations on assessment to run.  IRS normally has three years from the filing date to assess additional tax but this time limit is increased to six years if gross income is understated by more than 25%.  Fraudulent returns have no time limit after which IRS cannot assess tax.  IRS can assess a fraudulent return at any time.

This seems unfair.  IRS should at least notify a taxpayer if he or she has been accepted or rejected under the Streamlined Process as to non-willfulness.

Suggestion: for a deceased taxpayer, file a Request for Prompt assessment under IRC Sec. 6501(d) on Form 4810 after filing your Streamlined submission to shorten the statute of limitations to 18 months.  Nothing says that you cannot and this may be an excellent idea.

What happens if IRS says my conduct was willful?

Bad things can happen and apparently there is no appeal from the IRS determination about one’s eligibility for the Streamlined Process.  What happens then if you are kicked out of Streamlined?  Some consequences:

  • Your returns for all open years under the statute of limitations may be audited, not just the three-years filed.  If fraud found, all years are fair game for audit. Thus, you may be assessed substantial additional income tax.
  • You have no criminal protection for FBAR and income tax violations.  Thus, you can go to jail and expect IRS to make some examples out of some filing frivolous non-willful certifications.
  • You may be assessed the maximum income tax penalties including late payment, late filing, accuracy related and/ or civil fraud penalty..
  • You will have appeal rights with regard to the income tax penalties proposed or assessed upon examination.
  • IRS may assess the FBAR penalty but will have to sue you within two years of assessment to collect as the income tax levy procedures do not apply.
  • You may be charged with perjury for your false certification of non-willfulness.


The linchpin of the Streamlined Process is the willful / non-willful determination.  This is a very complex issue, made more difficult by uncertainly about how the IRS will determine willfulness and what burden of proof will be applied. An attorney experienced in criminal tax matters should conduct the analysis of whether the client’s conduct was willful or non-willful.  A CPA, accountant or enrolled agent, apart from having no communications privilege, is not trained to make such legal determinations.

Cautionary Note

This post is intended to provide the lay reader with a basic understanding of some of the willfulness / non-willfulness issues and is not intended as an exhaustive or scholarly dissertation on the subject.   Thus, citations by and large are not included and the discussion is general in scope.  This summary is not intended as legal advice and should not be relied upon for any specific solution to an FBAR problem.


© 2014 by Robert S. Steinberg, Esquire
All rights reserved

Posted in TAX | Tagged , , , , , , , , , , , , , , , | 4 Comments


This predicament is not an uncommon occurrence.  Many taxpayers may have had a foreign bank or brokerage account and reported the income in their tax returns or earned no income but did not know they had to file an FBAR.  They are often panic-stricken over what they have heard are horrific consequences.  But, there is now light at the end of the tunnel thanks to a new IRS procedure aimed at these taxpayers.

Should these taxpayers with delinquent FBARS enter the OVDP?

Absolutely not.  The Offshore Voluntary Disclosure Program or OVDP is for tax criminals or those who fear imposition of a draconian civil FBAR penalty.  The OVDP is not for those who’ve reported all income from an offshore account but failed to file an FBAR or other foreign information return.

Should they elect the new Streamlined Compliance Procedures?

No, they should not.  The Streamlined Procedures (which are really two processes one for expats and one for U.S. residents) is for those taxpayers who have unreported income and / or unfiled or FBARS, where the non-reporting or failure to file was not willful but due to, “negligence, inadvertence or mistake, or conduct that is the result of a good faith misunderstanding of the requirements of the law.” (Language from Streamlined Process Certification). The Streamlined Process is not for those who’ve reported all income or had no income to report on the account but simply neglected to file an FBAR.

How could the taxpayers have no income on an account?

  • Two examples:
    • A non-interest bearing account such as a checking account maintained for the convenience of paying expenses when visiting the foreign country on as a tourist or on business.
    • A trading account that earns no income or incurs a loss during the year.

Then, what should the taxpayer do?

These taxpayers should follow the Delinquent FBAR Submission Procedures published by IRS on June 18, 2014.

Who may use the Delinquent FBAR Submission Procedures?

A taxpayer who:

  • Did not file an FBAR, when required.
  • Is not currently being civilly examined by IRS and is not currently the target of an IRS criminal investigation.
  • Has not been contacted by IRS about the delinquent FBARS.
  • Does not need to file delinquent or amended tax returns to report and pay additional tax.

How do you file delinquent FBARS under the Delinquent FBAR Submission Procedures?

  • E-file the delinquent FBARS as provided in the FBAR filing instructions using the BSA E-Filing System. You generally cannot paper file the FinCEN Form 114 which replaced the TD 90-22.1 form which had been filed with the Department of the Treasury in Detroit.
  • On the first page of the E-filing input screens there is a drop down menu where the filer must indicate the reason for filing late.  The most common reason for those who have reported all income will be, “Did not know I had to file,” but there are other selections including “Other,” for which an explanation must be provided in limited space.
  • If for some reason you are unable to file electronically, you may contact FinCEN’s Regulatory Helpline at 1-800-949-2732 or 1-703-905-3975.

Will I be penalized for filing late?

No. The IRS in its announcement of the Delinquent FBAR Submission Procedures states:

“The IRS will not impose a penalty for failure to file delinquent FBARS if you properly reported on your U.S. tax return, and paid all tax on, the income from foreign financial accounts reported on the delinquent FBARS and you have not been previously contacted regarding an income tax examination or a request for delinquent returns for the years for which the delinquent FBARS are submitted?”

Will my income tax returns or FBARS be audited?

The IRS announcement regarding Delinquent FBAR Submission Procedures states:

“FBARs will not be automatically subject to audit but may be selected for audit through the existing audit selection processes that are in place for any tax or information returns.”

While the announcement does not mention income tax returns, presumable the same no-automatic-audit rule will apply.  If an audit later reveals that income was not reported on the account, the taxpayer will face potentially severe FBAR and income tax civil and criminal sanctions.

How many years of delinquent FBARS must I file?

File delinquent FBARS for the years open under the Statute of Limitations for assessing FBAR civil penalties.  Normally that will be six years because the Statute of Limitations is six years from the due of the delinquent FBAR, (June 30).  Unlike the Statute of Limitations on income tax assessments, the FBAR Statute begins to run even if no FBAR was filed.  Thus, a 2007 FBAR, due June 30, 2008 would not be required to be filed now because the Statute of Limitations expired on June 30, 2014.  Assuming the 2013 FBAR was timely filed, one would file for the years 2008 through 2012.

Can my CPA prepare and e-file the FBAR for me?

In most cases yes, if it is clear that all income earned on the account was reported. Caveat: There is no di minimis rule; even nominal unreported income will disqualify a taxpayer from using the Delinquent FBAR Submission Procedures and relegate him to employing the OVDP or Streamlined Offshore Compliance Procedures.

Unless it is clear that no income went unreported, taxpayers should probably first consult with an experienced OVDP tax attorney about how to proceed. A CPA has no communications privilege as does an attorney and may be told incriminating admissions about which he can for compelled to testify.


© 2014 by Robert S. Steinberg, Esquire – CPA All rights reserved.




An article in the Wall Street Journal on July 19, 2014 by John Letzing (“Taxpayers Get Incentives to Report: Swiss Banks Aim to Entice Americans to Disclose Accounts to IRS by Helping Cover Costs, Penalties”), reveals what many professionals have known for a while.  Some Swiss Banks are pressuring and offering inducements for clients to enter the IRS Offshore Voluntary Disclosure Program and agree to waive Swiss Bank Secrecy laws that the banks can disclose their accounts.

Why are the Swiss banks so eager to have their American customers enter the OVDP that they would offer financial incentives?

Answer: Because, it serves the bank’s interests.  Over 100 smaller Swiss banks have entered the Swiss Bank Settlement Program offered by the Department of Justice and sanctioned by the Swiss government.  These so-called Category 2 banks not presently under investigation will pay a penalty under negotiated non-prosecution agreements (NPAs).  The banks must encourage clients to enter the OVDP and have until mid-September to offer proof to the DOJ they they’ve met that condition.  In addition, hidden funds voluntarily disclosed by such clients can reduce the penalty the bank must pay under the NPA.  Beyond that reason, banks participating in the program are barred by Swiss law from turning over to DOJ client identities.  Thus, the banks want clients to waive the bank secrecy law prohibition and permit turning over names.

What are some banks offering? 

Answer: The incentives vary from bank to bank and can be modest to substantial and are said to have included agreements to pay:

  • A modest flat sum such as $5,000.
  • A modest share of expenses such as in the case of Zuger Kantonalbank, the cost of the first visit to a tax specialist in connection with entering the OVDP.
  • A share of legal and accounting fees which can be substantial, and,
  • In some cases, a share of the Offshore Penalty imposed under the OVDP.

What does it all mean?

Swiss banks offering inducements are sending letters to clients that warning that if the client refuses to voluntarily disclose, the U.S. tax authorities may obtain their identity through other means such as by analyzing the general account data that will be provided to the DOJ under the Swiss Bank Settlement Program or by making treaty requests for assistance in identifying clients who have not come forward.

In this regard, the Swiss banks are correct.  It is no longer a matter of if a client’s identify will be uncovered but when.  The rocks under which to hide are becoming few and the search for those still hiding becoming more intense and focused.

RSS Comments:

  • By all means seek financial assistance from the bank with these caveats:
    • The financial inducement could be taxable income itself reportable.
    • The DOJ is considering whether these arrangements are objectionable. Why would they be?  I’ll speculate on two possibilities:
      •  Does the payment of compensation taint whether a voluntary disclosure has been made?
      • Should a bank’s penalty under the Swiss Bank Settlement Program be reduced when it has paid compensation to obtain the disclosure?
    • .  Certainly, any inducements should be disclosed in the OVDP submission.
  • Whether or not incentives are offered by your bank, the time for hiding is over.

RSS Suggestion:

If you are still out in the cold with an unreported Swiss or other foreign financial account, you should have acted sooner; but, the time for helpful action is growing perilously late.  So, a word to the wise: Contact an experience OVDP tax lawyer to discuss how you may come into compliance with the least risk of criminal sanctions and the lowest possible financial cost.   Every case is distinct.  There are no generalities that can be applied to how to go about this.  There are, however, alternatives to the OVDP that may be available to some taxpayers.

© 2014 by Robert S. Steinberg, Esquire All rights reserved

Posted in 2012 OVDP, 214 OVDP, FBARS, NEW OVDP, OFFSHORE BANK ACCOUNTS, TAX, TAX CRIMES, VOLUNTARY DISCLOSURE | Tagged , , , , , , , , , , , , | 1 Comment


John J. Scroggin published an interesting and entertaining survey of tax complexity in the Wealth Strategies Journal (Tax Complexity, History, and Humor, July 8, 2014).

The article begins with a quote from Judge Learned Hand:

 “In my own case the words of such an act as the Income Tax… merely dance before my eyes in a meaningless procession: cross-reference to cross-reference, exception upon exception—couched in abstract terms that offer [me] no handle to seize hold of [and that] leave in my mind only a confused sense of some vitally important, but successfully concealed, purport, which it is my duty to extract, but which is within my power, if at all, only after the most inordinate expenditure of time. I know that these monsters are the result of fabulous industry and ingenuity, plugging up this hole and casting out that net, against all possible evasion; yet at times I cannot help wondering whether to the reader they have any significance save that the words are strung together with syntactical correctness.”

Some key points from the article:

  • Even seasoned return preparers are flummoxed by the tax law. Scroggin cites studies in which the same tax information was provided to many different return preparers with the result that no none came up with the same amount of tax due or refund on the return.
  • Politicians call for tax simplification but haven’t delivered on the promise.
  • Complexity makes tax filing much more burdensome and expensive and impedes voluntary compliance.
  • Complexity acts as a drag on the economy.
  • The IRS finds it increasingly difficult to administer the tax laws as a result of growing complexity and diminished funding.
  • Factors adding to complexity include:
    • Girth of the tax code now estimated to contain 4 million words.
    • Sun-setting tax laws that politicians like because they disguise the long term cost of the tax expenditure.
    • Constant changes in the tax code.
    • Incomprehensibility of many provisions of the tax code.
    • Too many conditions that block purported tax benefits
    • Many different phase – out provisions with many different phase out schedules.
    • Too many exceptions and limitations.
    • Too many penalties that often apply to unintentional mistakes.

Scroggin quotes Alfred E. Neuman who said” Today, it takes more brains and effort to make out the income-tax form than it does to make the income.”

Scroggin offers some ideas as to why the tax code is so complex which include:

  • Special interest lobbyists obtain lucrative special tax breaks for clients.
  • Social engineering through the tax code or using the code to achieve non-tax social goals.

Scroggin admonishes tax professionals never to rely on memory when giving a tax answer. The code is simply too complex these days, he says.  Instead read the code sections and run the numbers.


Does this tax complexity impact decision making in the Offshore Voluntary Disclosure area?  The answer, of course, it does.  Like everything the IRS does, it has turned the decision whether to make a Voluntary Disclosure into a deceptively simple but excruciatingly difficult analytical problem.

There is no one solution for a client who has an unreported offshore bank account.  There are a number of alternative routes one may take to come into compliance:

  • OVDP
  • OVDP and Opt-out
  • Streamlined Process for taxpayers residing outside of the U.S.
  • Streamlined Process for taxpayers residing in the U.S.
  • Transitional Rules for those who’ve mailed their OVDP Letter before July 1, 2014.
  • Quiet Disclosure.
  • Filing forward.
  • Do nothing is Statutes of Limitations have run.
  • Traditional Voluntary Disclosure for those with domestic unreported income.
  • Optional compliance procedures for those with unfiled FBARS but no unreported income.
  • Optional Compliance Procedures for those with unfiled information returns but no unreported income.

Selecting a course to a safe harbor is a difficult decision-making process.  No two taxpayers are in the same boat and no one course of action will fit every case.  The facts and circumstances surrounding the establishment of the account, its maintenance and closure, if closed, must be determined and evaluated.  Only then can a sound decision be made how to proceed.  Making the wrong choice can have disastrous consequences including jail time and imposition of draconian penalties that amount to seizure of your property.  Thus, the decision process should be taken very seriously and conducted with the assistance of an experience OVDP tax lawyer.

Robert S. Steinberg, Esquire





Posted in 214 OVDP, FBARS, NEW OVDP, OFFSHORE BANK ACCOUNTS, TAX, VOLUNTARY DISCLOSURE | Tagged , , , , , , , , , , , , | Leave a comment



Revised FAQ 7.2 provides:

 What if the government is investigating the foreign financial institution where I hold my account or another facilitator who assisted in establishing or maintaining my offshore arrangement?

Beginning on August 4, 2014, any taxpayer who has an undisclosed foreign financial account will be subject to a 50-percent miscellaneous offshore penalty if, at the time of submitting the preclearance letter to IRS Criminal Investigation:  an event has already occurred that constitutes a public disclosure that either

(a) the foreign financial institution where the account is held, or another facilitator who assisted in establishing or maintaining the taxpayer’s offshore arrangement, is or has been under investigation by the IRS or the Department of Justice in connection with accounts that are beneficially owned by a U.S. person;

(b) the foreign financial institution or other facilitator is cooperating with the IRS or the Department of Justice in connection with accounts that are beneficially owned by a U.S. person or (c) the foreign financial institution or other facilitator has been identified in a court- approved issuance of a summons seeking information about U.S. taxpayers who may hold financial accounts (a “John Doe summons”) at the foreign financial institution or have accounts established or maintained by the facilitator.

Examples of a public disclosure include, without limitation:  a public filing in a judicial proceeding by any party or judicial officer; or public disclosure by the Department of Justice regarding a Deferred Prosecution Agreement or Non-Prosecution Agreement with a financial institution or other facilitator.

  A list of foreign financial institutions or facilitators meeting this criteria is available (see below).

Once the 50-percent miscellaneous offshore penalty applies to any of the taxpayer’s accounts or assets in accordance with the terms set forth in the paragraph above, the 50-percent miscellaneous offshore penalty will apply to all of the taxpayer’s assets subject to the penalty (see FAQ 35), including accounts held at another institution or established through another facilitator for which there have been no events constituting public disclosures of (a) or (b) above.

Foreign Financial Institutions or Facilitators (as of 6/20/14)

  1. UBS AG
  2. Credit Suisse AG, Credit Suisse Fides, and Clariden Leu Ltd.
  3. Wegelin & Co.
  4. Liechtensteinische Landesbank AG
  5. Zurcher Kantonalbank
  6. swisspartners Investment Network AG, swisspartners Wealth Management AG, swisspartners Insurance Company SPC Ltd., and swisspartners Versicherung AG
  7. CIBC FirstCaribbean International Bank Limited, its predecessors, subsidiaries, and affiliates
  8. Stanford International Bank, Ltd., Stanford Group Company, and Stanford Trust Company, Ltd.
  9. The Hong Kong and Shanghai Banking Corporation Limited in India (HSBC India)
  10. The Bank of N.T. Butterfield & Son Limited (also known as Butterfield Bank and Bank of Butterfield), its predecessors, subsidiaries, and affiliates


  • Obvious as the nose on one’s face is the fact that taxpayers with accounts at the above listed banks had better get into the OVDP or take action to come into compliance before August 4, 2014.
  • Also obvious is that fact that other banks are presently in the IRS’s headlights and may be added to the list at any time. So, taxpayers with accounts at non-listed accounts should take action and not be lulled into the belief that they are home free.
  • While those with accounts at the above listed banks who come in from the cold will face a 50% penalty, that is still much less than the maximum penalty of 300% of the account value that could apply and less than the penalties that IRS has asserted in some recent cases, one most notably in which the penalty assessed exceeded the account value.

© 2014 by Robert S. Steinberg, Esquire All rights reserved


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