I receive many inquiries about Streamlined Filings from U.S. citizens or Green Card holders living outside the U.S. as well as from recent immigrants to the U.S. or work visa holders living inside the U.S. In all of these cases, the individuals have read a good deal about Streamlined Filings and often OVDP submissions on the internet. They frequently have spoken to any number of other professionals about these alternatives for coming into compliance. And, most often they are totally confused, misinformed or have misunderstood what they have read or been told.

Let me try to clear up some common misconceptions:

  1. Nature of Streamlined Filing Compliance Procedures (SFCP).   The OVDP is an offspring of the IRS general Voluntary Disclosure Procedures found in the Internal Revenue Manual IRM), with added features that include prescribed FBAR penalty and income tax penalty provisions along with the grant of amnesty from criminal prosecution for disclosed criminal conduct related to the offshore accounts.   The SFCP on the other hand do not represent a formal voluntary disclosure program and do not grant amnesty from criminal charges.   Rather, the SFCP are procedures for filing delinquent returns and foreign reporting forms of non-willful taxpayers under a filing process that offers penalty relief. Unlike the OVDP there is no upfront screening of candidates for the Streamlined Process and the process does not end with the signing of a closing agreement, a contract between IRS and the taxpayers, resolving all tax issues for the years covered. Streamlined Filings, after a preliminary facial review by IRS Streamlined personnel in Austin Texas, are processed like other tax returns but subject to Streamlined relief as to penalties.   Because the Streamlined Procedures do not offer criminal amnesty taxpayers whose conduct borders on criminal or could be viewed as criminal, should not attempt to come into compliance under the Streamlined Process. Yet some comfort may be taken from the likelihood that a Streamlined Filing which IRS considers to flow from willful noncompliance, nonetheless may qualify as a Voluntary Disclosure under the Voluntary Disclosure policies stated in the IRM. This could be a vital fallback argument should IRS disagree with the conclusion of the Non-willful Certification.
  2. Streamlined returns are not ordinary returns: Streamlined returns may be processed like other delinquent or amended returns but they are not ordinary tax filings. Because there is no criminal amnesty grant, IRS could still treat the taxpayer’s conduct as willful or even criminal. Therefore, streamlined returns must be prepared with much greater care and due diligence than would be required for a timely filed original return.  All items of income, deduction and credit should be verified by the return preparer. It is imperative that no mistakes or errors appear in the Streamlined returns. Normally, a return preparer need not review underlying source documents but can take the taxpayer’s word for amounts of income, deduction and credit that do not appear unreasonable on their face. Not so in a Streamlined filing. The return preparer must examine all source documents and make sure that the items are properly reported both as to amount, year and character of the item being reported. Being cavalier about a Streamlined filing can lead to disastrous results. As a result, Streamlined returns will be more costly than timely filed returns or most amended returns that do not seek to correct offshore noncompliance.
  3. Streamlined filings have a legal component: Streamlined Filings required submission of Form 14653 or Form 14654, Non-willful Certifications. The forms, signed under penalties of perjury contain some tax and foreign account information but also require a detailed statement of the reasons why the taxpayer believes his or her conduct is non-willful. Characterizing a taxpayer’s conduct as negligent, grossly negligent, inadvertent, ignorant, reckless, willful, willfully blind, non-willful or criminal is a legal determination. It requires that an attorney experience in these matters who must:
    1. Obtain documents concerning the foreign financial accounts from the client, foreign financial institutions, others and IRS records on the taxpayer;
    2. Interview the client and other individuals having knowledge of the facts.
    3. In all of this gathering of facts attempt to preserve, in so far as may be possible, attorney-client privilege, the client’s Fifth Amendment Privilege against self-incrimination, and attorney work product privilege.
    4. Draw legal conclusions as to the character of the client’s conduct based on all of the evidence obtained.
    5. CPAs or Enrolled Agents, usually are capable return preparers, but they are not licensed or trained as attorneys and therefore commit malpractice and do clients a serious disservice when attempting, as some do, to complete the legal component of Streamlined filings.
  4. Husbands, Wives and the 330 day rule: Taxpayers who spend 330 days outside of the U.S. in any one of the three most recent years for which the filing due date has passes are treated as residing outside of the U.S and may file under the Streamlined Procedures for persons residing outside of the U.S.   A husband and wife are tested separately for this rule. Thus, if a couple live outside of the U.S., have no U.S. abode but the husband spent more than 35 days in the U.S. during all three most recent delinquent return years, the couple will not be able to file delinquent joint returns under the Streamlined Process. Nor will the husband be able to file Married Filing Separately returns under the Streamlined Process. Rather, the choices available are:
    1. Assuming as stated above that no returns have previously been filed for the three most recent years for which the due date has passed:
      • Wife files a Married Filing Separately Streamlined return under the Streamlined Foreign Procedures; and, Husband files a Married Filing Separately returns outside of the Streamlined process. Under this approach:
        • Wife pays no Miscellaneous Offshore Penalty on the penalty base representing her interest in the highest balance of couples’ foreign financial accounts for the most recent six years for which the FBAR due date has passed.
        • Husband will pay no penalty if he establishes in a statement attached to his delinquent returns that he has reasonable cause for the delinquency. Such a filing should be made only if a compelling argument can be made for reasonable cause because IRS will carefully examine amended returns with offshore disclosures made outside of the Streamlined Process of OVDP.
        • Husband and wife both enter the OVDP. Note that is wife makes a Streamlined filing the husband will be ineligible for the OVDP. According to the OVDP Hotline neither must have made a Streamlined Filing for either to be eligible to enter the OVDP.
    2. Assuming joint returns have been filed for the three most recent years for which the due date has passed:
      • Streamlined filing: File a joint Streamlined filing for persons living inside the U.S. and pay a 5% penalty on the highest balance of their combined foreign financial accounts.
      • Wife cannot file a MFS Streamlined return as in (1) above because a joint return can only be amended by a joint return.
      • If compelling case for reasonable cause can be made, file amended returns outside of the Streamlined Process understanding again that such a filing shines a light on the taxpayers and offers neither protection from penalties nor criminal amnesty.
  5. Husbands, Wives and Non-willfulness: Be mindful that husbands and wives often act in concert but also often act independently of one another. Determinations of willful versus non-willful conduct are specific to each taxpayer. Legal determinations of the culpability of each spouse will play a large part in deciding how to proceed with coming into compliance. Refer to paragraph 3 above.
  6. Calculation of the offshore penalty for Streamlined Domestic Offshore filings:
    1. Under the OVDP regime the penalty base is expansive and includes all assets connected to the noncompliance on which income was not reported. Thus, the value of a rental property on which the rental income was not reported, is included in the penalty base.
    2. For Streamlined filings the penalty base is much narrower and includes only foreign financial assets required to be reported in an FBAR or foreign financial assets reported on those forms but on which the income was not reported. Thus, not reporting rental income does not result in the value of the rental property being included in the Streamlined Domestic penalty base.
  7. Most compelling reasons for entering the OVDP:
    1. You have committed a tax crime or may be viewed as having committed a tax crime and want to avoid being charged.
    2. You fear that the maximum FBAR willful penalty may be assessed against you.
    3. You feel you were non-willful but had very large foreign accounts and want the certainty of not being charged with a crime and more time to consider opting-out of the OVDP penalty regime to argue for a lower FBAR penalty amount on audit.
    4. Taxpayers not falling into the above categories do not belong in the OVDP.
  8. Most compelling reasons for filing returns under the Streamlined Filing Compliance Procedures:
    1. You committed no overt acts that would tend to evidence, “the intentional violation of a known legal duty,” such as by hiding your identify behind a non-operating, nominee entity, using mail-holds or other incriminating means of deception, programmed repatriation of funds in amounts under $10,000 and so on. Again, these determinations must be made by a tax attorney experienced in such matters.
    2. Your tax filing history, educational background, investment experience, financial sophistication, work experience and other detailed facts establish that your failure to property file or report was due to negligence, inadvertence, mistake or good faith ignorance of the law but was not reckless, willful, or, conduct seeking to willfully avoid knowledge of the FBAR reporting requirement; and, also establish that, upon gaining such knowledge, that you promptly began to rectify the noncompliance. Other facts might include:
      1. That the amounts of income not reported are relatively small compared to the income reported in your filed returns.
      2. That the value of assets offshore not reported is relatively small compared to the value of U.S. based assets.
      3. That the assets and income were located in a country from which you immigrated to the US or in which you now live and were not located in a known tax haven country to which you had no connection other connection apart from owing the foreign financial asset.
      4. You’ve lived outside of the U.S. for a long period of time.
      5. Circumstances in your life such as illness prevented you from timely filing or reporting.
      6. Any other facts and circumstances tending to negate willfulness.



The Streamlined Filing Compliance Procedures may seem simple to the uninformed. In reality however, Streamlined filings are very risky to navigate and require specific legal tax expertise as well and sound legal judgment. A Streamlined filing that should not have been made may subject the taxpayer to both criminal prosecution and potentially draconian FBAR and income tax penalties. Thus, taxpayers should carefully select tax counsel seeking legal tax knowledge, experience and mature judgment. Taxpayers should be suspicious of promised results or unreasonably low fees. The wise man sayeth: “When the stakes are high, seek the best advice available.”


© 2017 by Robert S. Steinberg, Esquire
All rights reserved





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Departing from offshore tax issues, this post offers a philosophical discussion of the lost art of compromise and how ideology is hampering the ability of congress to govern. Even within the GOP, now in control of both houses, ideological differences are not easily overcome. Rigid, unchangeable positions are especially destructive to the passage of sensible legislation on complex matters such as tax-reform, health care and immigration.

At the birth of our nation great men of character were able to forge historic compromises on the inflammatory issues of slavery and state’s rights in arriving at language for the Declaration of Independence and provisions in the U.S. Constitution. Our modern leaders seem to have lost the art, being motivated more by hubris and practical political realities than by character or wisdom. The hubris involves rejecting views apart from one’s own as unworthy of consideration and insisting on getting one’s own way at any cost. Regrettably, our new president appears to be afflicted with this malady. This lack of character extends to congress where cowards avoid votes on issues that are politically volatile or simply vote along party lines while ignoring the vital interests of the country. That is not to say that there are not legitimate concerns about the state of our country about which members rightfully may disagree. Such concerns are not new, however. In the 1945 Vincent Minnelli movie “The Clock” starring Judy Garland, a drunk, unable to obtain a drink in a diner because the establishment has no liquor license, blurts: “I have to have a license to buy a drink while this whole country is going to the dogs.” The Congressional two minute drill to push through tax decreases may lead to the passage of a “so-called” tax-reform bill but ideological victories for the GOP may secure nothing but disaster for the American people. The “border-tax” camouflage will upset existing economic stability, tax cuts will grow budget deficits while doing nothing to bring back ghost-jobs forever lost to automation. All while the “so-called” immigration reform will exacerbate a growing demographic problem, the aging population and need for more immigrants, not less.

The mathematician and philosopher Alfred North Whitehead said, “Knowledge shrinks as wisdom grows.” In other words as we grow wiser we realize that we know less than we thought. Just hundreds of years past, scientists believed absolutely that the sun orbited our flat world. Recently, scientists reported discovering that the universe is not as they had believed, concluding now that there are three times as many stars as had previously been calculated. Other scientists were stunned to observe a microbe that lives in an arsenic environment thought previously to be inhospitable to life. Financial gurus and economists have performed no better: the former utilized faulty computer models that, in part, caused the Great Recession: and, the latter long relied on the now deflated theory of a rational market.

A wise friend and client once told me that 50% of what we know today will be proved false eventually. Despite being consistently wrong, humans continue to declare, “I absolutely know this to be so.” At the extreme, religious fanatics who claim to know what G-d demands commit mass murder in his name. More commonly, we all ignore Voltaire who admitted, “Doubt is not a pleasant condition, but certainty is absurd;” and, Nietzsche, “You have your way, I have my way. As for the right way, the correct way, the only way, it does not exist.”

In the 1985 entertaining film Insignificance (Dir. Nicholas Roeg), in which Marilyn Monroe (Theresa Russell), Albert Einstein (Michael Ermil) Joe Dimaggio (Gary Busy) and Joe McCarty (Tony Curtis), cross paths on a hot 1953 night in New York, Einstein says, “When we say ‘I know’ we close our minds to the truth. We are agreeing with someone else instead of turning over the possibilities. Turning over the possibilities is thinking and thinking is what ultimately leads us to the truth.” People thinking over the possibilities is what our founders had in mind in describing democracy as a process of reflection and decision but it is not what William James calls “rearranging their prejudices.”

Congress had decades to consider major tax reform, the last overhaul of the tax code having been made in 1986. Because agreement has been impossible the 2001 Bush tax cuts contained an automatic ten-year expiration date. Instead of debate and compromise, each party has continued to dig in heals over an admittedly complex and contentious subject. Each side declares that its position is correct and the other side is wrong. The estate tax was allowed to expire for 2010 only, an incredible feat of governing malfeasance. Now that the GOP controls both chambers of congress and the White House, we stand on the cusp of looming income tax rate decreases that will, as history indicates, increase the wealth disparity between wealthy and everyone else, but not accelerate economic growth. Thus, tax reform is no more than a ruse to hide a gift to the financially elite.

Meanwhile, instead of serious debate on the deficit (recall the Lincoln – Douglas debates on slavery; or, the William F Buckley – Norman Mailer debates on conservative versus liberal values) and related issues of Social Security, Medicare, Medicaid, a sane health insurance plan, immigration reform, improving education, deciding the future structure of our military, our decaying infrastructure, climate warming, the size of the federal government and division of powers between the federal and state governments amidst a dynamically growing population (2010 census expected to report almost 312.7 million up from 281.4 million in 2000), we hear demagoguery from both parties in the form of statements reeking of bias and misleading inference, bullying for the cause. Instead of intelligent and thoughtful information we are thrown meaningless slogans and derogatory personal characterizations. These political tactics are terribly polarizing and present the picture of an inoperative government more and more resembling a ship dead in the water at the mercy of oncoming storms.

Jean Renoir in his most highly regarded film, “The Rules of the Game” has the character Octave state: “The terrible thing about life today is this: Everyone has his reasons.” Republicans and Democrats are each certain its side is in the right. They each have reasons to believe that the other path will cause great harm to our country. The two sides cling to ideology and already held beliefs that are a roadblock to creative problem solving. They prove true what Abraham Maslow said, “If the only tool you have is a hammer, you tend to see every problem as a nail.” Those recently elected seem unable to rise above politics to govern but are already looking ahead to the next election. There is no longer social or collegial interaction between the two parties which caucus in clicks during the work week and flee home for fund raising on the weekends. Thus always locked in battle, alternative views go unheard and sound principles of governance are ignored as the deficit grows and structural problems in our economy and safety-net remain unresolved.

My general belief is that over time things work-out. I am, however, increasingly concerned with the level of political acrimony and use of fascist-like tactics to attack opposing views many of which are depicted in Sinclair Lewis’ scary book, “It Can’t Happen Here,” a fictional account of how despotism could happen here. Lewis describes a struggle between tolerance and bigotry against intellectuals, one in which normally generous citizens become dangerous fanatics.

Fred Siegel in his Miami Herald review of David Callahan’s book “Fortunes of Change: The Rise of the Liberal Rich and the Remaking of America” speaks of a well funded class conflict between “tea- party stalwarts” and “elites”, citing Callahan: “the most active donors hold the most ideological extreme views.” Irresponsible remarks like unsuccessful Nevada Senate candidate Sharron Angle, “if this Congress keeps going the way it is, people are really looking toward those Second Amendment remedies” could encourage violence among Americans holding the most extreme positions or harboring the most certainty about their own perspective. Were violence to erupt, foreign investors might lose confidence in our political system.

I recently watched an adult trying to show a few children a bowling game. The game consisted of a mat with numbered places for the pins, a ball and plastic pins. The adult kept setting up the pins in the correct places but the kids kept knocking them down and taking them up to use in some other imaginary play they had created for themselves. The adult finally gave up the effort a bit frustrated. What we need today is for adults to recapture the inventiveness and creativity of those children at play. Saul Bellow in his short story, “What Kind of Day Did you Have?” puts it: “Genius must be the recovery of the powers of childhood by an act of creative will…. By combining the strength of a man (analytic power) with the ecstasy of a child you could discover the New.” I see this miracle of creation every when I play with my four and eight year old daughters.

Contrariwise, in the “Lost World of Kalahari,” Laurens Van der Post, writes: “Human beings are perhaps never more frightening than when they are convinced beyond doubt that they are right.” Resolving the problems we face today will require a touch of genius or the Wisdom of Solomon but our problems will not be solved through rigid ideological thinking.

Wilfred Sheed in the short novel, “The Blacking Factory” addresses the morality of a nation: “What (is) national morality all about? … It is the way we talk to each other in the street, the things we laugh at: I think it is a quality of the heart.”

As a nation, we need to get back to plain old conversation, begin to listen to one another again and give respectful consideration to the views of others, however divergent they may be from how we think we think. We need to disconnect from the viral emails that circulate telling us what we already know and seriously consider the opposing argument. Only then can one test the strength of his or her own convictions or opinions. Write to your congressman and demand civility and more governance over politics. If we allow the polarization in Washington to continue, our future may resemble what William Butler Yeats describes in his poem, “The Second Coming:

Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.

I am not suggesting here that every problem can be easily solved or that reaching consensus on tax-reform and other important issues is possible or even desirable. Margaret Thatcher felt, “Consensus seems to be the process of abandoning all beliefs, principles, values and policies.” We may not reach a consensus but compromise is a necessary part of any democratic government if that government is to survive as a democracy. We must demand that our leaders rise above petty grievances and arguments to govern. Governing means adopting the saying atop the magical brick in the tomb of Egyptian Pharaoh Tuthmosis IV (1400-1390 BC)) “You who come to pull my hair, I will not allow you to pull my hair.” My modern interpretation: our elected leaders must not allow themselves to be distracted from governing by political in-fighting and other petty annoyances. They must hunker down to the task of governing which includes addressing the myriad problems facing our generation among which is reforming our arcane, inefficient and overly complicated tax code.
The newspapers are resplendent with columns about possible provisions in the various tax reform proposals. I have refrained here from discussing details but welcome questions or inquiries about how these proposals, should they become law, will impact us.

© 2017 by Robert S. Steinberg, Esquire
All rights reserved

Posted in TAX REFORM, Uncategorized | Tagged , , , , , , , , | 1 Comment

IRS Committed to Stopping Offshore Tax Cheating; Remains on “Dirty Dozen” List of Tax Scams for 2017

IRS Newswire Issue No. IR-2017-35, February 16, 2017 is reproduced below in its entirety.

WASHINGTON — The Internal Revenue Service today said avoiding taxes by hiding money or assets in unreported offshore accounts remains on its 2017 list of tax scams known as the “Dirty Dozen.”

Since the first Offshore Voluntary Disclosure Program (OVDP) opened in 2009, there have been more than 55,800 disclosures and the IRS has collected more than $9.9 billion from this initiative alone.

In addition, another 48,000 taxpayers have made use of separate streamlined procedures to correct prior non-willful omissions and meet their federal tax obligations, paying approximately $450 million in taxes, interest and penalties. The IRS conducted thousands of offshore-related civil audits that resulted in the payment of tens of millions of dollars in unpaid taxes. The IRS has also pursued criminal charges leading to billions of dollars in criminal fines and restitutions.

“Offshore compliance remains a top IRS priority. We’ve collected $10 billion in back taxes in recent years with 100,000 taxpayers making use of our voluntary disclosure programs,” said IRS Commissioner John Koskinen. “The IRS receives more foreign account information each year, making it harder to hide income offshore. I urge taxpayers with international tax issues to come forward and get right with the system.”

Compiled annually, the “Dirty Dozen” lists a variety of common scams that taxpayers may encounter anytime, but many of these schemes peak during filing season as people prepare their tax returns or hire people to help with their taxes.

Illegal scams can lead to significant penalties as well as interest and possible criminal prosecution. The IRS Criminal Investigation Division works closely with the Department of Justice to shut down scams and prosecute the criminals behind them.

Hiding Income Offshore
Over the years, numerous individuals have been identified as evading US. taxes by attempting to hide income in offshore banks, brokerage accounts or nominee entities. Then access the funds using debit cards, credit cards or wire transfers. Others have employed foreign trusts, employee-leasing schemes, private annuities or insurance plans for the same purpose.

The IRS uses information gained from its investigations to pursue taxpayers with undeclared accounts, as well as bankers and others suspected of helping clients hide their assets overseas.

While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements that need to be fulfilled. U.S. taxpayers who maintain such accounts and who do not comply with reporting requirements are breaking the law and risk significant fines, as well as the possibility of criminal prosecution.

Since 2009, tens of thousands of individuals have come forward to voluntarily disclose their foreign financial accounts, taking advantage of special opportunities to comply with the U.S. tax system and resolve their tax obligations. And, with new foreign account reporting requirements being phased in over the next few years, hiding income offshore is increasingly more difficult.

At the beginning of 2012, the IRS reopened the Offshore Voluntary Disclosure Program following continued strong interest from taxpayers and tax practitioners after the closure of the 2011 and 2009 programs. This program will be open for an indefinite period until otherwise announced.

Third-Party Reporting

Under the Foreign Account Tax Compliance Act (FATCA) and the network of intergovernmental agreements between the U.S. and partner jurisdictions, automatic third-party account reporting has entered its second year. The IRS continues to receive more information regarding potential non-compliance by U.S. persons because of the Department of Justice’s Swiss Bank Program. This information makes it less likely that offshore financial accounts will go unnoticed by the IRS.

Potential civil penalties increase substantially if U.S. taxpayers associated with participating banks wait to apply to OVDP to resolve their tax obligations.

1. The IRS and Department of Justice are relentlessly pursuing offshore tax scofflaws and their efforts will not subside.
2. In this endeavor IRS and DOJ are receiving large volumes of information about possible offshore tax violators from numerous sources of which some are:

a. Foreign Banks that have entered the Swiss Bank Settlement Program.
b. Major Swiss banks seeking to avoid criminal prosecution under Deferred Prosecution Agreements.
c. Data collected from entrants into the Offshore Voluntary Disclosure Program.
d. Information in Non-willful Certification affidavits of Streamlined filers.
e. Whistleblower claims filed by those seeking rewards.
f. Offshore violation enablers who have flipped on their clients and are providing information.
g. John Doe Summons issues to banks and others with information about the identity about possible offshore tax cheats. For example, the DOJ recently sought permission from the U.S. District Court in NY to issue a John Doe Summons to Federal Express in connection with its investigation of offshore merchant accounts.
h. Taxpayer information provided under FATCA agreements.
i. Taxpayer information obtained pursuant to the exchange of information provisions in various tax treaties and Tax Information Exchange Agreements.
j. Information obtained though IRS Criminal Investigation (CI) Country Attachés and Deputy Attachés stationed in permanent posts in Frankfurt, Mexico City, Bogota, Hong Kong, Beijing, London, Bridgetown (Barbados), Ottawa, Panama City and Sydney..

3. These information collection and investigative activities collectively are reducing the ability of taxpayers still out of compliance to avoid detection.
4. Taxpayers who have not taken advantage of the OVDP or Streamlined Filing Compliance Procedures to come into compliance with U.S. tax law should seriously reconsider their decision to remain out in the cold.
5. For a discussion of the OVDP compared to the Streamlined Filing Compliance Procedures see my blog post of May 19, 2016, “Comparison Chart: OVDP vs. Streamlined Filing Compliance Procedures found at:

Robert S. Steinberg, Esquire
AV Rated (Pre-eminent) by Martindale Hubbell



I have previously posted on the need for those who are still out of compliance with U.S. tax law to become compliant with their 2016 tax and FBAR filings. “See post of 11/17/16 Taxpayers Must Become Compliant with U.S. Offshore Tax Filing Requirements and FBAR reporting by 2016 – Time May be Running out for Non-willfulness Claims .”

A strategy for coming into compliance should include the following:

1. File an extension for your 2016 income tax return.
2. Your 2016 FBAR, due April 15, 2017, has been automatically extended by FinCEN to October 15, 2017.
3. Retain an experienced offshore tax attorney to determine eligibility for the Streamlined Filing Compliance Procedures and whether your actions in failing to file or report require the greater protection from criminal charges and FBAR penalties offered by the Offshore Voluntary Disclosure Program. See post of 5/1*/16 “Comparison Chart: OVDP vs Streamlined Filing Compliance Procedures.”
4. The tax attorney retained will prepare your Streamlined non-willful certification statement if he or she determines that it is safe for you to submit returns under the Streamlined Program.
5. Retain an experienced offshore tax preparer to prepare original or amended returns for the non-compliant years of 2013, 2014 and 2015 and e-file with FinCEN original or amended FBARS for 2010 through 2015. (Note that taxpayers residing in the U.S. cannot file delinquent returns under the Streamlined procedures).
6. File your Streamlined submission (unless it is determined that you must enter the OVDP).
7. It usually takes at least a couple of months to complete the tax return preparation, review and non-willful certification for a Streamlined filing and sometimes considerably longer. The tax attorney will conduct a due diligence inquiry to confirm your claim of non-willfulness.
8. Timely file your 2016 return and FBAR in full compliance with the income tax laws together with all required foreign reporting forms.

The accepted definition of willfulness for both criminal and civil penalty purposes is a voluntary and intentional violation of a known legal duty. Thus, willfulness requires both knowledge and a voluntary conscious act to not file or report.

Many offshore taxpayers have been contacted by foreign banks conducting FATCA due diligence inquiries to determine if customers are U.S. citizens or residents. These contacts may put the taxpayer on notice that there are offshore filing requirements to which they must attend. The failure to take corrective action, upon obtaining knowledge of the obligation to file returns, FBARS or other foreign reporting forms, is a fact that may weigh on whether IRS views conduct as non-willful. After knowledge of the tax filing and reporting obligations is obtained, failure to file a timely and correct 2016 income tax return, FBAR and foreign reporting forms,  depending on other facts present, may also be viewed as a criminal violation or as conduct supporting the willful civil FBAR penalty.

Criminal willfulness must be proven by the government beyond a reasonable doubt while civil willfulness for the FBAR penalty need only be proven by a preponderance of the evidence (i.e., more than half of the evidence adduced at trial points towards willfulness).
Thus, the wise course of action for those still out of compliance is to address the problem before the 2016 return and FBAR become either delinquent or are incorrectly filed.
Filing returns and making a non-willful certification under the Streamlined program are serious matters that carry great risk if attempted by those who are not well versed in this specialized area of tax law.
© 2017 by Robert S. Steinberg, Esquire
All rights reserved

Posted in STREAMLINED FILING COMPLIANCE PROCEDURES, STREAMLINED FILINGS, Uncategorized | Tagged , , , , , | Leave a comment


The U.S. District Court for the Central District of California in U.S. v. August Bohanec and Maria Bohanec Case No. 215-CV-4347 ddp (FFMx) (filed 12/8/16) handed the IRS victories on two important issues:

1. Held that the standard of proof in civil FBAR cases is the lesser burden of “preponderance of the evidence,” and not the higher standard of “clear and convincing evidence,” and,
2. Held that the willful FBAR penalty may be assessed when the taxpayer’s conduct is reckless but not intentional.

Standard of Proof Issue

When the IRS assesses a willful FBAR penalty, it cannot collect the FBAR penalty assessed under the collection procedures employed to collect income taxes. Thus, IRS cannot levy on bank account, record liens or employ the usual summary collection procedures permitted under the Internal Revenue Code for collecting income tax assessments. Rather, generally within two years from the date of assessment, IRS must commence a suit in U.S. District Court to obtain a judgment for the amount of the FBAR penalty assessed. Once a judgment is obtained, IRS may collect the debt over the life of the judgment (generally 20 years with a renewal period of an additional twenty years).

Taxpayers have argued that the burden of proof required of IRS in proving willfulness should be the higher “clear and convincing evidence” standard. They argue that the Internal Revenue Manual (IRM) states that the standard should be the same as is applied for the civil fraud penalty, that is, “clear and convincing evidence.” This is a higher standard than the general burden of proof standard applied in civil tax matters, which is “by a preponderance of the evidence (POE).” Under the POE standard the fact at issue must be established by the weight of the evidence, that is, by more than 50% of the evidence admitted at trial.

This standard of proof required is a big deal because the government has the burden of proving willfulness in seeking to obtain a judgment for a civil willful FBAR penalty assessment. There is a lot at stake in these cases because the civil willful FBAR penalty is the greater of $100,000 or 50% of the value of the unreported foreign financial accounts on the due date of the FBAR in question.

The Court in Bohanec applied the lesser POE standard of proof as had the U.S. District Courts in the much commented on Williams and McBride cases.
In so holding the court noted that the IRM does not have the force of law and is not relevant to the case at hand.

The Bohanec Court cited the Supreme Court decision in Herman & MacLean v. Huddleston, 459 US. 375, 389 (1983) which held that the “clear and convincing” burden of proof applies in civil matters only, where particularly important individual interests or rights are at stake.” Such rights include parental rights, involuntary commitment and deportation. The lower more generally applicable preponderance of the evidence standard applies, however, where “even severe civil sanctions that do not implicate such interest are contemplated.”

The court held that “the monetary sanctions at issue here do not rise to the level of particularly important individual interests or rights.” Thus, the court applied the POE burden of proof in deciding the case.

Scope of “Willful” issue

The taxpayer had also argued in Bohanec.that IRS Chief Counsel Advice, CCA 200603026, establishes that “willful” for purposes of the civil FBAR penalty under 31 USC Sec. 5321 is the same as the criminal standard for “willful,” that is, an intentional violation of a known legal duty; and, that willful conduct therefore does not encompass conduct that is reckless but not intentional.

The Court held that the CCA may not be cited as precedent and that no court has adopted the view stated in the CCA or espoused by the taxpayer.

The Court cited Safeco Ins. Co. of America v. Burr, in which the Supreme Court explained that “willfully is a word of many meanings whose construction is often dependent of the context in which it appears.” 551 U.S. 47, 57 (2007).

The Court stated that “where willfulness is an element of civil liability, the Supreme Court generally understand the term as covering ‘not only knowing violations of a standard, but reckless ones as well.” Safeco 551 U&.S. at 57.   Further citing Safeco at page 68, “Recklessness is an objective standard that looks to whether conducti entails and unjustifiably high risk of harm that is either known or so obvious that it should be known.”

Applying the law as stated, the Court found that the government had proved by a POE that August and Maria Bohanec were at least recklessly indifferent to ta statutory duty to file an FBAR for the following reasons:
• They were reasonably sophisticated people who ran a highly successful camera shop that for a time was the only exclusive Leica dealer in the world. They negotiated very lucrative deals with Leica.
• When other dealers protested that circumvented Leica’s supply restrictions through a negotiated agreement with Walter Kluck president of Leitz Canada, Leica’s subsidiary there. They had a worldwide reputation and sold and shipped to customers around the world.’
• August Bohanec was sophisticated enough to obtain two patents without the assistance of an attorney.
• They also managed the construction of a home along the coast of Mexico including the hiring of a contractor and the opening of Mexican bank accounts.
• They knew they had to pay taxes and had to file returns and yet did not file returns after 1998 until they attempted to enter the OVDP in January of 2010.
• In connection with the sales of Leica cameras Walter Kluck of Lietz opened a UBS Swiss bank account for them into which was deposited commissions or finders fees for steering international buyers to Kluck.
• They did not report the commissions on federal income tax returns.
• On at least two occasions they directed their international customers to directly deposit money into their UBS account.
• After closing the camera shop they sold used Leicas on EBay without reporting the income.
• The Bohanec’ did not provide UBS with their home address.
• The Bohanec told only their children about the Swiss account and no one else.
• They did not tell their return preparer for the camera shop returns about the account.
• They did not seek professional advice about reporting requirements.
• They never used a bookkeeper to keep books once the account was opened.
• Part II of Schedule B of their 1998 return put them on notice that they needed to file an n FBAR.
• Defendant’s credibility was damaged by their false statements and omissions in their submission to the OVDP which ultimately cause their application to be rejected, namely
o That all of the funds in the UBS account were after tax proceeds from their camera business.
o Omitted from their FBARS other foreign accounts in Mexico and Austria.
o Returns filed with OVDP omitted all income from E-bay sales

Although not specifically cited as a reason for the court’s finding of recklessness, the decision may also have been influenced by other findings of fact, namely:
•The UBS account was managed by Walter Kluck while he was alive and thereafter by UBS.
• They made occasional withdrawals from the account, for example, for their daughter, to transfer fronds to an account in Austria owned by August and to an account they had both opened in Mexico.
• The UBS account had a high value in 12/31/99 of $1,096,500 and a value on 6/30/2008 when the failure to file being alleged occurred of $643,662.
• They moved the entire account to Austria in 2009 when the balance was $523,677 and later repatriated the funds to their U.S. account  Although not commented on by the court, this was following the UBS criminal investigation becoming public.
• Schedule B was included in their 1998 return (last return filed before the OVDP submission) included the following question: At any time during 1998 did you have an interest in or a signature or other authority over a financial account in a foreign country, such as a bank account, securities account or other financial account:? See page B-2 for exceptions an filing requirements for Form TD F 90-22.1.(Now FinCEN Form 114)
o  Page B-2 of the instructions for Schedule B for 1998 states: See (FBAR) Form TD F 90-22.1 to find out if you are considered to have an interest in or signature or other authority over a financial account in a foreign country (such as a bank account, securities account or other financial account)”
o  Page B-2 of the instructions for Schedule B of 1998 also states: “if you checked the Yes box on line 7a file Form TD F 90-22.1 by June 30, 1999, with the Department of the Treasury at the address shown on that form.”
• The IRS assessed additional tax for 2003, 2005-2010 in the amount of $172,291 and penalties including a civil fraud penalty. The taxpayers had not disputed the deficiency in Tax Court and owed IRS a total of $492,163 at the time of trial on the FBAR penalty assessment.

RSS Comments:
Regarding recklessness – We cannot look into someone’s mind to see what is going on his or her brain with regard to FBAR reporting obligations. Thus, evidence of knowledge or wanton disregard of warning signs will be deduced from circumstantial evidence. Thus, it appears to me that if facts would put a reasonably prudent person with the same education, background, experience and sophistication on notice that there is a danger of non-compliance with the tax law and the person proceeds in wanton disregard of the risk, the conduct is reckless. It is not difficult perhaps to distinguish reckless conduct from ordinary negligence or ignorance of the law. It may be more difficult to distinguish reckless conduct which makes one ineligible for a streamlined filing from gross negligence which IRS has stated does not disqualify one from the streamlined procedures..
Regarding Schedule B – The court spells out the language on the 1998 Schedule B which was the last personal return filed by the Bohanec before the OVDP filing. This return was filed 8 years before the 2007 FBAR on which the penalty is assessed was not filed.
Question: Was it reasonable to presume that the taxpayer’s recalled the 1998 return language and instructions in 2007, the year for which they are being assessed the FBAR penalty or on June 30, 2008 the FBAR due date

The IRS states in its Streamlined FAQ 6 for persons residing outside of the U.S., that:
We realize that many taxpayers failed to acknowledge their financial interest in or signature authority over foreign financial accounts on Form 1040, Schedule B. If you (or your return preparer) inadvertently checked “no” on Schedule B, line 7a, simply provide your explanation

I suggest perspective Streamlined filers read the entire case which has lengthy findings of fact that are instructive with regard to preparing streamlined non-willful certifications. The case may be found at
© 2016 by Robert S. Steinberg, Esquire

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