The OVDP and OVDI programs have come to an end and many taxpayers who participated in the programs are about to get their tax bill from Uncle Sam. In the programs, the formula to calculate tax and penalties was rigid and inflexible. The programs dictated that penalties are the same for the taxpayer who knew of his reporting obligations and the taxpayer who innocently was not in compliance. As I described in more detail in a Tax Notes opinion piece entitled, “Jeffrey A. Neiman, Opting Out: The Solution for The Non-Willful OVDI Taxpayer," Tax Notes 11135 (9/23/11), here, the failure to differentiate between the two distinct taxpayers has prevented thousands of taxpayers from coming forward as they view the programs as too expensive.
As we turn the corner, taxpayers who entered the program and who were not aware of their obligation to file an FBAR or to report their worldwide need to consider opting out of the voluntary disclosure program. Under the program, the IRS and DOJ assumed every taxpayer acted intentionally or willfully. However, in fact, I think in many cases, it will be very difficult for the government to prove that a taxpayer willfully violated the law.
Willfulness is defined as the intentional violation of a known legal duty. It is the cornerstone to any criminal prosecution, to the civil fraud penalty, and to the draconian 50% per year FBAR penalty. The government proves willfulness by looking at a taxpayers conduct. When I was a federal prosecutor, examples of conduct I looked to in order to infer willful behavior included using nominees, misleading the IRS, providing incomplete information to an accountant, dealing in cash, and maintaining a double set of books. Without some of these factors, it is very difficult to prove willfulness and without willfulness, there is no criminal case, no civil fraud penalty, and no 50% FBAR penalty.
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