IRS Declines to Further Define “Willful” vs. “Non-Willful”

by Bruce Givner on March 5, 2015

During a February 24 webcast hosted by the American Bar Association, an Internal Revenue Service (IRS) official declined to provide further definition on “willful” versus “non-willful” behavior for taxpayers hoping to enter the agency’s streamlined version of the Offshore Voluntary Disclosure Program (OVDP).

John C. McDougal, a senior special trial attorney in the IRS Office of Chief Counsel, said that there is already “a vast body of case law” offering guidance as to what courts have considered willful conduct, adding that it would be up to tax practitioners to help their clients decide whether or not to assert they weren’t willful.

In the original document setting out the streamlined program, non-willful conduct is defined as either conduct due to negligence, inadvertence, or mistake, or conduct resulting from a good-faith misunderstanding of the law.

The ABA webcast also included questions from tax practitioners for McDougal and David W. Horton, the IRS Director of International Individual Compliance. Here’s a review of some of the questions and answers:

When asked whether the size of an account mattered when the IRS considered submissions to the streamlined program, McDougal said “it’s not determinative. We’re going to be looking at all the facts and circumstances and you should be looking at all the facts and circumstances.”

One panelist asked if taxpayers should take comfort from the fact that the check they sent along with their program submission was cashed by the IRS. Horton said this is “a normal processing function that we would do no matter who the taxpayer is.”

When asked whether there is a mechanism by which taxpayers who have filed in the streamlined program could request an audit, Horton stated, “There is no way to request an examination, nor will there be.”

Another panelist asked if a participant in the broader OVDP would be putting themselves at risk by going into the streamlined program. McDougal replied, “If you go into streamlined, you have to leave OVDP. If you come into streamlined, you lose the protections that you would have under OVDP.”

One major topic of the webcast revolved around preclearance, a process taxpayers go through before being accepted into the OVDP. Horton explained, “If a taxpayer is non-willful, we don’t encourage taxpayers to go through preclearance.”

When asked if taxpayers would still be eligible to enter the streamlined program if they had been rejected for admission into the OVDP, Horton said, “Non-willful is non-willful. If the taxpayer is non-willful there is nothing keeping them from going into streamlined.”

Leave a Comment

Previous post:

Next post: