New 2014 “Streamlined” Process for USCs and LPRs Residing Overseas – The Thorny “Certification Requirement”

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“Be careful what you wish for . . . “, so goes the saying.  Yesterday’s post discusses the breaking news of the IRS announcement of revisions to how individuals who have not filed tax returns can “come into compliance”.  See, “IRS Makes Changes to Offshore Programs; Revisions Ease Burden and Help More Taxpayers Come into Compliance” – How Will These Changes Affect USCs and LPRs Living Outside the U.S.?Certification by US Taxpayer Residing Overseas - Streamlined

I have argued for years that the IRS has neglected to identify the unique circumstances of USCs and LPRs residing outside the U.S.; and how the OVD programs in particular threw both resident and non-resident U.S. taxpayers into the same big bucket.

There is much to be said about the new “Streamlined” procedure just announced. Particular focus has been made for USCs and LPRs living outside the U.S., and the IRS rules specific to these individuals are set forth in – U.S. Taxpayers Residing Outside the United States.

Importantly, a certification must be signed by the taxpayer, subject to the penalties of perjury under U.S. law. The sample IRS certification document,  Certification by U.S. Person Residing Outside of the U.S., is set forth in part in this blog –

Signing such a Certification carries with it specific legal rights and obligations to the person who signs and certifies to its accuracy. See, a discussion of what constitutes perjury under the tax code – Filing a False Return or Other Document – Perjury (IRC Section 7206(1) ). See, What could be the focal point of IRS Criminal Investigations of Former U.S. Citizens and Lawful Permanent Residents?

The summary of the steps regarding certification are explained in the IRS website, and include most importantly the following requirement:Certification by US Taxpayer Residing Overseas - Streamlined P2

 3. Complete and sign a statement on the Certification by U.S. Person Residing Outside of the U.S. certifying (1) that you are eligible for the Streamlined Foreign Offshore Procedures; (2) that all required FBARs have now been filed (see instruction 8 below); and (3) that the failure to file tax returns, report all income, pay all tax, and submit all required information returns, including FBARs, resulted from non-willful conduct.

It’s the last item that carries with it a host of legal responsibilities when certifying under penalty of perjury that ” . . . failure to file tax returns, report all income, pay all tax, and submit all required information returns, including FBARs, resulted from non-willful conduct. . .

What is “non-willful conduct”? It is the term “willful” that is defined by the Courts, “not – non-willful”; to use the double negative. For a thoughtful discussion on what is willful, I suggest reading a precise overview by Jack Townsend. The New Streamlined Processes’ Requirement of Certifying Non-Willfulness (6/19/14)Certification by US Taxpayer Residing Overseas - Streamlined P3

He summarizes it  – As courts have noted, the word “willful” is a “chameleon” which changes in tone and color according to the Code section involved and the circumstance. See e.g., former Justice Souter’s opinion in United States v. Marshall, 2014 U.S. App. LEXIS 10415 (1st Cir. 2014), discussed in More On Willfulness (Federal Tax Crimes Blog 6/13/14), here. But, I think it is clear that, in both the income tax context and the FBAR context, willful means “voluntary intentional violation of a known legal duty.” Readers will recognize this as the Cheek standard.

Unfortunately, this Cheek standard, is not the one asserted by the government in FBAR willfulness cases. As I noted in a post just a few days ago regarding the Zwerner case (See, FBAR Penalties for USCs and LPRs Residing Overseas – Can the Taxpayer have no knowledge of the law and still be liable for the willfulness penalty? See government memorandum.)

Finally,  maybe the most troubling for USCs and LPRs who live outside the U.S., is the government’s assertion that an individual can be liable for the willfulness penalty, for “willfully failing to file a FBAR” – ” . . . even if the person does not actually know of the FBAR reporting requirements.”  See, page 4 of the government’s motion for Summary Judgment in the Zwerner case.  This is a position they have argued consistently in at least three different cases.

Why will the government not argue in those cases it selectively chooses to prosecute the following argument:

  1.  Worldwide press about UBS, Credit-Suisse and other foreign accounts held by U.S. persons has made virtually all individuals generally aware of U.S. tax and reporting requirements.
  2. Any individual with a most basic level of sophistication must have known of these requirements, if they ever read a paper or the Internet (or should have known).P4 of Govt Motion for Summary Judgment in Zwerner - Knowledge
  3. FATCA news throughout the world since its passing into law in 2010, has been impossible to ignore.
  4. Ergo – Unless you have been living on a remote island or the rain forest, without access to the Internet, you can be liable for willful FBAR penalties, for the USC or LPR living overseas for their  “willful blindness” – ” . . . even if the person does not actually know of the FBAR reporting requirements.”

Should such an argument prevail?  Most private practitioners would say “no”; but the Zwerner case was illustrative of the strategies and approach taken by the government in a 150% FBAR penalty it obtained at a jury trial.

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