We've previously provided information related to some of the new IRS requirements concerning reporting the existence of foreign accounts and assets. We also discussed how individuals who fail to comply with these new regulations can own up to and remedy their mistakes by contacting the IRS and stating whether their errors were willful or non-willful. While the preferred, and less expensive, route is to assert that non-compliance with or failure to file a Report of Foreign Bank and Financial accounts was non-willful, or innocent, in nature; proving such may be more difficult than one anticipates.
The IRS does not make a habit of coddling taxpayers. Even though the requirements related to foreign accounts and assets and the filing of FBARs are relatively new, the IRS expects that individuals with these types of accounts and assets will work to become educated and ensure they are in compliance with IRS requirements. Therefore, claiming non-compliance with FBAR regulations was non-willful based upon a defense of ignorance will likely not fly.
When it comes to a taxpayer's failure to comply with FBAR requirements, there are also other actions that signal a red flag to the IRS and make a claim of non-willful action difficult to justify. For example, the IRS is likely to view an individual who files some forms, but not others with suspicion. Likewise, an individual who makes cash deposits or withdrawals and transfers money to another bank may be trying to evade the new foreign asset reporting regulations.
Individuals who claim that a failure to abide by FBAR regulations was non-willful when it in fact it was willful, may face additional IRS scrutiny. These individuals will likely be subject to additional fines and penalties. Additionally, depending on the circumstances and amount of assets involved, the IRS may choose to pursue legal action and file criminal charges related to tax evasion.
Source: Forbes, "10 Signs Your Tax Missteps Are 'Willful' Triggering IRS Penalties Or Jail," Robert W. Wood, July 23, 2014