Willful vs Non-Willful: How to Understand the Difference

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What does Willful vs Non-Willful Mean?

Willful vs. Non-Willful: When a person has not reported foreign income and assets to the IRS, they are considered to be non-compliant with U.S. tax rules. The Internal Revenue Service has different options available to Taxpayers to get into offshore or U.S. compliance. One of the most important parts of the analysis is to determine if the filer is willful vs non-willful.

The IRS has not developed a bright-line test for non-willfulness. In addition, to prove willfulness the IRS is not required to prove that the Taxpayer acted with either actual intent (Reckless Disregard) or actual knowledge (Willful Blindness).

With the IRS making foreign accounts compliance and unreported offshore income a key enforcement priority, it is crucial for taxpayers to stay in offshore reporting compliance for offshore accounts, assets, investments, and income.

How to Analyze Willful vs. Non-Willful

What is your U.S. status?
How long have you been in the United States for?
How many years have you filed U.S. tax returns?
What types of investments do you have overseas?
Do you utilize a financial planner?
Do you have a CPA or EA?
Is your CPA or EA experienced in international tax?
Did your CPA or EA send you questions in writing asking about Foreign Accounts or Income?
Did you respond truthful to the CPA or EA?
Did you complete a schedule B?
Are you tax compliant in the country in which the accounts are maintained?
Did you have unreported income as well?

Evaluating Taxpayer State-of-Mind

The main difference between willfulness and non-willfulness is the state of mind of the taxpayer at the time the non-compliance occurred. Depending on how long the non-compliance lasted, the analysis may shift from a non-willful situation to a willful submission.

Non-Willful

There is no bright-line test to determine non-willfulness.

It is a ‘Totality of the Circumstance(s)” test based on whether or not your specific facts and circumstances reflect that you knew, or should have known that you were required to disclose and report your foreign accounts and offshore income — and made the decision not to disclose.

Generally, if a person was unaware that there was a foreign account/foreign income/foreign asset reporting requirement, the client begins in the “non-willful” category, but more analysis is needed.

Willful vs Non-Willful and How to Evaluate IRS Amnesty Filing

Willful

Willful generally means intent, but it does not have to be intentional to qualify as civil willfulness.

There can be “lower” forms of willfulness, which do not require willful or intent — these additional willful standard are referred to as reckless disregard and willful blindness.

Willful Blindness?

Willful Blindness is a form of “deliberate ignorance.”

It is the concept that a person could readily obtain information, which if they did, would inform them that their actions could be criminal. Instead of seeking out the information, they “intentionally” avoid learning the information (aka burying their head in the sand).

What is Deliberate Ignorance?

Deliberate ignorance is essentially a synonym for willful blindness.

Willful Blindness Law School 101 Definition

Outside of the world of FBAR Penalties, the willful blindness standard is nothing new.

Here’s a typical example you learn in your first-year criminal law and procedures class:

David and his friends are hanging out in a seedy part of Tijuana. A Gentlemen approaches them and tells David and his two buddies that he will pay them each $1 million if they drive a car across the border.

None of the individuals ask the man why he is paying them that much to drive a vehicle for a few hours. Clearly, they should have some questions, but the money is just too good.

Therefore, David and his friends avoid asking any questions, believing if they do not ask, then they cannot know what is in the car – and that will absolve them from liability.

When they get pulled over and the police discover 50 pounds of cocaine in the car, the fact that they “didn’t know about the drugs” would not matter — since they were “willfully blind.”

Reckless Disregard

Reckless disregard is a lower standard of willful. It does not require intent, but rather behavior which shows the U.S. person could have known and/or could have filed the FBAR.

How do the Courts Define Reckless Disregard?

Reckless Disregard In offshore disclosure, essentially means: “I Could have known better.”

The court in Bohanecs provided the following:

“Although Defendants assert that “willfulness” encompasses only intentional violations of known legal duties, and not reckless disregard of statutory duties, no court has adopted that principle in a civil tax matter.

Where willfulness is an element of civil liability, the Supreme Court generally understands the term as covering “not only knowing violations of a standard, but reckless ones as well.” Safeco, 551 U.S. at 57.

Recklessness” is an objective standard that looks to whether conduct entails “an unjustifiably high risk of harm that is either known or so obvious that it should be known.” Safeco, 551 U.S. at 68 (internal quotation marks and citation omitted).

Several other courts, citing Safeco, have held that “willfulness” under 31 U.S.C. § 5321 includes reckless disregard of a statutory duty. See United States v Williams, 489 Fed.Appx. 655, 658 (4th Cir. 2012); United States v. Bussell, No. CV15-02034 SJO(VBKx), 2015 WL 9957826 at *5 (C.D. Cal. Dec. 8, 2015); see also United States v. McBride, 908 F.Supp. 2d 1186, 1204, 1209 (D. Utah 2012).”

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.

We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.

Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.

*Please beware of copycat tax and law firms misleading the public about their credentials and experience.

Less than 1% of Tax Attorneys Nationwide Are Certified Specialists

Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.

Recent Golding & Golding Case Highlights

We represented a client in an 8-figure disclosure that spanned 7 countries.
We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.

How to Hire Experienced Offshore Counsel?

Generally, experienced attorneys in this field will have the following credentials/experience:

20-years experience as a practicing attorney
Extensive litigation, high-stakes audit and trial experience
Board Certified Tax Law Specialist credential
Master’s of Tax Law (LL.M.)
Dually Licensed as an EA (Enrolled Agent) or CPA

Interested in Learning More about Golding & Golding?

No matter where in the world you reside, our international tax team can get you IRS offshore compliant.

Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.

Willful vs Non-Willful & the IRS