IRS points to better understanding of “non-willful non-compliance”

In remarks before the U.S. Council for International Business-OECD International Tax Conference on June 3, IRS Commissioner John Koskinen recognized that the “voluntary disclosure” programs designed to punish tax fraud may have been “too focused on those willfully evading their tax obligations (and) not accommodating enough to others who don’t necessarily need protection from criminal prosecution because their compliance failures have been of the non-willful variety.”

As FAWCO and its partner organizations have repeatedly urged, the IRS now appears willing to distinguish between those who have been willfully hiding financial assets abroad, often in tax havens, and law-abiding citizens who have been unaware of their obligations or, faced with the prospect of punitive penalties, have feared losing their life savings.

This is the point that FAWCO representatives have made most strongly on visits to Washington, in light of deeply disturbing reports from members who, through no fault of their own, are only just realizing (far too late) the extent of their financial reporting obligations under FATCA, in addition to the Foreign Bank Account Reports they should have been filing for several decades. 

Despite the best “education” efforts of organizations like FAWCO, many have only learned of their potentially “criminal” negligence from horrifying stories in the press, and many have never dreamed that the bank accounts they need to pay bills, save for retirement, and receive salaries where they live might be considered “foreign”.  These are not the “tax cheats” that FATCA was designed to identify.

Noting that “there are many U.S. citizens who have resided abroad for many years, perhaps even the vast majority of their lives”, Koskinen now reports that the IRS expects that “we will soon put forward modifications to the programs currently in place (author’s emphasis).  Our goal is to ensure we have struck the right balance between emphasis on aggressive enforcement and focus on the law-abiding instincts of most U.S. citizens who, given the proper chance, will voluntarily come into compliance and willingly remedy past mistakes.”

He also reminded his audience that the global trend toward automatic multilateral exchange of information “signals quite clearly that international tax transparency is no longer a distant hope,  but rather an immediate reality”, with the imminent global adoption of the Common Reporting Standard (CRS). 

However, it is extremely encouraging that, for the first time and, at least partly in response to a steady stream of comments from overseas advocacy organizations like FAWCO, the IRS recognizes that Americans living and working around the globe and seeking only to manage their finances as they would in the United States are not the natural target for anti-tax fraud legislation like FATCA.

We cannot guess when the expected changes will be announced but will, as Commissioner Koskinen recommended “stay tuned”.   Watch this space!

For Commissioner Koskinen's complete remarks, click here.