I recently attended the NYU’s Tax Controversy Forum. Two of the panelists were officials from the IRS: Jennifer Best, Senior Advisor, IRS Large Business and International Division, and John McDougal, special trial attorney and division counsel, IRS Small Business and Self-Employed Division.

Both offered insight into the newly expanded streamlined filing procedures. One of the issues they addressed was why the IRS implemented the new streamlined filing procedures. In paraphrasing their response, it was “in response to criticism that there wasn’t an appropriate compliance path for individuals whose failure to report offshore accounts wasn’t willful.” In addition, the new procedures were designed to “encourage folks who are considering quiet disclosures to come in with their hands up,” avoiding the scenario of taxpayers who enter the OVDP with the intention of opting out later if the penalties are too onerous.

Mr. McDougal commented specifically about willfulness. In paraphrasing his response, he said that a person is non-willful if he “isn’t really worried about being prosecuted.” In a direct quote, he said, “The concept of willfulness is well documented in the case-law,” and “We’re depending on the practitioners to help the clients work their way through what the risk is of criminal prosecution and significant penalties.” Some taxpayers have already begun lamenting that the non-willfulness requirement alone will make it impossible for the average person to navigate the choppy seas of the newly expanded streamlined filing procedures without the assistance of a tax attorney.

Also addressed was the increase in the OVDP offshore penalty rate from 27.5% to 50%. As a way of background, beginning on August 4, 2014, taxpayers will be subject to an enhanced 50% offshore penalty if:

1. Their foreign financial institution has become a target of investigation by the IRS or the Department of Justice; or

2. Their foreign financial institution is cooperating with the IRS or the Department of Justice to help them locate tax evaders; or

3. Their foreign financial institution has been identified in a court-approved summons seeking information about U.S. taxpayers who may hold financial accounts at that institution.

In paraphrasing Mr. McDougal, the “public announcements that count for purposes of the 50 percent rate increase are those by the DOJ.” Those taxpayers who are still sitting on the fence and procrastinating are at a heightened risk of public disclosure if they don’t act now: “it’s risky to wait given that John Doe summonses, in particular, come with no warning.” This is a direct quote.

Finally, below are a few points that you must consider before ruling out OVDP for the potentially lower penalty and less costly process dangled like a carrot by the Streamlined Filing Procedures. Like the eminent archaeologist Indiana Jones who had to choose between the real grail and the fake grail with the latter resulting in a gruesome death (i.e., decaying into dust), those taxpayers who do not fall at the ends of the bell curve on willfulness must proceed with extreme caution:

• Quoting the esteemed tax practitioner, Elmer Fudd, willfulness is a “wascally” little word. How one views the facts significantly impacts the conclusion that one draws about culpability. The rule, “Intentional violation of a known legal obligation,” is easier to state than to apply to the myriad of circumstances one encounters in the offshore arena.

• Taxpayers will not be able to go it alone. Very simply, those who think that they can certify on their own that they have been non-willful are playing with fire. Instead, they should seek assistance from an experienced tax attorney to make that determination.

• What burden of proof will the IRS apply in deciding whether a taxpayer has truthfully certified non-willful conduct: Preponderance of the evidence, or, clear and convincing proof? That remains to be seen.

• The non-willful certification process appears to place the burden of proving non-willfulness on the taxpayer. However, one should not forget that the IRS bears the burden of proving willfulness in an FBAR civil penalty suit.

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