Do Streamlined Filings Preclude Willful FBAR Exams, Jones

Do Streamlined Filings Preclude Willful FBAR Exams, Jones

The Risks for Willful Taxpayers Making a Non-Willful Streamlined Submission

In early 2014, the Internal Revenue Service developed a stand-alone offshore disclosure program referred to as the Streamlined Filing Compliance Procedures. The program is for non-willful taxpayers with undisclosed foreign accounts, assets, investments, and/or income. Previously, there was a streamlined option as part of the now defunct OVDP (Offshore Voluntary Disclosure Program), but the stand-alone program was something new and provided non-willful taxpayers with the opportunity to directly submit to the Streamlined Procedures instead of through OVDP. The Streamlined Procedures allow for a reduced FBAR penalty referred to as a Title 26 Miscellaneous Offshore Penalty — or even a penalty waiver when the Taxpayer qualifies as a foreign person (SFOP). Under the Streamlined Procedures, the Taxpayer is tasked with only having to file three tax returns instead of six — as currently required under VDP — or eight years of returns that were required under OVDP. In this case (Estate of Jones), the question presented to the Federal Court of Claims was whether the IRS is prevented from seeking willful penalties following an examination of Plaintiff (who submitted to the Streamlined Procedures and paid the penalty). 

Estate of Margaret Jones and FBAR (Flint and Jones as Executors)

The case of Jones is a very complex case. We have summarized the previous history in a separate article you can access here. Basically, the Taxpayer submitted to Streamlined but was audited by an inexperienced agent and then hit with willfulness FBAR penalties.

Willfulness Examination Post-Streamlined Submission

In general, it is important for Taxpayers submitting to the Streamlined Procedures to keep in mind that a streamlined submission is a serious submission, that is being made under penalty of perjury. And, the IRS can come back and audit them at a future date. The Streamlined Procedures are not the same as the IRS Voluntary Disclosure Program, the latter in which the taxpayer receives a closing letter.

As provided on page 3 of Form 14654 (Streamlined Certification Form)

      • “I recognize that if the Internal Revenue Service receives or discovers evidence of willfulness, fraud, or criminal conduct, it may open an examination or investigation that could lead to civil fraud penalties, FBAR penalties, information return penalties, or even referral to Criminal Investigation.”

The IRS Wants to Prevent Using Streamlined to Facilitate Fraud

The IRS expressly reserves the right to seek an audit at a later time.


In order to avoid tax fraud and evasion.

For example, take the situation in which a taxpayer certified under penalty that they are non-willful, but are really willful — and are just trying to sneak into the Streamline Procedures to avoid that much more serious willful FBAR penalties. Does that mean that the IRS would be prevented from seeking an examination and possible subsequent willful penalties just because the taxpayer submitted to the Streamline Procedures? No, and in fact, the IRS pursues and prosecutes these types of fraudulent streamlined cases.

Court Ruling on Breach of Contract

The court ruled as follows on the issue of Breach of Contract:

      • By providing in the Form 14654 that the IRS could “open an examination” into Mrs. Jones, with the explicit possibility of assessing FBAR penalties as a result, the IRS reserved its right to conduct an examination and assess further penalties after Mrs. Jones’ completion of the Form 14654.

      • This reservation does not evidence a “’manifestation of willingness to enter into a bargain’” with finality on behalf of the IRS, nor does it “’justify’” Mrs. Jones’ belief, as alleged by plaintiffs, that her “’assent’” had “’conclude[d]’” such a “’bargain,’” id. (quoting Restatement (Second) of Contracts§ 24 (1981)), binding the IRS “not to assert other penalties,” as alleged in plaintiffs’ complaint.

      • Therefore, given the facts presented to the court, plaintiffs would not appear to have grounds to allege a breach of contract, even if a contract had come into existence, which the court has held did not.

Exaction Claim

The Plaintiff also makes the argument for exaction (presumably to avoid the administrative requirements of a refund claim which are prevented under SFCP) and the court seems to agree that it could be a possibility if the plaintiff first follows the administrative requirements — which would be to file an administrative claim with the IRS.

The problem with that court of action is that Form 14654 expressly prevents making a refund claim:

      • “I waive all defenses against and restrictions on the assessment and collection of the miscellaneous offshore penalty, including any defense based on the expiration of the period of limitations on assessment or collection. I waive the right to seek a refund or abatement of the miscellaneous offshore penalty.”

Court Ruling on Exaction Claim

      • The court concludes that I.R.C. § 7422(a) applies to plaintiffs’ Count Two claim for illegal exaction of the Miscellaneous Offshore Penalty, and in order to proceed with their lawsuit plaintiffs first should have filed an administrative claim for a refund of the Miscellaneous Offshore Penalty with the IRS before proceeding in this court.

An Important Takeaway from this Case

While the Streamlined Procedures are a great opportunity to minimize FBAR penalties, there are some risks involved. Taxpayers should consult with different Board-Certified Tax Law Specialists that specialize exclusively in offshore matters before submitting to the Streamlined Program. 

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

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