New TAS report condemns IRS conduct on OVDP

The Taxpayer Advocate Service (TAS) is, according to its tagline, “your voice at the IRS.” It’s a government body tasked with ensuring fairness and proper conduct from the Internal Revenue Service.

In a recent report to congress, TAS warned that the “IRS’s inconsistency and failure to follow its published guidance damaged its credibility with practitioners involved in the Offshore Voluntary Disclosure Program (OVDP).”

U.S. persons are generally required to report foreign accounts on Form TD F 90–22.1, Report of Foreign Bank and Financial Accounts (FBAR) and to report income from such accounts on U.S. tax returns. The IRS “strongly encouraged” taxpayers who failed to file these and other similar returns to participate in the 2009 Offshore Voluntary Disclosure Program (OVDP), rather than quietly filing amended returns and paying any taxes due. It warned that those making “quiet” corrections could be “criminally prosecuted.” OVDP participants would generally be subject to a 20 percent “offshore” penalty in lieu of various other penalties. The IRS announced, however, that “[U]nder no circumstances will a taxpayer be required to pay a penalty greater than what he would otherwise be liable for under existing statutes.” Taxpayers who would not be subject to significant penalties because their violations were not willful, or because they qualified for the “reasonable cause” exception, believed this statement applied to them.

On March 1, 2011, more than a year after the 2009 OVDP ended, the IRS “clarified” its seemingly unambiguous statement. It would no longer consider whether taxpayers in the 2009 OVDP would pay less under existing statutes on the basis of non-willfulness or reasonable cause. Such taxpayers could either agree to pay more than they believed they owed or withdraw from the 2009 OVDP and face the possibility the IRS would assert massive civil penalties and seek criminal prosecution. Both options were problematic. Withdrawal would waste all of the resources already expended on the 2009 OVDP application and would not bring the taxpayer closure or certainty, as advertised. Moreover, in any future examination the IRS might have to request and review the items that were before the examiner processing the 2009 OVDP submission.

Pressuring taxpayers who would pay less under existing statutes to remain in the program and pay more than they believe they owed was even worse. It violated longstanding IRS policy along with most conceptions of fairness and due process. The IRS’s inconsistency and failure to follow its published guidance damaged its credibility with practitioners and could be subject to legal challenge. In 2011, TAS will continue to communicate with taxpayers and practitioners to determine the impact of the IRS’s apparent reversal, advocate for the IRS to abide by the plain language of the original terms of the OVDP (as reasonably interpreted by the public and many of the IRS’s examiners), and document our findings in the National Taxpayer Advocate’s 2011 Annual Report to Congress.

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3 Responses to New TAS report condemns IRS conduct on OVDP

  1. CA Freeb says:

    I’m going to be calling them today with a question about this one FBAR and I’m not even sure about filing it because it WILL expose me to fines and I had zero access to the money causing me to have to file the thing! It’s good to see TAS speaking up about the switcheroo pulled on those who entered this program in good faith. Since they did pull that on them, I’m wondering how onerous are their marching orders from congress or the W.H.? Obviously, someone approved them doing that, those things don’t just happen out of whole cloth. TAS should have a lot more to say about innocent families caught in this drag net. You know the U.S. in is financial trouble hence the huge threats of fines on FBAR. Probably if the IRS and congress had said something to the effect that every American overseas will now need to pay a hundred dollars or some small fee each year to the IRS everyone would have been happy to help out WHILE also putting into place rules that would catch the REAL tax cheats, instead of harming the minnows equally with criminals. Why they could not have done something reasonable while giving Americans who would want to help them a chance to do so is beyond me. Now the backlash will be huge. Not only are people choosing to renounce rather than be threatened and lumped in with criminals, they are divesting out of U.S. holdings AND saying they will not “buy American” anymore. Can’t believe the congress didn’t see this backlash coming. The real anger here is from those who were proud to be American and who owed no taxes and were law abiding citizens in their country of residence. Anger, because the U.S. has stabbed them in the back and is saying “pay up whether you owed or not, you are a criminal till proven innocent and renounce if you like because you are a throw away citizen to us.” That’s their attitude and we know it. So it’s painful and exposes the lie that the United States cares a thing about ex pats at all.

  2. Pingback: Pillaging one person at a time: why I’m coming out in the open with my fight against the IRS « The Righteous Investor

  3. The overall impact is fairly much like the Lucas.

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