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Opting Out of the OVDI Program: Argue for No Penalty and a Warning Letter

27 July, 2012

The revised IRS OVDP FAQs offer helpful guidance on the opt-out option. The newly revised FAQs illustrate the pros and cons of opting out with examples.

Depending on the circumstances, we sometimes recommend some clients to opt out of the voluntary disclosure initiative and allow us to demonstrate the absence of willfulness and avoid the normal FBAR penalty regime. We have been aggressively pursuing OVDI opt-outs for some of our clients. In doing so we have been advocating for no penalty and a simple warning letter. We expect some successful results for some of our clients.

Under IRM 4.26.16.4  (FBAR Penalties) (07-01-2008) whenever there is an FBAR violation, the examiner will either issue the FBAR warning letter, Letter 3800, or determine a penalty. Penalties should be asserted only to promote compliance with the FBAR reporting and recordkeeping requirements. In exercising their discretion, examiners should consider whether the issuance of a warning letter and the securing of delinquent FBARs, rather than the assertion of a penalty, will achieve the desired result of improving compliance in the future. Under IRM 4.26.16.4, examiners are expected to exercise discretion, taking into account the facts and circumstances of each case, in determining whether penalties should be asserted.

In some of our cases, the Taxpayer failed to timely file FBARs as a result of a misunderstanding of fact or law that is reasonable in light of Taxpayers’ advanced age, disability, and lack of knowledge, education and sophistication.  Through the OVDP, our client has also filed all delinquent FBARs. Therefore, in some cases, the issuance of FBAR warning letter 3800, rather than the assertion of a penalty, will achieve the IRS’ desired result of improving compliance in the future.

Our law firm expects unabated aggressive enforcement of the US tax laws, including increased criminal prosecutions and civil audit examinations. We have been advising our clients to expect the unexpected (and the worst) in their tax treatment and disclosure of offshore assets.

Patel Law Offices is a law firm dedicated to helping clients resolve complicated tax, criminal tax, and international tax problems. Our firm assists (and defends) clients and their advisors to legally disclose (and legitimize) foreign accounts.

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Tags: amnestyAsset Protection FAQ FBAR foreign account opt out OVDP penalties and interest voluntary disclosure
Category: Planning for Tax Minimization

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