Under the 2011 Offshore Voluntary Disclosure Initiative (OVDI) or 2012 Offshore Voluntary Disclosure Program (OVDP),…
Explore the OVDI opt-out option: Argue for Penalty Mitigation
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 six examples. See FAQ 51. The examples describe situations in which it may be smart to opt out and get a lower penalty.
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 Normal FBAR Penalty Mitigation to apply.
In many recent cases the government has had difficulty in establishing willfulness for the high draconian FBAR penalty. As a result, we often recommend some of clients to opt out of the voluntary disclosure initiative and take an educated well-reasoned chance with the normal FBAR penalty regime. Assuming that the government cannot meet the high standard in proving a willful failure, the penalty costs could be a substantially less than the large OVDI program penalty. We expect some successful results for some of our clients.
Under IRM 126.96.36.199.5.3 (FBAR Willfulness Penalty – Willfulness) (07-01-2008) the test for willfulness is whether there was a voluntary, intentional violation of a known legal duty. A finding of willfulness must be supported by evidence of willfulness. Willfulness is shown by the person’s knowledge of the reporting requirements and the person’s conscious choice not to comply with the requirement. The burden of proof of establishing willfulness is on the Internal Revenue Service.
In some our cases, we allege that our client will testify as to lack of any knowledge (also no evidence exists evincing such knowledge) that a FBAR filing requirement existed. Therefore, the Taxpayer could not have made a conscious decision not to comply with said requirement. In such cases. there is no evidence whatsoever of any willfulness.
Also under IRM 188.8.131.52.5.3 many of clients do not fall under the category of “blind willfulness”, whereby willfulness may be attributed to a person who has made a conscious effort to avoid learning about the FBAR reporting and recordkeeping requirements by concealing sources of income, signature authority, interest in various transactions/entities. In such cases, we argue our client will testify that no conscious efforts were made to avoid learning about the FBAR reporting and recordkeeping requirements (also no such evidence exists) or any concealment of any income, signature authority, interest in various transactions/entities. As a result, the lack of any evidence of willfulness fails to support any imposition of willfulness penalties.
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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