Tax Law Center Blog

Top 4 Reasons to Opt Out of the 2011 OVDI Program

1. The IRS Taxpayer Advocate’s Report:

Although the IRS has not closed very many opt-out cases, the average civil FBAR penalty assessed against those opting out of the 2009 OVDP is only $15,737.19 on average. This average is according to the IRS’ response to TAS information request (Oct. 23, 2012) noting that $1,255,567 in willful and nonwillful penalties plus $1,671,518 in negligence penalties were assessed against taxpayers who opted out of the 2009 OVDP in 186 closed cases. Moreover, a small number of taxpayers could account for most of these penalties.

In other words, the IRS Taxpayer Advocate’s Report states that the IRS required benign actors (small fish with no intent to violate the law) with minor FBAR violations to spend the time to apply to the 2009 OVDP, incur significant fees for representation, and wait for about a year and a half for the IRS to process their cases (on average), all in an effort to collect very little FBAR penalty revenue.

So far our opt out clients have fared well in navigating through the opt out program received favorable results.

2. No real criminal risk.

According to the IRS Taxpayer Advocate’s Report, the IRS has not initiated any criminal prosecutions against those who opted out.

3. Appeal Rights.

There is no appeal within the OVDI program.  AN opt out affords multiple appeal rights. If your penalty post opt out is unacceptable, then you can appeal to the Appeals Branch of the IRS. If your penalty post Appeal is unacceptable, then you can appeal to the Tax Court. You therefore have three procedural attempts to lower the penalty.

4. Get more time.

According to IRS response to TAS information request (Oct. 23, 2012), the IRS’ OVD program processing times are longer for benign actors who opt out, averaging nearly 550 days for those opting out of the 2009 OVDP.  This is nearly a 2 year wait, which equates to a 2 year interest free loan for the penalty amount (conservatively assuming no penalty reduction) from the IRS.