Tax Law Center Blog

The IRS recently posted guidance in its OVDI FAQs (#51) whether taxpayers should opt out of the 2011 Voluntary Disclosure Initiative’s (the “OVDI”) civil penalty structure.  Taxpayers who participate in the OVDI, but feel that their failure to file the FBAR form on an annual basis was “non-will”, may considering opting out. Who makes the determination as to willfulness and how is the determination made?

IRS Makes the Initial Determination

If a taxpayer elects to opt out of the OVDI, the IRS agent reviewing the case will send a letter to the taxpayer instructing the taxpayer to provide a written statement setting forth the facts of the case and a recommendation of the penalties that should apply. The election to opt out of the OVDI is irrevocable, so it must be carefully and strategically considered and made.  Hence, our law firm’s representatives hope to be able to tentatively ascertain (at least verbally) how the agent feels about recommended opt out penalties before the irrevocable opt out election is made.

After the opt out election is made, the agent then prepares a summary of the case and makes a penalty recommendation to a group of managers, termed the centralized review committee.  The committee then makes a determination as to what penalties, if any, should apply.

If a taxpayer does not agree with the centralized review committee’s determination, then the taxpayer is entitled to file an appeal with the IRS’s Appeals Division. The appeals officer will give the taxpayer an opportunity to present his case, conduct an appeals conference, and issue a decision. As far at the IRS is concerned, the appeals decision is the end of matter. However, in order to collect FBAR penalties, the government must file suit. In response to the suit, the taxpayer can ask the court to determine whether the penalty should have been assessed. Thus, a taxpayer can possibly force the government to prove that the taxpayer willfully failed to file the FBAR form.

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.