Friday, November 29, 2013

Revised IRS FBAR Penalty Appeals Procedures.

On October 28, 2013 the IRS revised the Internal Revenue Manual (IRM) providing guidance and clarification regarding the administrative review of FBAR penalties by the IRS Office of Appeals. See
The IRM is essentially the operational manual providing guidance and procedures for the various functions carried out by the IRS. 
With respect to FBAR penalties being considered for resolution by IRS Appeals, the revised IRM 8.11.6 provisions reference 10 key points:
  1. IRS FBAR Administrative File.
  2. Limited Jurisdiction for Post-Assessed FBAR Penalties.
  3. Limited Availability of Alternative Dispute Resolution Rights.
  4. Mitigation Threshold Conditions Survive.
  5. Joint and Several FBAR Penalty Liability.
  6. Interest Does Not Accrue Until the FBAR Penalty is Assessed.
  7. Expedited Closings of Unagreed FBAR Penalty Cases.
  8. No Chapter 11 Relief.
  9. FBAR Penalties are an Appeals Coordinated Issue.
  10. Litigation Forum.
Significantly, the revised IRM added that IRS Counsel memo is needed for willful penalties over $10,000.

The involvement of IRS Counsel in determining appropriate elements of willfulness could be significant. A non-willful civil penalty not to exceed $10,000, may be imposed on any person who violates or causes any violation of the FBAR filing and recordkeeping requirements of 31 U.S.C. § § 5314 and 5321(a)(5)(A). A civil penalty equivalent to the greater of $100,000 or 50% of the balance in the account at the time of the violation may be imposed on any person who “willfully” violates or causes any violation of any provision of 31 U.S.C. § § 5314 and 5321(a)(5)(A).

The  involvement of IRS Counsel in determining appropriate elements of willfulness with the associated IRS counsel memorandum  being added to your taxpayers file , is actually nothing new as that is currently  what is happening  with taxpayers who come into the OVDP and then subsequently decide to roll out.   We were advised by Senior Counsel in the SBSE Division of IRS Office of Chief Counsel and Senior Technical Adviser, LB&I Division’s Offshore Compliance Initiative Program; that taxpayers who elect to rollout of the OVDP  may or may not  obtain a better result  from the subsequent audit and the subsequent appeal, since  the IRS required an IRS Counsel memo supporting willfulness, for every taxpayer  who rolled out of the program.
Our opinion is that the IRS Counsel memo  being added to the taxpayers file prior  to having that file sent to Appeals; weighs heavily in favor of the IRS when the taxpayers case is considered  by the "Independent Appeals Officer."  What is really left for the appeals officer to do,  in considering the hazards the litigation, when they have an IRS Counsel memo  in the taxpayer's file  providing  both the legal and factual support for the conclusion that the taxpayer was willful in not filing their FBAR  returns and they can prove it in litigation?

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