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Tax Blawg

Tax Talk for Tax Pros

Introduction

Welcome to TaxBlawg, a resource for news and analysis of current legal issues facing tax practitioners. Although blawg.com identifies nearly 1,400 active “blawgs,” including 20+ blawgs related to taxation and estate planning, the needs of tax professionals have received surprisingly little attention. The Wall Street Journal's Tax Blog gives “tips and advice for filers,” and Paul Caron’s legendary TaxProf Blog is an excellent clearinghouse for academic and policy-oriented news. Yet, tax practitioners still lack a dedicated resource to call their own. For those intrepid souls, we offer TaxBlawg, a forum of tax talk for tax pros.

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IRS Reopens Offshore Voluntary Disclosure Initiative (OVDI) For Delinquent FBAR Filers: 27.5 Percent Penalty

The IRS announced yesterday a reopening of its 2011 offshore voluntary disclosure initiative (“OVDI”).  This program will have essentially the same terms as the 2011 OVDI, but with a penalty rate of 27.5 percent (rather than 25 percent) of the highest account balance during the period covered by the initiative.  The program requires filing eight years of amended tax returns and unfiled FBARs and the payment of tax, interest and a possible accuracy-related penalty on unreported income as well as the above-mentioned lump-sum penalty.  In certain cases, a reduced penalty for failure to file FBARs is available.  Unlike the prior initiatives, the reopened OVDI has no deadline; however, the government can always choose to impose a deadline or terminate the program at its discretion.

See the announcement at the IRS website here and “How to Make an Offshore Voluntary Disclosure” here.  The IRS’ Frequently Asked Questions page provides significant guidance to determine whether individuals are eligible for OVDI.

As in the past, yesterday’s move follows a carrot-and-stick approach in which the IRS announces an opportunity for delinquent filers to come clean, but only after the government first announces major enforcement actions.  In this case, the reopening of OVDI follows one week after the Department of Justice announced the indictment of three Swiss bankers for allegedly “conspiring with U.S. taxpayers and others to hide more than $1.2 billion in assets….”  In the same vein, the U.S. government offered a settlement to nearly a dozen Swiss banks on December 16, which could result in the disclosure of more names of U.S. taxpayers with accounts at those banks.  The reopening of OVDI, together with these announcements, suggests that the IRS will continue its push towards enforcement over offshore bank accounts.

Although the relatively small increase in the penalty amount provides good news for taxpayers who are thinking of coming forward, the initiative nevertheless continues the unfortunate pattern of treating all disclosing taxpayers similarly, without regard to willfulness in failing to meet their compliance burdens.  This one-size-fits-all approach seems particularly harsh in situations involving minimal tax liability or otherwise sympathetic facts.

For our prior coverage, see here.