What is the appeals process for Offshore Voluntary Disclosures?
Explaining OVDI Opt-out appeals
My colleague and terrific tax lawyer from Sacramento, California, Steven J. Mopsick, was kind enough to blog about his knowledge and experience for those taxpayers opting out of the OVDI program and what their OVDI Opt-out appeals process has been like. His experience thus far has been exactly like ours, and he gives a likely framework to the OVDI Opt-out appeals process, available for the OVDI program.
Typical IRS appeals process
When a taxpayer is hit with a tax increase through a civil tax audit (or examination, as the IRS calls it), a taxpayer has the right to appeal that increase administratively. And if unsuccessful, a taxpayer has a right to go to US tax court and theoretically, to the Supreme Court. Also, whenever the IRS attempts to levy or garnish a taxpayer’s wages or bank accounts, a taxpayer has the right to appeal that decision in something called a Collection Due Process hearing. And if the taxpayer doesn’t like the result of the CDP (as we call it), the taxpayer has the right to go to US tax court, and again, theoretically, to the Supreme Court.
But what about the OVDI Opt-out appeals of penalties imposed during the Offshore Voluntary Opt-Out stage?
For taxpayers not willing to accept the 27.5% (or 12.5% in cases for accounts less than $75,000) FBAR-equivalent penalty, they may opt-out of the standard FBAR penalty scheme and argue for less, by showing a lack of willfulness or reasonable cause in not filing FBARs and not reporting income earned abroad. During the Opt-out penalty assessment stage, the OVDI officer will recommend a penalty amount and that penalty will then be either accepted or rejected by the board. So the question is: Is there any appeal available to contest the appropriateness of an OVDI opt-out penalty?
Yes, there is an OVDI Opt-out appeals process.
So why haven’t you heard much about the OVDI Opt-out appeals process? Attorney Mospick answers:
“That’s because there aren’t any OVDI cases in Appeals yet*. A highly reliable source recently told me that there are presently no opt-outs in Appeals and if any of them manage to work their way there, they likely will be handled as Appeals Coordinated Issues to assure consistency. An Appeals Coordinated Issue (called “ACIs”) is IRS-speak for alerting all local managers to not even think about settling the case on their own because the National Office has removed all discretion from local offices on these cases. Any willingness to settle any case under OVDI will be made exclusively by National Office compliance super-managers and their staff, the highest levels the Office of Chief Counsel, and the national director of Appeals.”
Yes, there is an OVDI opt-out appeals process. It will be handled by the highest level practitioners and IRS counsel. But we are months away from cases even beginning to enter into OVDI Opt-out appeals. However, we see nothing to deny the US tax court jurisdiction over OVDI Opt-out appeals that does not end well for the taxpayer.
(*Attorney Mospick was correct when he wrote in in early December. There are at least two cases in appeals nationally as of this writing).