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  • Daniel Rodriguez

TIGTA and DOJ Inquiries into OVDP and Streamlined Disclosure May Mean That Offshore Enforcement Effo

Many taxpayers are now fully aware of the duty to file a Report of Foreign Bank Account (FBAR). The obligation to file FBAR has existed for decades, but enforcement of the obligation was only stepped-up fairly recently. While many taxpayers are aware of their duties to file FBAR, some taxpayers can still be taken by surprise by this obligation. However, even for individuals who are aware of FBAR, many are still shocked and surprised by the potential severity of penalties for non-compliance.

If you did make a mistake filing your FBAR, this doesn’t mean that you have to face the full force of the imposed penalties. In many instances, the vast majority of fines and other penalties can be mitigated by making a voluntary disclosure through the IRS’s Offshore Voluntary Disclosure Program and through Streamlined disclosure.

Unfortunately, some taxpayers have tried to game the system or have otherwise moved forward too hastily with their voluntary disclosure filing. Recently the Treasury Inspector General for Tax Administration (TIGTA) noticed this fact along with the IRS’s failure to consistently impose offshore penalties on taxpayers who made improper filings. The TIGTA report may foreshadow a redoubling of enforcement efforts regarding the OVDP and Streamlined Disclosure programs. In other words, if you hoped that a mistake or error would slip through the cracks, think again.

TIGTA Report Finds That the IRS Fails to Impose Offshore Penalties Despite Improper Filing

TIGTA has found that the IRS has a number of failures regarding its policies and procedures in connection with the OVDP program. The TIGTA study analyzed a selected sample from a cohort of Offshore Voluntary Disclosure (OVDP) applications that had been rejected by the IRS or withdrawn by the filer. Typically, these applications are withdrawn because of some inaccuracy, legal insufficiency, or some other problem with the OVDP application.

Here, 100 applications out of the full set of 3,182 were analyzed by TIGTA. TIGTA found that 29 out of the 100 selected applications contained errors or misrepresentations that should have given rise to some level of offshore penalty. However, no penalty was imposed in any of these cases. Extrapolating out to the full sample size, TIGTA estimates that the IRS failed to impose at least $21 million in fines and penalties. While this failure may have flown under the radar until now, TIGTA’s scrutiny and attention on the problem means that it is significantly more likely that fines will be imposed in the future.

DOJ Considers Whether Your Filing Was Really Non-Willful

The DOJ is also looking into the Streamlined Disclosure program due to concerns that taxpayers are improperly utilizing the Streamlined program and certifying non-willfulness when an intentional or voluntary act occurred. However, one must first understand why a taxpayer would prefer to enter into Streamlined Disclosure rather than OVDP. Perhaps the most common reasons why they want to enter into Streamlined Disclosure is because this program carries a 5 percent or no percentage of offshore penalty compared to the 27.5 to 50 percent penalty that can be imposed under standard OVDP. It is clear why a taxpayer would improperly certify to qualify for the streamlined program.

The DOJ and IRS are well-aware of this fact, and are leveraging the various sources of data at their disposal to combat this problem. For instance, the DOJ and IRS are utilizing data collected through the Swiss Bank Program to pursue non-compliant account holders. This includes taxpayers who may be found on what is known as a “leaver’s list.” The “leaver’s list” records the U.S.-linked individuals who left Swiss banks rather than comply with a law that requires disclosures and other steps. For taxpayers who have entered into the Streamlined program with concerns about willfulness, or without a review as to whether their conduct constituted willfulness, this represents a major risk. Individuals who improperly entered into Streamlined Disclosure could face criminal prosecution or a civil fraud enforcement action. Individuals who are associated with one of more than 80 banks that took part in the Swiss Bank Program face a particularly pronounced risk.

Work with a Sacramento Tax Attorney When Considering OVDP or Streamlined Disclosure

The importance of satisfying one’s offshore tax obligations has never been more important. Likewise, if you did make a mistake filing FBAR in years past, then it is equally important for you to fix the error. Still, it is essential that you proceed through the voluntary disclosure process methodically. Working with a tax lawyer, like those from the NewPoint Law Group, LLP, can help you navigate the program and fix your FBAR filings. To schedule a confidential consultation, call our firm at 800-358-0305 or contact us online.

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