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 http://www.irs.gov/irm/part8/irm_08-011-006.htmlWith respect to FBAR penalties being considered for resolution by IRS Appeals, the revised IRM 8.11.6 provisions reference 10 key points:
- IRS FBAR Administrative File.
- Limited Jurisdiction for Post-Assessed FBAR Penalties.
- Limited Availability of Alternative Dispute Resolution Rights.
- Mitigation Threshold Conditions Survive.
- Joint and Several FBAR Penalty Liability.
- Interest Does Not Accrue Until the FBAR Penalty is Assessed.
- Expedited Closings of Unagreed FBAR Penalty Cases.
- No Chapter 11 Relief.
- FBAR Penalties are an Appeals Coordinated Issue.
- 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.
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