OVDP 2009 FAQ 35 (5/30/11)

This blog will open a discussion of the IRS application of FAQ 35 of OVDP 2009. I received comments on this subject with respect to the other blog entries and thought it was time to devote a blog entry to the subject so that comments can be more easily located. The issue is nicely addressed in Charles P. Rettig and Kathryn Keneally, The Last, Best Chance to Disclose Foreign Financial Accounts and Assets—The 2011 Offshore Voluntary Disclosure Program and Beyond!, Journal of Tax Practice and Procedure 33, 43-44 (Feb.-March 2011)

In practice, FAQ 35 of the 2009 OVDP provided an opportunity to explain unique circumstances supporting an offshore penalty resolution different that as specified in the 2009 OVDP. Specifically,

Voluntary disclosure examiners do not have discretion to settle cases for amounts less than what is properly due and owing. These examiners will compare the 20 percent offshore penalty to the total penalties that would otherwise apply to a particular taxpayer. Under no circumstances will a taxpayer be required to pay a penalty greater than what he would otherwise be liable for under existing statutes. If the taxpayer disagrees with the IRS’s determination, as set forth in the closing agreement, the taxpayer may request that the case be referred for a standard examination of all relevant years and issues. At the conclusion of this examination, all applicable penalties, including information return penalties and FBAR penalties, will be imposed. If, after the standard examination is concluded the case is closed unagreed, the taxpayer will have recourse to Appeals.

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