OVDI 2011 - Mitigating the Penalty by Lowering the Penalty Base (6/27/11)

In the OVDI 2011 program, the "in lieu of" penalty is determined by multiplying an amount which I shall call here the penalty base (generally speaking, the highest aggregate value the U.S. tax noncompliant foreign assets, both financial accounts and otherwise) times a percentage. The percentage is 25% but may in special cases be 12.5% (see FAQ 35 ) or 5% (see FAQ 52). Mitigating the penalty, therefore, can be accomplished by achieving one of the lower percentages. Mitigating the penalty also can be accomplished by lowering the penalty base to which the percentage applies.

Regarding the penalty base, it is important to keep in mind that, for purposes of the OVDI 2011 penalty, the penalty base includes not only the foreign financial accounts (the only type of assets reported on the FBAR) but also other foreign assets, not otherwise reportable, which are U.S. tax noncompliant (either with respect to the money used to acquire the other foreign assets or the income from the other foreign assets).

The question I raise here is the ways that the penalty base can be lowered.
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Opting Out of the IRS 2009 OVDP and 2011 OVDI (6/14/11)

Readers have commented on prior blog entries about the opportunities and risks of opting out of the IRS 2009 OVDP and 2001 OVDI. I thought I would devote a specific blog entry to the subject to better focus readers comments, particularly as anecdotal evidence comes out about how the IRS is actually dealing with opt outs, and make them more easily accessible to readers.

The fear among taxpayers and practitioners is that the IRS will be punitive in its application of the penalty structure. We don't know yet whether the fear will be realized.

First, I quote the 2011 OVDI FAQ 51 for the opt out (as updated 6/2/11):

If, after making a voluntary disclosure, a taxpayer disagrees with the application of the offshore penalty, what can the taxpayer do?

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