Thursday, September 22, 2011

Post OVDI, How to handle delinquent FBARs. | Bellevue Tax Lawyer

Now that the 2011 OVDI is over, people have been asking: "What do I do now?, "How do I file delinquent FBARs?", etc... This is a bit of a tricky question.  Currently, there the most common ways to report undisclosed foreign income and bank accounts are a quiet disclosure, or a voluntary disclosure.  There are problems with each method and the decision should not be taken lightly. 

I recently spoke with an IRS agent about the post OVDI voluntary disclosure and the process is as follows.  The voluntary disclosure process is similar to the OVDI, but the penalty range is different (5-50%) and process is slightly more involved.  The process starts with a phone call to your local IRS criminal investigations office and, after that, pretty much follows the 2011 OVDI.  The IRS is requesting amended returns, including any previously excluded foreign income and corrected FBARs (Form TD F 90-22.1) for the previous six years, a conference (interview) with the taxpayer, and the 2011 OVDI letter.

The other option is a quiet disclosure.  To make a quiet disclosure, the taxpayer files amended tax returns, if he has excluded foreign income, and files FBARs for the previous 6 years.  Unlike the voluntary disclosure process, the taxpayer does not alert the IRS that he will be filing the returns and FBARs.  Penalties likely will be applied for late filing, and in my professional opinion, the chances of an audit are pretty high.

The problem with the voluntary disclosure process is that a taxpayer is guaranteed penalties but, for for going through the voluntary process, he is less likely to face criminal charges.  The IRS claims that if you go through the voluntary disclosure process, they will not recommend criminal penalties if the money came from legal sources.  The IRS is actively encouraging people to come forward through this method. 

Currently, the IRS is aggressively pursuing anything related to unreported foreign income and bank accounts and this makes the voluntary disclosure look like a better option.  In my conversation with the IRS agent implied that people will come under increased scrutiny if they make a quiet disclosure and they are selected for an examination.  This means the possibility of criminal charges, and a certain attempt by the examining agent to impose willfulness penalties for failing to file the FBAR.  However, there might be a few limited situations where this is the better option. 

If you have any questions please contact me directly or leave a comment.

As with everything related to the IRS, it is difficult to provide comprehensive information related to taxes and tax law on the web.  Please do not rely on this article without consulting your tax professional.

Tuesday, September 13, 2011

The IRS Appeals Process | Bellevue Tax Lawyer

Today I'm writing to follow up on my previous post about audits, to discuss the appeals process. The appeals process normally starts after the completion of the audit.  Following the audit, the IRS agent will issue a determination letter (also called a 30-day letter) and you make a response to the letter in disagreement.  This is usually the beginning of the appeals process. 

The other way to start the appeals process is by filing a petition with the US Tax Court.  If you do not respond to the determination letter a statutory notice of deficiency is issued.  When you receive a notice of deficiency, you have 90 days to file a petition with the tax court, or you lose your right to appeal. (There are other avenues to pursue if you miss this deadline, but it make the process more difficult.)  After you file the petition, your case will be sent to appeals. 


IRS appeals is a separate and independent branch of the IRS that is separate from the examinations (audit) division.  The best description of them is they act as a mediator for the IRS.  While, it is there goal to find in favor of the government, more often than not, if you make a reasonable argument, they will make a sound decision.  This is contrary to the examination division, which in my experience, has the main goal of maximizing revenue for the government. 

Appeals is where most cases are resolved and the best results are achieved.  To start the appeal, read the determination letter and write a letter based on the issues you want to argue.  When you file the appeal, the appeal's officer will then send you a letter requesting additional information related to your argument and for you to make any additional arguments.  A conference with the appeals officer will be scheduled and a new determination letter will be issued based on the result of the conference and information provided.  If the result is unfavorable, you can request a conference with a manager or file/proceed with a federal or tax court case.

If you have any questions please contact me directly or leave a comment.

As with everything related to the IRS, it is difficult to provide comprehensive information related to taxes and tax law on the web.  Please do not rely on this article without consulting your tax professional.