Friday, December 14, 2012

ABA Tax Section Webcast on Opting Out and FBAR Litigation

The ABA Tax Section is sponsoring a CLE Teleconference and Live Audio Webcast titled:  Through the Looking Glass (Parts I and II): Opting Out of the OVDI Penalty Structure and Litigating FBAR Penalties, on January 16, 2013 1-3pm..  The weib site for the presentation, with a link for signing up, is here.  The participants are major players in the OVDI brouhaha, so I look forward to learning from them.

I have a separate blog entry reporting on this webinar:  Report on Webinar on Opting Out and Litigating FBAR Penalties (Federal Tax Crimes Blog 1/17/13), here.


This panel will discuss matters relating to opting out of the IRS Offshore Voluntary Disclosure Initiative, including “opt-out” mechanics and procedures, and issues relating to examination, negotiation and settlement expectations arising in various “opt-out” scenarios. The panel will also emphasize procedural and substantive issues that are emerging in FBAR assessments and litigation.


Megan L. Brackney, Kostelanetz & Fink LLP, New York, NY
David A. Breen, Senior Counsel, Office of Chief Counsel, SB/SE, IRS, Philadelphia, PA
Caroline D. Ciraolo, Rosenberg Martin Greenberg LLP, Baltimore, MD
David H. Dickieson, Schertler & Onorato LLP, Washington, DC
Mark E. Matthews, Caplin & Drysdale Chartered, Washington, DC
John C. McDougal, Special Trial Attorney, Small Business/Self-Employed Division, Office of Chief Counsel, IRS, Washington, DC
Richard J. Sapinski, Sills Cummis & Gross PC, Newark, NJ
Thomas J. Sawyer, Senior Litigation Counsel, Counsel for International Tax Matters, Tax Division, Department of Justice, Washington, DC
Zhanna A. Ziering, Caplin & Drysdale Chartered, New York, NY


$125 Section of Taxation
$150 ABA Members
$125 Young Lawyers
$125 Government / Academic / Non-Profit
$195 All other registrants
$75 Additional registrants (using the same phone line)
FREE Full-time J.D., LL.M., or M.T. Candidates (No CLE/Webcast Only)
FREE Press


  1. Is the OVDI policy toward expat minnows changing? I am under examination in OVDI and when I received my first letter with the agent's contact details, I called to introduce myself and ask if anything else was needed. The agent has a lot of experience with OVDI and was amazing in the most positive sense possible. The agent was professional, polite, clear and ultimately, helpful. After going over some of my details, the agent told me that the analysis had already been done based on what I submitted and I was qualified for the 5% penalty as in FAQ 52.3 and that all requested reductions in my highest balance amounts due to balance transfers would be accepted. Then the agent began to explain the OVDI program to me. By the seventh time an opt out scenario for my particular facts was mentioned, I dared to ask about opt out. As a result of the ensuing discussion, I am now considering opting out immediately. However, I am aware that it ain't over until its over, but I feel I have a good overview of the potential penalties and can make an informed decision.

    I think that the experts participating in this conference can discuss as much as they want about about theoretical OVDI opt out scenarios, but ultimately I suspect that the major factors influencing a positive opt out result will be:
    1) the experience of the agent

    as well as

    2) the facts of the taxpayer.

    I also wonder if the departure of former Commissioner Shulman has led to the implementation of a more nuanced policy for expat minnows.

  2. The approach to PFICs outside of OVDI is important and I wonder if it will be mentioned by the experts. In OVDI, a preferential method employing a 1296 MTM methodology and 20% tax rate is utilized for calculating taxes on PFICs. Due to the fact that the MTM method within OVDI is a preferential rate, foreign tax credits (FTCs) cannot be used to offset the tax.

    Outside of OVDI, the 1291 calculations must be used. Depending on how many sales there were and when they were, this can have positive or negative financial consequences for the taxes to be paid. The 1291 method will also will rack up additional accounting costs for the taxpayer, although a big benefit of this method is that FTCs can be credited against the taxes generated via this method.

    There is another downside to the 1291 method. For those OVDI participants with PFICs who opt out and who have filed 2011 tax returns using the preferential MTM calculation, they will have to amend their 2011 returns to show the calculations with the 1291 method as they can no longer use the preferential 1296 MTM calculation. This will likely lead to additional accounting costs.

  3. The IRS is a stickler for returning all taxes and penalties paid for years that will be considered closed once one opts out. While one has to think mostly about FBAR penalties, depending on the amounts (tax and penalty) paid in years which are closed outside of OVDI, if a non-willful penalty is likely, the amount of money received back from the closed years may offset the FBAR penalty. This is a calculation that the experts should not ignore and would be good to mention in their discussions.

  4. Thanks Jack for drawing this to our attention.

    It would be interesting to the participants, if the experiences from Minnows inside the OVDP/OVDI are adequately relayed via this forum. I wonder if there are any brave souls who have entered the OVDI in fear, and 'Opted Out' to a more favorable result willing to share their experiences with the forum. Or, do they care?

    Bottomline, some of the Biggest cost in this extremely inefficient and costly program is the fear, stress, anxiety and lost of LCUs experienced by those who thought this was the only or best route to compliance.

    The IRS officials designing these so called "compliance programs" have no idea of the pain this causes and the many unintended consequences related to creation of ex-citizens.

    Further, how costly is this program, as constructed, to administer? What is the real "fully burdend" cost to the IRS. I do not expect an honest answer from the bureaurcacy. I am not even sure they really know how to calculate it.

    Maybe they don't care, but there has to be a better, more efficient, less technical and legalistically complicated and and long term effective way for the less than 'willful' evaders. Maybe this discussion might be a good forum for reviewing some of the many suggestions that have been put up on your "Open forum" link, or at least making available for consideration.

    Nina Olsen's proposals should also get a thorough airing, I would hope. I fear not!

    I hope something positive can come from this, if the IRS is any a "listening" rather than "Lecturing" mode. It all depends on the moderator, and the willingness of the participants to challenge the inside the IRS echo chamber perspectives, I would guess.

  5. Good comment. As to sharing information with the participants in the program so that they can weave it into their presentations and thus into the common understanding of what is happening, I would be glad to pass on anyone's experiences in opting out without identifying information if they will send them to me with some specific information that I can feel comforted that it a real experience and is not just made up.

    Jack Townsend

  6. That is true I really like her! I feel you're too sensible quality to mark intelligence! Thanks for posting

    Immigration Lawyers

  7. Jack, as you know, I did NOT Opt Out, as at the time, Opt Out was just a new program and perimeters were pretty uncertain. Instead, I received some significant relief via an appeal to the TAS for consideration under FAQ 35.

    I know I have mentioned it previously here, but my entire experience inside the 2009 OVDP including my correspondence with the IRS has been made public for others to learn from.

    As a reminder, it is uploaded here.

    I am not sure there is anything there that this conference cares about, but it certainly documents the torturous process a person has to go through just to become compliant with a recently discovered requirement.

    It shouldn't be this hard, and this expensive in dollars or LCUs.

    Opting Out is not a satisfactory solution for an ill designed and overly complex program. There should be a front end screening process, rather than a back end reaming where the IRS takes advantage of those too fearful to challenge IRS hyperbole and penalty threats. My examiner had 25 minnows, and most paid up inside the OVDP even though she knew they were not who the IRS was searching for. That just is not right!

    There is nothing about the OVDP and Opt Out process that is a positive experience that encourages compliance, or leaves you with any warm and fuzzy feelings for your government.

    It is certainly an illustration of inefficiency and wasted IRS and Tax payer resources and abuse of Tax Payers who try to do the right thing and become compliant. If the word "offshore" wasn't associated with the failure, then the outcomes and practices would be entirely different.

    You are welcome to anything there that you think might be appropriate, or not. Your choice.

  8. Hi Jack, it will be greatly appreciated if someone could represent minnow immigrants in H1 and L1 visa. These are temporary workers who send W2 income to their home country. Unknowlingly violated a obscure rule. Only minor interest income was not reported due to lack of clear knowledge. And now when they want to come clean, 25% of the principal savings is way too much. Opt out is an option but very uncertain as what is reasonable in one person's view may not be the view of IRS. Total Tax owed over last 10 years will be < $2K even lesser than the special $1500 per year low risk expat cases. No one is addressing this work permit based H1/L1 workers cases. Today our only option is to go forward or do nothing and if you get audited return to home country leaving your job. Employer, client and family all suffers. Even govt loses future investments, future tax and future social security tax. I will request some low risk special compliance scheme for such minnows as well.

  9. The long overlooked plight of the Immigrants. I think this story is probably even bigger than the unintended consequences on Americans abroad. I do hope it gets some airing, but I would not be hopeful. I don't think these guys care. After 3 years since the IRS offshore jihad has started, I have yet to see that the State Department is doing anything to educate new arriving immigrants of the unique requirements of FBAR and FATCA form filings. Correct me if I am wrong. I think it probably only comes as a BIG surprise later, when they find out they are non compliant. At a minimum the unsatisfactory, "low risk special compliance scheme" should be extended to them too.

  10. Anonymous said:
    "our only option is to go forward or do nothing and if you get audited return to home country"

    People respond to incentives, and it looks like the incentives have been created (probably unintentionally) to NOT fix the past and if worst comes to worst just leave the country. Not only is future tax lost, but past tax as well.

  11. Reading the page about this seminar, it appears that it is primarily geared at explaining the mechanics of the OVDI and optout process. It would be far more interesting and useful if they were to discuss the nuance of making a decision for/against optout, particularly in gray areas when neither path is the obvious choice. Also, what facts are important to present in the optout. The burden of proof on the IRS to prove wilfulness should also be discussed.

    I am someone now in OVDI, and had considered registering under the "other" category since $195 pays for very little of my lawyer's time but if they're going to just discuss the mechanics it doesn't seem worthwhile to me. Also it appears (correct me if I'm wrong) that the participants will be delivering prepared comments and that there will be little/no opportunity for registrants to ask questions.

  12. Did anyone attend the webcast and would be kind enough to report on it?

  13. See Report on Webinar on Opting Out and Litigating FBAR Penalties (1/17/13):


Please make sure that your comment is relevant to the blog entry. For those regular commenters on the blog who otherwise do not want to identify by name, readers would find it helpful if you would choose a unique anonymous indentifier other than just Anonymous. This will help readers identify other comments from a trusted source, so to speak.