In it, she identifies specific problems, among which is: The IRS’s Offshore Voluntary Disclosure Programs Discourage Voluntary Compliance by Those Who Inadvertently Failed to Report Foreign Accounts, here.
Eliezer Mishory, a 2L student at George Washington University Law School, notified me of the Report and provided the following summary (which I may supplement later after I have had time to review in detail):
It may be newsworthy that the OVDP “made it” to Nina Olsen’s Taxpayer Advocate Report to Congress as “Most Serious Problem” number 8. I have only scanned the report but it seems that her chief grievances are (1) that the program treats “benign actors” who had reasonable cause or inadvertently failed to file FBARs the same way as “bad actors”, (2) the difficulty in opting out of the OVDP, and (3) the unnecessary burden on taxpayers caused by the overlap of FBAR and Form 8938.
The report recommends establishing three (3) categories of taxpayers:
1) Taxpayers who only underpaid a small amount should be able to come compliant without any penalties (essentially expanding the new program for foreign residents to include taxpayers who reside in the US).
2) Taxpayers who have reasonable cause, or inadvertently failed to file ("benign actors"), should be able to pay the lower non-wilful FBAR penalties without having to opt out of the OVDP.
3) Taxpayers who are not category 1 or 2 should come forward under the current OVDP rules.Thanks to Mr. Mishory!
Addendum 1/10/13 4:30pm.
I have reviewed the report and offer the following comments:
1. I note the table indicating long processing times both for the initial round and the opt outs. For example, the 2009 processing time without opt outs was apparently 307.3 days. But keep in mind, the IRS was creating new processes for 2009 OVDP and the length of the processing time probably reflects substantial delay as the processes were created and implemented. Probably a better statistic is the 2011 OVDI processing time of 116 days. Similarly, the times for opt outs are 548 in 2009 OVDP and 176 ini 2011 OVDI, also certainly reflecting having to create the wheel for the 2009 OVDP opt outs.
2. Note that 280 opted out of 2009 OVDP from the total dataset of 11,161. A comparable statistic is not available for 2011 OVDI because many, probably most of those cases have not reached the opt out stage.
3. I provide download here an Excel file with those statistics straight from the report, but changing only the number of days so that, in the spreadsheet, they are in number format (i.e., I delete the text "days") for easier statistical analysis for those wishing to play around with the numbers. The spreadsheet is here. [I am having difficulty uploading the file and will try again tomorrow.]
4. The report says: "Although the IRS has not closed very many opt-out cases, the average civil FBAR penalty assessed against those opting out of the 2009 OVDP is only $15,737.19." Although no detail is given (and the devil is often in the detail), generally speaking I think this gives some reassurance that the IRS is not being draconian on the opt outs, as many feared it would be. Of course, extrapolating from that average a result in any particular case will require experience and judgment and careful attention to the facts of the taxpayer considering opt out.
5. The report then makes the following statement:
Moreover, the IRS has not initiated any criminal prosecutions against those who opted out. In other words, the IRS required benign actors with minor FBAR violations to spend the time to apply to the 2009 OVDP, incur significant fees for representation, and wait for about a year and a half for the IRS to process their cases (on average), all in an effort to collect very little FBAR penalty revenue.The point of the second sentence is a valid one. There is a lot of delay and processing costs incurred for relatively little on the opt outs. I am not sure that the implication of the first sentence is correct, however. There should be no criminal prosecutions on opt out because the criminal "amnesty" is not waived by opting out. Of course, taxpayers who not only do not cooperate on opt out but commit some new criminal act open themselves up to criminal prosecution. But that would be rare and would not be a result of their having opted out.
6. The report further says:
The IRS should be reducing (rather than increasing) the burden of correcting prior noncompliance and the burden of reporting foreign accounts in the future, given the existing compliance problem. While an estimated five to seven million U.S. citizens reside abroad and many U.S. residents also have FBAR filing requirements, the IRS received only 741,249 FBAR filings in 2011. In the face of what may be a serious FBAR compliance problem, the government opened only 3,220 civil FBAR examinations and 18 criminal investigations in calendar year (CY) 2011.It is hard what to know what precisely these statistics mean, but they do indicate that which we always knew -- that the IRS's civil and criminal investigative resources are hardly sufficient to cover more than a relatively small subset of past and future evaders via offshore accounts. Although the IRS is doing what it can, given its resources, there likely will continue to be significant revenue loss through offshore accounts. As in all criminal initiatives, the IRS's goal is to mount a credible criminal enforcement campaign that will encourage the maximum compliance at an acceptable enforcement cost.