Sunday, December 18, 2016

Conference Report on IRS Offshore and Voluntary Disclosure Efforts (12/18/16)

The ABA recently held a conference titled National Institute on Criminal Tax Fraud and Institute on Tax Controversy.  This is a report on part of the events:  Andrew Velarde, IRS Offers Hints About Future of John Doe Summonses (Tax Notes Today 12/12/16) [no link available].  Key points of my interest from that report are:

1. Expect continued IRS and DOJ activity against offshore service providers with respect to foreign accounts and in the John Doe Summons "JDS" area.

2. Discussion of the bitcoin JDS.  A senior IRS official, John McDougal, is quoted as saying that users of virtual currency "presented the same risk profile as [users of] an offshore account."  He also said that users of bitcoin have ranges of understanding with respect to tax compliance -- "from innocent misunderstanding of what the filing obligations are to tax evasion."

3.  Discussion of influx of information about offshore accounts from FATCA, voluntary disclosure and other sources.

4.  Discussion of certification of nonwillfulness in streamlined procedures. Reports that Scott Michel of Caplin & Drysdale analyzed the certification process where things are rarely black and white under the familiar tax penalty concepts of reasonable basis, substantial authority, and more likely than not.  Michel is quoted as saying:  "The scary thing to me, and I think a lot of others, is it is probably not good enough to have a reasonable basis."  [I infer that the thinking is, at least with respect to any legal issues (including legal issues in fact analysis), this range of levels of comfort in traditional tax penalty analysis may have some effect, at least in terms of practitioner behavior in advising taxpayers and perhaps in arguing cases, although I have not seen that in the application of the FBAR penalty and in the certification of nonwillfulness.]

5.  Discussion of potential problems, particularly criminal from improper certifications of nonwillfulness.  A senior DOJ Tax CES lawyer, Mark Daly, is quoted as saying that he has been looking at a lot of certifications recently.  Some have "patently ludicrous" narratives presented to support the nonwillful certification.  And, they are checking against information from other sources.  He cautioned better due diligence by practitioners.

6.  Discusses the salutary effect of streamlined to channel most taxpayers into streamlined rather than OVDP.  The article cites McDougal of saying that the average $10,000 payment in streamlined suggests that it is working and that, at least in most cases, practitioners are appropriately channeling the clients.  The article quotes statistics that show 18,000 streamlined submissions in the last year compared with 1,800 new OVDP submissions.

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