Friday, June 16, 2017

Tax Court Denies Claim in Offshore Account Case with Very Unusual Facts Because the Information Did Not Produce Collected Proceeds (6/16/17)

In Awad v. Commissioner, T.C. Memo 2017-108, here, a whistleblower case, the following is the key time line:

Awad files WB claim (Form 211) identifying husband and wife (TH and TW, respectively) and their three adult children as owners of undisclosed foreign bank account.
WBO assigns to LB&I
LB&I Agent reviews returns and decides to accept as filed based on insufficient information
TH dies.
TW and children file "voluntary disclosures pertaining to a previously undisclosed account at the same foreign bank" Awad had WBO
SB/SE opens exam incident to voluntary disclosure
LB&I returns the case to WBO (although a year after LB&I made decision not to pursue)
WBO discovers SB/SE exam and forwards information to SB/SE for possible use in examination
SB/SE Agent interviews Awad by telephone; Awad provides additional information
SB/SE advises WBO that the information did not assist in the audit
IRS enters closing agreement on the voluntary disclosure requiring tax, penalties (including MOP) in excess of $2M for TW and estate
WBO learns of estate tax exam for TPH and refers information to SB/SE Estate and Gift Tax
WBO denies award.

There are some significant, scantily explained, time lapses in the foregoing, but they are not relevant to the outcome because the examining agents involved in LB&I and SB/SE all attested that the Form 211 information did not contribute to the ultimate outcome -- the acceptance of the TH Estate and TW's voluntary disclosure.  After all, for collection, the information does have to contribute to collected proceeds to permit a WB award.

The thing that is curious to me is that there were no procedures to flag the matter when the WBO first assigned it to LB&I so that, after that date, the taxpayers could not qualify for voluntary disclosure.  It is true that the procedure assumes disqualification only after the IRS has flagged the taxpayer for audit.  (I have had one client thus disqualified even though the IRS had never notified him of the audit.)  I understand that LB&I had not yet decided to audit, but it seems to me that there should be some way to disqualify once WBO decides the information has sufficient gravitas to refer to Examination, at least while it is in that status.  Just my view.

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