D.C. Circuit Rejects Injunction End-Run by OVDP Taxpayers Seeking Streamlined Procedures Relief (7/14/17)

The DC Circuit Court of Appeals dismissed an attempt by participants in OVDP before the more robust Streamlined Procedures opportunity was announced in 2014.  Maze v. United States, ___ F.3d ___ (D.C. Cir. 2017), here.  They were relegated to the transition relief which, if nonwillful, would have qualified them for transition treatment reducing the miscellaneous offshore penalty ("MOP"), but would not relieve them from the eight years of income tax, penalty and interest on both required by OVDP.  By contrast, the new Streamlined Procedures would have require only 3 years of income tax and interest, with no accuracy related penalties.

I always thought the transition opportunity was unfair to those who got into OVDP rather than waited.  Taxpayers were rewarded for holding out.  But often life is unfair and taxes are not fair.

The plaintiffs in this action thought this was unfair as well and brought suit to compel the IRS to treat them under the Streamlined Procedures.  They ran squarely into the prohibition against injunctions in § 7421(a), often called the Anti-Injunction Act ("AIA").  Basically, the AIA prevents suits in any form which have the effect of enjoining the IRS in its tax enforcement and collection activities.  This particular suit failed for that reason.

I don't know that there is anything else to really say about this, except, if the taxpayers involved in the suit really were nonwillful, they could opt out of OVDP, take the audit and get an appropriate civil cost (tax, penalty and interest) result that way.  All of their income tax years would be subject to the normal statute of limitations (usually three years, with an exception for substantial omission or fraud (with the fraud unlmited statute not apply if they were nonwillful)).

Indeed, the design of the Streamlined Procedures, as I understand it, was to roughly give nonwillful taxpayers the result they could obtain by joining OVDP and opting out.  True, joining OVDP and opting out of the OVDP penalty structure involves commotion not encountered in Streamlined Procedures but, if taxpayers with a good story to tell (which is a requirement for Streamlined Procedures) can tell the good story in the opt out of OVDP penalty structure and achieve, in broad strokes, a more or  less similar result.  (Note there is some fuzziness there.) And, by staying in OVDP and just opting out of the OVDP penalty structure they get some marginal assurance of no criminal prosecution.

This story reminded me about Jesus' parable of the workers.  The taxpayers in Maze got what they bargained for -- the OVDP and the opportunity to opt out if dissatisfied.  So, too, the workers in Jesus' parable which can be read in Matthew 20:1-16, here.  In the parable, it is an equal reward that causes the problem for the early workers as compared to the late workers, but on an hourly basis, the late workers get paid a lot more for waiting than the early workers.  In the Streamlined Procedures, the late joiners get benefits not allowed the early joiners.  But, in both cases, they get what they bargained for.  (Actually, the early OVDP joiners got the benefit of Streamlined MOP by transitioning.)  What is the complaint?  (Having said that, I have already said that I thought excluding people in OVDP from the Streamlined Procedures benefits -- both income tax and MOP -- is unfair for reasons other than that the OVDP participants shut out of Streamlined Procedures did not get the deal -- even better deal -- they accepted in joining OVDP.)