New Taxpayer Advocate Discussion of Problems with IRS OVDI/P Program (6/26/13)

The Taxpayer advocate has issue a new report.  The portion relate to the IRS's OVDI/P initiatives is here.  I cut and paste some of the discussion (footnotes and tables omitted):

A Government Accountability Office (GAO) analysis shows that the offshore penalty paid by those with the smallest accounts (i.e., those in the 10th percentile with accounts of $78,315) was disproportionate – at least 575 percent of the tax, interest, and penalties on their unreported income. It was also disproportionately greater than the amount paid by those with the largest accounts (i.e., those in the 90th percentile with accounts of more than $4 million) who paid 86 percent or less. Moreover, the IRS initially processed applications from benign actors who are expected to opt out much more slowly than others, though it has recently begun to process them more quickly, as shown by the following table  

In 2012, the IRS began allowing certain “low risk,” nonresident nonfilers – those with  simple returns and owing less than $1,500 in tax – to file the returns without triggering
penalties (the “Streamlined Nonresident Filing Initiative”). In January 2013, following
the National Taxpayer Advocate’s recommendation to expand the Streamlined Nonresident Filing Initiative to both U.S. residents and those owing more than $1,500, IRS officials publicly announced the IRS had eliminated the $1,500 threshold .
Although this is a positive change, the National Taxpayer Advocate remains concerned that the IRS does not have a simple and easy method for allowing benign actors who are U.S. residents to resolve past filing delinquencies. Nor has it provided clear guidance about key terms that it has used in its programs, such as when someone will be considered “high risk,” how they may avoid a penalty (e.g., by demonstrating “reasonable cause”), and when they will be subject to the lower penalty applicable to “nonwillful” conduct. The uncertainty surrounding these terms and the consequences of opting out has likely prompted some benign actors to pay more than they should inside the OVD programs  

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Finally, in FY 2012 and FY 2013 YTD, TAS assisted 474 taxpayers with OVD-related problems and issued four taxpayer assistance orders (TAOs). In the three cases in which the IRS did not comply with the TAOs, the National Taxpayer Advocate elevated (or plans to elevate) them to the Operating Division Commissioner level or above.

For an article discussing an Opt Out Strategy, with some assistance fro the TAO, see An OVDI Odyssey - an Opt Out Success Story (Federal Tax Crimes Blog 6/16/13), here.