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Tax Analysts, October 27, 2009
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James N. Mastracchio
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James N. Mastracchio, member of Caplin & Drysdale, is mentioned in this article on the IRS crackdown on American taxpayers with undeclared offshore accounts.
Article by David D. Steward, Tax Analysts
The IRS is considering imposing a deadline on information reports filed by individuals who have sought to voluntarily disclose assets held in offshore accounts before the special program deadline, an IRS official said October 26.
The IRS is considering imposing a deadline on information reports filed by individuals who have sought to voluntarily disclose assets held in offshore accounts before the special program deadline, an IRS official said October 26 at a District of Columbia Bar Taxation Section luncheon.
Following the rush to enter the program before the extended October 15 deadline, many individuals seeking to take advantage of the reduced penalties regime have not yet filed the three-page information disclosure letter released July 29 or submitted to an interview, said Rick Raven, director of operations, policy and support in the IRS Criminal Investigations division.
Addressing practitioners' questions, Raven confirmed an October 14 statement by IRS Commissioner Douglas Shulman that the service had received 7,500 voluntary disclosures but said the number has since increased, though he was not permitted to disclose the new figure.
Raven explained that the flood of disclosures the IRS has received in the course of the program has led the Service to improve its procedures in ways that will continue even after the program is complete. He told the group that the success of the initiative "forced" the IRS to standardize its handling of voluntary disclosures across the country. Raven said the IRS will continue its current procedures for preclearance and for disclosures made according to the three-page letter.
Raven said the IRS was able to keep pace with submissions throughout the program but became swamped in the final month, as did attorneys representing individuals seeking to disclose. Because of the backlog, many individuals have qualified for the program but have not yet submitted the necessary follow-up information.
Raven said the IRS is currently considering imposing a deadline for the submission of required disclosures to remain eligible for the program. He added that although no decision has been made, he would like the deadline to be January 15, 2010.
Raven also noted that many individuals had reported that large financial institutions were slow in reporting account information such as capital gains when requested by the account holder. He noted that the three-page letter permits the use of estimates and warned against waiting for actual numbers if that means running the risk of missing the deadline. Raven also pointed out that civil auditors are aware of the issue and are willing to work with affected taxpayers.
Practitioners also inquired about procedures for determining when the 20 percent and 5 percent penalties are applied and about how the IRS will assess cases when an intermediate penalty would be appropriate.
"As far as the middle ground, there is still some confusion I think out there to when can you raise arguments regarding the statute of limitations or lower FBAR [foreign bank account report] penalties," said James Mastracchio, a member at Caplin & Drysdale.
Mastracchio explained that some agents have advised him that his client should wait until she has received a determination that the 20 percent penalty will be applied before seeking a full audit, while other agents have discussed opening an audit before the determination is complete.
Practitioners also questioned Raven on the procedures as the disclosures move to the civil phase. One practitioner asked whether the failure to reach a settlement following the audit process would affect the individual's status in the program.
According to Raven, the inability to reach an agreement after a case has been referred out of the criminal division will not raise the possibility of criminal action. He said a case would only to be referred back to the criminal division regarding a new fraud, such as submitting false documents to auditors.
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