OVDP Opt-out Appeals

UPDATE 2016: OVDP opt-out appeals are indeed handled by the highest level of IRS appeals officers. Their goal is to see that the law is applied consistently and that they take into account the risks of litigation. For more recent information, visit this article on FBAR appeals.


Typical IRS appeals process

When a taxpayer is hit with a tax increase through a civil tax audit (or examination, as the IRS calls it), a taxpayer has the right to appeal that increase administratively. If unsuccessful, a taxpayer has a right to go to US tax court and theoretically, to the Supreme Court. Also, whenever the IRS attempts to levy or garnish a taxpayer's wages or bank accounts, a taxpayer has the right to appeal that decision in something called a Collection Due Process hearing. If the taxpayer doesn't like the result of the CDP (as we call it), the taxpayer has the right to go to US tax court, and again, theoretically, to the Supreme Court.


What about the OVDI/OVDP Opt-out appeals of penalties imposed during the Offshore Voluntary Opt-Out stage?

For taxpayers not willing to accept the 27.5% (or 12.5% in cases for accounts less than $75,000) FBAR-equivalent penalty, they may opt-out of the standard FBAR penalty scheme and argue for less, by showing a lack of willfulness or reasonable cause in not filing FBARs and not reporting income earned abroad. During the Opt-out penalty assessment stage, the OVDI officer will recommend a penalty amount and that penalty will then be either accepted or rejected by the board.


So the next question is: Is there any appeal available to contest the appropriateness of an OVDI opt-out penalty?


Yes, there is an OVDI Opt-out appeals process.

Yes, there is an OVDI opt-out appeals process. It will be handled by the highest level practitioners and IRS counsel. We are months away from cases even beginning to enter into OVDI Opt-out appeals. However, we see nothing to deny the US tax court jurisdiction over OVDI Opt-out appeals that does not end well for the taxpayer.


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