Effectively Representing the Client in a Voluntary Disclosure of a Foreign Account

Effectively Representing the Client in a Voluntary Disclosure of a Foreign Account
by Asher Rubinstein, Esq.

We have represented and advised many clients in the 2009 Offshore Voluntary Disclosure Program (OVDP), the 2011 Offshore Voluntary Disclosure Initiative (OVDI) and have already begun advising clients regarding the recently-announced 2012 revival of the OVDI.

From our involvement in many voluntary disclosures, we have heard a significant number of people reporting their their prior attorneys and advisors have not effectively represented the client’s interests before the IRS.  Many people have reported to us that their advisors have “pressured” them into making disclosures, instilling a fear of either making a voluntary disclosure or “going to jail”.  Other advisors were little more than paper-pushers, taking foreign banking statements and other documents, and simply turning them over to the IRS with little to no advocacy on behalf of the clients.  While practitioners may be correct that failing to bring an offshore account into compliance could result in criminal prosecution, we believe that the role of the client representative is not merely to scare, but to properly advise the client as to all options and all potential outcomes.  Please see our prior article, The Role of the Attorney in the Voluntary Disclosure Process, also published in Tax Notes Today.

Along these lines, we have fought hard on behalf of our clients and in some cases achieved notable successes with the IRS, including significant reduction of penalties.  Please see our article, A Few Voluntary Disclosure Successes.

We are also proud of our advocacy on behalf of taxpayers facing IRS “bait and switch” policies within the 2009 OVDP.  In our article, Offshore Voluntary Disclosure Penalties: The IRS Quietly Drops a Bombshell, we wrote about the IRS reversing its position, and no longer allowing taxpayers to argue “reasonable cause” for their non-compliance.  We took issue with the new IRS presumption that all foreign accounts were wilfully concealed, and the IRS refusal to consider evidence of non-willfulness.   In our article, Standing Up to IRS “Bait and Switch” Tactics, we noted how the Taxpayer Advocate Service (TAS), in its Fiscal Year 2012 Objectives Report to Congress (published in June, 2011), essentially agreed with our very concerns.

The TAS has once again sided with us against the IRS.  In its end-of-year 2011 Annual Report to Congress (December 31, 2011),  the TAS has once again criticized the IRS for its unfairness and inconsistent policy.  Among the TAS’ criticisms:

  • The IRS’s Offshore Voluntary Disclosure Program “Bait and Switch” May Undermine Trust for the IRS and Future Compliance Program;
  • The Potential for Strict Application of FBAR and Other Penalties Causes Unnecessary Stress and Fear Among Benign Actors Who Made Honest Mistakes;
  • U.S. Taxpayers Abroad Face Challenges in Understanding How the IRS Will Apply Penalties to Taxpayers Who Are Reasonably Trying to Comply or Return into Compliance.

The TAS noted that “the IRS Is perceived as having “reneged on” the terms of the 2009 OVDP that would benefit taxpayers whose violations were not willful.  Many felt that the IRS placed them in the unacceptable position of having to agree to pay amounts they did not owe or face the prospect the IRS would assert excessive civil and criminal penalties.  This perceived reversal burdened taxpayers, wasted resources, violated longstanding IRS policy, opened the IRS to potential legal challenges, and . . . damaged the IRS’s credibility.”

We are proud that the TAS once again echoed our concerns and advocacy of taxpayers’ rights against IRS unfairness and inconsistency.  As we wrote:

We are proud that the TAS has echoed our very concerns.  We will continue to argue on behalf of our clients in support of non-willful penalties where the facts allow it.  TAS has already issued at least one Taxpayer Assistance Order (TAO) to the IRS regarding offshore accounts. Our advocacy, coupled with TAS support, could compel the IRS to stick to the original terms that it announced.

As we note the increasing number of attorneys and non-attorneys who have in recent years entered the “offshore compliance” world and promote themselves as taxpayer representatives  (especially lately, as the IRS re-introduced its 2011 Offshore Voluntary Disclosure Initiative), we respectfully and humbly point out that we have long been on the vanguard of representing taxpayers before the IRS and fighting for taxpayer rights and lower penalties.  As our actual clients have witnessed, we have closed many voluntary disclosure cases with great success for our clients, and we continue to advocate on behalf of our clients against the IRS.

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