Foreign Bank Accounts and Offshore Voluntary Disclosure Compliance

By: Coleman Jackson, Attorney-CPA
July 14, 2016

TIGTA Recommended Improvements Needed in Offshore Voluntary Disclosure Compliance and Processing Efforts

According to a publicly released audit report dated June 02, 2016 by the Treasury Inspector General for Tax Administration (TIGTA), the Internal Revenue Service (IRS) needs to improve its efforts to address the noncompliance of taxpayers who are denied access to or withdraw from the IRS’ Offshore Voluntary Disclosure Program (OVDP) and Foreign Bank Account Reporting.

Through its OVDP, the IRS allows noncompliant taxpayers to disclose their unreported offshore accounts and related income. Noncompliant taxpayers are given the opportunity to resolve their potential tax delinquencies through the Offshore Voluntary Disclosure Program (OVDP) instead of risking being caught.  TIGTA states in the June 02, 2016 final report that it is extremely important that the IRS ensures that these delinquent taxpayers actually become compliant with their tax obligations.

TIGTA initiated an audit to assess how well the IRS is currently managing the OVDP consistent with the goal to improve taxpayer compliance and hold accountable those taxpayers who fail to report their offshore financial activities on their tax returns and Reports of Foreign Bank and Financial Accounts (FBAR).  TIGTA found that the IRS failed to achieve the goal of making sure delinquent taxpayers come into compliance with the offshore bank account disclosure laws.

As a result the TIGTA recommended that the IRS take the following corrective measures to ensure that delinquent taxpayers with foreign bank accounts come into compliance with the law: 

  1. Review all denied or withdrawn offshore voluntary disclosure requests identified in the June 02, 2016 TIGTA Final Report for potential FBAR penalty assessments and criminal investigation;
  2. Develop procedures for reviewing denied and withdrawn cases for further compliance actions;
  3. Centrally track and control OVDP requests;
  4. Establish one mailing address for taxpayer correspondence;
  5. Ensure that employees adhere to timeliness guidelines throughout the entire OVDP process; and
  6. Classify OVDP certifications so that some OVDP cases can be worked by lower-graded revenue agents.

The Internal Revenue Service agreed with all six TIGTA’s recommendations; and has indicated that the IRS plans to or has taken corrective actions to implement TIGTA recommendations 1, 2, 3, 5 and 6.  Apparently the IRS is contemplating ending the OVDP or making some kind of changes in the OVDP going by its cryptic statement to TIGTA recommendation number 4.  That recommendation is on hold “until a decision is made about the future status of the OVDP.”

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader.  You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432

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