New IRM provision on Offers in Compromise Including FBAR Penalties (10/8/20)

 I just picked up this provision in the IRM, here:

5.8.4.24.2 (09-24-2020)

Foreign Bank and Financial Reporting (FBAR) Assessments

An offer may be submitted which includes FBAR assessments or a taxpayer who submitted an offer to compromise their tax liabilities also has assessments based on FBAR. Since, the IRS does not have authority to compromise assessments based on FBAR, the taxpayer should be requested to submit an amended offer to remove FBAR liabilities which are included on the Form 656.

Note: FBAR penalties are assessed under Title 31 and do not appear in IDRS.

If the taxpayer has a liability for assessments under FBAR, an offer for tax liabilities other than the FBAR may be investigated. During the review of the taxpayer’s financial information, the OE/OS should conduct additional investigation actions to determine if the taxpayer continues to have assets outside the United States. Review the ICS history to determine what research may have been conducted by a field revenue officer. The OE/OS may also issue an other investigation (OI) to an ATAT or International RO group to research FinCEN and/or CBRS to assist in identifying current foreign assets in which they retain an interest.

Note: The taxpayer may also have pending assessments related to Offshore Voluntary Disclosure Initiative.

If the taxpayer is unable or unwilling to submit an amended offer removing the FBAR liabilities, the offer should be closed as a processable return.

JAT Comments:

1.  I am not sure how or if compromises of the FBAR penalties may be achieved.  I assume that there is some way to do that outside the IRS processes for tax liabilities.

2.  The known route to compromises of tax liabilities may be a side benefit of avoiding an FBAR penalty assessment under the various IRS programs (e.g., OVDP and Streamlined) where a substitute penalty is assessed as a miscellaneous tax penalty (sometimes called the “in lieu of” penalty).

This blog is cross-posted on the Federal Tax Crimes Blog, here.

FTP2019 Update 03 - Minimum Payments and Voluntary Payments with OICs (9/25/19)

I have posted Update 03, here, dealing with minimum and voluntary payments required with OICs.  A listing of updates (with links) through today is here.

The update deals principally with Section 7122(c) dealing with minimum payments upon submission of OICs.

The page for the book editions and updates is at the right, titled 2019 Federal Tax Procedure Book & Updates, here.

Authority to Compromise Tax Liabilities After a DOJ Referral (9/4/17)

On Saturday, I posted a blog entry on the Federal Tax Crimes Blog regarding the Tax Court's application of the civil fraud penalty for multiple years after the taxpayer pled guilty to tax evasion involving only one of the years.  See Taxpayer Held Liable for Civil Fraud Penalty after Plea to Tax Evasion for One of the Years (Federal Tax Crimes Blog 9/2/17), here, discussing Cantrell v. Commissioner, T.C. Memo. 2017-170, here.

I thought some fans of tax procedure might be interested in the blog entry since the civil fraud penalty and collateral estoppel are important issues for tax procedure.  The application of the civil fraud penalty and collateral estoppel for the year of conviction in Cantrell is fairly routine.

What was not routine, and what tax procedure enthusiasts may not fully appreciate is the treatment of offers in compromise after a tax evasion conviction.  Cantrell dealt with one aspect of that issue and I expound further on it in the blog entry.  There are many nuances, so I refer readers to the blog entry linked above, where I discuss some of them.

At the inception, readers will want to read § 7122(a), here, titled Compromises, which seems to be very simple:

The Secretary may compromise any civil or criminal case arising under the internal revenue laws prior to reference to the Department of Justice for prosecution or defense; and the Attorney General or his delegate may compromise any such case after reference to the Department of Justice for prosecution or defense.

I discuss in an addendum to the Federal Tax Crimes Blog post linked above some of the nuances caused by this statutory division of authority to compromise.  Federal tax procedure enthusiasts my want to read the blog, particularly the addendum.

Public Policy as a Basis for Denying OICs (12/10/13)

Can the IRS deny an otherwise proper offer in compromise because the taxpayer has been involved in some type of activity that the IRS deems against the public interest?  For example, can the IRS deny an offer solely because the taxpayer was prosecuted for evasion of assessment or even payment of the taxes in question?  Or, even if not prosecuted, the taxpayer's activity had the characteristics of being prosecuted?

Keith Fogg of the Procedurally Taxing Blog has an interesting blog on the issue of whether developments in the law "will soon eliminate the ability of the IRS to make public policy or best interest of the government the basis for rejecting an offer in compromise."  See Keith Fogg, Oversight of Offers – Response to Comment raising Thornberry v. Commissioner (Procedurally Taxing Blog 12/6/13), here.  The article has a short summary of the history of the OIC and some valuable links. Professor Fogg believes that the IRS retains some residual right to reject claims on public policy or public interest bases.  The discussion is quite good, so I recommend it generally.

I have posted some comments on the issue on my Federal Tax Crimes Blog.  See Criminal and FBAR Noncompliance, Offers in Compromise and the Public Interest (Federal Tax Crimes Blog 12/10/13), here.

Isley Brother (of Isley Brothers) CDP Case Decision with Tax Procedure Issues (11/11/13)

Earlier today, I posted a blog on the Federal Tax Crimes Blog, IRS Authority to Settle After Referral to DOJ Tax (11/11/13), here.  In that blog, I point readers to an excellent blog by Peter Reilly -- An Isley Brother In Tax Court - Does Tax Crime Pay (Forbes Taxes 11/10/13), here.  Peter discusses the recent decision in Isley v. Commissioner, 141 T.C. No. 11 (2013), here.  I refer readers to Peter's excellent discussion of the issues in the case.  In my Federal Tax Crimes Blog entry, rather than re-covering the ground that Peter does so well -- I urge readers to read his blog -- I focused on one aspect of the case that particularly interested me -- the application of Section 7122(a), here, that gives DOJ authority over compromises of criminal and civil matters that have been referred to DOJ.  I won't repeat my discussion here, but refer interested readers to that blog entry.

IRS Has No Authority To Settle Cases Referred to DOJ Tax Even After They Are Returned (8/3/13)

In United States v. Jackson, 2013 U.S. App. LEXIS 1674 (3d Cir. 2013), here.  This is a non-precedential opinion, but it has a interpretation of a key provision of the statute dealing with the interface of DOJ Tax and the IRS.

The facts are simply stated.  The IRS referred a case to DOJ Tax to obtain a judgment against a taxpayer on a tax assessment.  DOJ Tax obtained the judgment and thereafter seems to have sent the case back to the IRS for collection action on the judgment.  The taxpayer and the IRS interacted.  I am deliberately fuzzy about that interaction.  It seems, however, that the taxpayer filed returns for at least some of the relevant years indicating less tax due and made payments.  The IRS apparently accepted the returns and abated the tax (apparently the IRS just processed and abated without substantive consideration).  Importantly, the IRS abated without DOJ Tax consent.  The taxpayer claimed that the result of the interaction was that the IRS compromised or affirmatively abated he tax liability (which might mean that the only way the IRS could restore the assessment was to invoke the deficiency procedures if there were sufficient time on the statute).  The taxpayer then moved to have the judgment declared satisfied.

One issue was whether the IRS abated in the manner claimed (rather than just made a mistake that might be correctable).  But the predicate issue was whether the IRS even could abate or compromise the tax liability for less than the judgment obtained by DOJ Tax without DOJ Tax's approval.  Section 7122(a), here, provides:

(a) Authorization
The Secretary may compromise any civil or criminal case arising under the internal revenue laws prior to reference to the Department of Justice for prosecution or defense; and the Attorney General or his delegate may compromise any such case after reference to the Department of Justice for prosecution or defense.

Certainly, any action the IRS took was "after" the reference to DOJ Tax.  So  a straight-forward literal reading of the statute meant that the IRS lost the ability to compromise the tax liability, even after the judgment had been obtained and only the IRS was involved in the collection of the tax now reduced to judgment.  That would mean that any abatement was void and hence the assessments could be reinstated.  Here is the court's reasoning:

Jackson's main contention is that the IRS abated his tax liabilities. Under 26 U.S.C. § 7122(a), the IRS "may compromise any civil or criminal case arising under the internal revenue laws prior to reference to the [DOJ] for prosecution and defense; and the Attorney General or his delegate may compromise any such case after reference to the [DOJ] for prosecution or defense." However, "[o]nce a tax matter is referred to the [DOJ], only the Attorney General or a person to whom authority has been delegated by the Attorney General may settle the matter." United States v. Forma, 784 F. Supp. 1132, 1139 (S.D.N.Y. 1992); see also Slovacek v. United States, 40 Fed. Cl. 828, 833 (1998) (agreeing with Forma); Int'l Paper Co. v. United States, 36 Fed. Cl. 313, 321 (1996) (agreeing with Forma); Brubaker v. United States, 342 F.2d 655, 662 (7th Cir. 1965) (determining that excess tax "liabilities cannot be compromised by the Attorney General or the [DOJ] unless and until the Commissioner refers [the matter] to the [DOJ] for prosecution or defense"); cf. Bergh v. Dep't of Transp., 794 F.2d 1575, 1577 (Fed. Cir. 1986) (noting that a compromise is "within the discretion of the agency conducting the litigation").