Niles Elber Comments on New Insights Into IRS Offshore Voluntary Disclosure Program

Caplin & Drysdale's Niles A. Elber spoke with Tax Notes concerning newly-obtained documents regarding internal "job aids" for the OVDP program which offer practitioners some insights on IRS thinking concerning the program.  Since the IRS instituted streamlined filing compliance procedures and began the offshore voluntary disclosure program, practitioners have frequently criticized the lack of transparency in the programs' guidance.  For the full article, please visit Tax Notes' website (subscription required).

Excerpt taken from the article "News Analysis: FOIA Response Shows Hints of IRS Thinking on OVDP" by Andrew Velarde for Tax Notes.

Niles A. Elber of Caplin & Drysdale Chtd. said the materials gave him a good overview of the programs from IRS employees' perspectives. "For what it's worth, if they were to package this up and put it online in a format that is different from the [frequently asked questions] you get, I think they might get a better product," Elber said. "You get more insight as to where they're heading and what they're trying to do, and you might not waste as much time doing things that aren't going to bear any fruit." He added that in his experience in practice, no IRS employees "appeared to be going off-script."

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In most circumstances, the determination that a taxpayer did not qualify as non-willful would be a result of a lack of detail in the disclosure, Elber said. He added that making the distinction between a failure to qualify as non-willful and a willfulness determination was a credit to the IRS. "That they recognize that distinction is an important consideration for taxpayers deciding what course of action they want to follow," Elber said.

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The new streamlined procedures have been in place for only about a year. According to practitioners, IRS rejections of non-willfulness certifications in the streamlined program would be made when it started examinations of the taxpayers. Those examinations have not been commonplace, at least not yet, which Elber found surprising but not totally unexpected.

"The likelihood of having your streamlined [submission] picked up is not unlike the relatively small likelihood of having your tax return picked up," Elber said. "There's only so much in the way of resources."

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"When you've got a client that is borderline in terms of what resources they have available, that may be a real problem if you don't have the funds," Elber said, noting that it is not uncommon for accounts to diminish in value. "You've provided all these disclosures and put yourself out there but [then don't] have the protections of the program." Combined with a lack of appeal rights, that lays the foundation for harsh consequences, all of which should be considered when entering into the program, Elber said.