September 1, 2011 - Phil Hodgen

Damsel in Distress – a VDP Success Story

Damsel in Distress, a commenter on this blog, told her story here.  Today she left a comment that should be highlighted as a blog post.  Hers is THE VERY FIRST moment of sanity I have seen in the 2009 Voluntary Disclosure Program.  Here is her report of what happened (light editing by me):

Phil I wanted to thank you for your blog & let you & the others know the outcome.

After much correspondence with my revenue officer I felt it best to opt our of the VDP & take my chances should the IRS wish to pursue my case. I put my request forward.

Meanwhile the revenue officer contacted me, suggesting I may qualify for a 5% (4,400) penalty  with reasonable cause. I still did not believe I should have to pay even the reduced penalty.  I quoted the Internal Revenue Manual on why and when penalties should be assessed:

Section, Paragraph 4

Penalties should be asserted only to promote compliance with the FBAR reporting and recordkeeping requirements. In exercising their discretion, examiners should consider whether the issuance of a warning letter and the securing of delinquent FBARs, rather than the assertion of a penalty, will achieve the desired result of improving compliance in the future.

The revenue officer forwarded my email to his group manager…who responded  … the reason Ms. Crump does not qualify for old FAQ 9 was because she failed to file her US tax returns and thus did not report all her income. The issue is, was the income timely reported on a US tax return, not was any tax due. The IRM sited below does not apply to VD cases as noted in new FAQ 50, which states, “VD examiners do not have discretion to settle cases for amounts less than what is properly due and owing”.  & thought I should qualify for the 5% penalty as I didn’t have over 10K US sourced income- (I had 0$ US Sourced income!)

I had a brief conversation w/my revenue officer @ this time who hinted that if he were to review my case outside of the VDP, he felt a warning would suffice.

In light of all of this in early July I reconfirmed my decision to opt out of the VDP.

On 25 July I received a Report of Findings & Recommendations, indicating it was determined that a warning letter should be issued, so that, should the necessity arise in the future for me to file FBARS w/the IRS I would do so in a timely manner.

After 2 years my persistence paid off!  I am not sure I would have had the determination to challenge the IRS if had not been for this blog. Additionally I believe the revenue agent handling my case honestly had MY best interest in mind.  I have no idea if this is a common practice but am so grateful my file landed on his desk!

I want to express much appreciation & gratitude to everyone who posted on this blog with opinions & suggestions… many that I used to continue to dispute the penalty being assessed. At last the debacle has come to an end…what a relief.

In good female fashion, retail therapy is required, and this damsel is going out to buy a dress!

Congratulations for your tenacity, Damsel in Distress. That is an impressive result and a testament to the person you are. I am sure this strength of character will help you achieve other results–great and small.

The gentleman who handled your case knows the difference between “right” and “procedurally correct.” Perhaps that is because he’s from the South. 🙂

I would encourage other IRS employees to show similar moral integrity. Do the right thing. The Revenue Agent handling Damsel’s file did the right thing. “What Would Your Grandmother Say?” Keep that in mind as you are flinging massive penalties as ordinary, middle-class people.  In fact, it is a good thing for all of us to ask ourselves periodically, just to keep the moral compass pointed towards True North.

Americans Living Abroad Voluntary Disclosure