December 11, 2010 - Phil Hodgen

How to close an amnesty case under FAQ #35

I’m not blogging a lot on these cases at the moment because the IRS has — yet again — changed its procedures.  And I don’t want to talk about things too much for fear of screwing things up for our clients.

But. . . .

After a year of the IRS changing its procedures repeatedly, taking hard lines on penalties, and telling taxpayers to go get bent and take the “20% of high balance” penalty and be happy (yes, the beatings will continue until morale improves), the IRS finally realized that FAQ #35 exists.

It is theoretically possible to settle cases on a basis other than the “20% of high balance” penalty.

And we’ve closed cases along those lines.

I say this because if there are any of you out there who are in the amnesty and you’re getting hammered to accept the 20% of high balance penalty, don’t roll over and play dead.  Push hard.

Here’s your recipe manual — for the self-represented folks out there.

  1. Go look at FAQ #35.
  2. The Internal Revenue Manual has a whole section on the FBAR penalties and how they are assessed in an audit.  Read it carefully.
  3. See if you can configure yourself to look like a nonwillful nonfiler, or a willful nonfiler with mitigating circumstances, etc.  Write it up.
  4. Send it to the agent handling your case, requesting FAQ #35 treatment.
  5. The revenue agent should pass it upstream to his or her Technical Advisor.
  6. The Technical Advisor should give a thumbs up or thumbs down on your argument.
  7. If it is thumbs up, then it is up to the revenue agent and/or his/her (love them slashes) manager to figure out the dollar amount of the penalty.

Please note that there are variations on this theme depending on which IRS office is handling the case.  As the saying goes, the future’s already here, it’s just not evenly distributed.  What’s happening in one office may not be happening in another.

Voluntary Disclosure