Zwerner: Jury Determines 150% FBAR Penalty Applies – Excessive Fines Clause to the Rescue??

“Mr. Zwerner appears to have come into compliance under the then applicable voluntary disclosure practice set for in the IRS’s Internal Revenue Manual 9.5.11.9, Example 6(A) at a time when there was no formal program regarding the voluntary disclosure of previously undisclosed interests in offshore financial accounts. Unfortunately, IRM 9.5.11.9 only speaks to the voluntary disclosure being a factor considered by the IRS in the determination of a referral for criminal prosecution by the Tax Division of the U.S. Department of Justice. It has no formal impact on any IRS civil penalty determination although, historically, a timely voluntary disclosure has received favorable consideration in the civil penalty arena as well.”

TAXLITIGATOR - Tax Controversy (Civil & Criminal) Report

U.S. taxpayers with previously undisclosed interests in foreign financial accounts and assets continue to analyze and seek advice regarding the most appropriate methods of coming into compliance with their U.S. filing and reporting obligations. Many are pursuing participation in the current IRS offshore voluntary disclosure program (the OVDP which began in 2012), modeled after similar programs in 2009 and 2011.

Taxpayers participating in the ongoing 2012 OVDP generally agree to file amended returns and file FBARs for eight tax years, pay the appropriate taxes and interest together with an accuracy related penalty equivalent to 20 percent of any income tax deficiency and an “FBAR-related” penalty (in lieu of all other potentially applicable penalties associated with a foreign financial account or entity) of 27.5 percent of the highest account value that existed at any time during the prior eight tax years.

QUIET DISCLOSURES. There remain alternatives to the OVDP, including the voluntary…

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