Speaking at a recent international tax enforcement conference, National Taxpayer Advocate Nina Olson suggested that IRS implement an approach to its Offshore Voluntary Disclosure Initiative (OVDI) that would only penalize taxpayers based on their level of non-compliance.
As Olsen noted at a conference sponsored by the Tax Section of the American Bar Association, there may be as many as 5 to 7 million U.S. resident taxpayers and perhaps tens of millions of nonresident U.S. taxpayers who are subject to the FBAR rules this year. Only 741,000 taxpayers filed FBAR returns in 2011. So far there have been approximately 28,000 OVDI filings for 2012.
Olsen reasons that, given the number of taxpayers who are subject to the FBAR rules, there may be many different reasons for taxpayer non-compliance. But instead of taking this diversity into account, Olson argued that IRS's approach in this area has been driven solely by the view that all non-compliance stems from a willful disregard to the FBAR rules.
A considerable shortcoming with the OVDI is its“one-size-fits-all” solution to taxpayer non-compliance.
Taxpayers who fall into some gray area with respect to non-compliance are nevertheless subject to the same applicable penalty that is imposed under the OVDI as if they had willfully disregarded their FBAR filing obligations.
Because many potential OVDI participants do not fit the program very well, they often choose to remain out of compliance. Olson suggested a four-category solution to improve the OVDI experience and encourage additional taxpayer compliance.