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The Daily

IRS Failed to Assess $21.6 million in FBAR penalties.

Chris Gaetano
Published Date:
Jun 21, 2016
CracksThe Treasury Inspector General for Tax Administration faulted the IRS for failing to enforce international tax rules, saying in a report that it failed to assess $21.6 million in delinquent FBAR penalties. These penalties come from those who were either denied access to, or chose to withdraw from, the Offshore Voluntary Disclosure Program (OVDP), which allowed delinquent taxpayers to come clean and pay the taxes they owed. 

TIGTA reviewed 100 of the 3,182 taxpayers who did not take part in the program and found that 29 of them should have been assessed penalties, but the IRS did not initiate any compliance actions. The $21.6 million estimate came from projecting the sample results to the total population of denied or withdrawn requests. 

It also faulted the IRS for internal control weaknesses that it said led to delays and incorrect processing of OVDP requests. These weaknesses include the use of separate inventory controls and two separate IRS addresses to which taxpayers send correspondence, which contributed to incorrect processing of some taxpayer disclosure requests.

Finally, TIGTA said the IRS doesn't have a way to determine what skill level is required for an agent to work OVDP request certifications: such cases generally don't require as much technical analysis. 

“In an increasingly global economy, it is important that the IRS ensure that taxpayers with foreign-derived income comply with their U.S. tax obligations,” said J. Russell George, the Treasury Inspector General for Tax Administration.

The IRS disagreed with the $21.6 million number, saying that penalty assessments depend on the facts of the matter and cannot be so easily extrapolated. It did, however, agree to take corrective actions in administering the program.