Recently, a taxpayer instituted a case against the US government because the Internal Revenue Service (IRS) reportedly found willfulness against her. “F” & “J” served as Executors for Mrs. MJ’s Estate.
In the complicated matter, the taxpayer, an elderly widow, had submitted to the streamlined process after her husband’s death, and an inexperienced auditor audited her after completing her submission. After the audit, the agent found the widow to be willful and had to pay a higher penalty than she would have under the Streamlined Filing Compliance Procedures’ Title 26 Miscellaneous Offshore Penalty.
The taxpayer instituted a case against the IRS with two main claims—Exaction and Breach of Contract. However, the court rejected the two claims due to the reasons below:
Breach of Contract in Streamlined Cases
The taxpayer argued that by signing a non-willful certification (Form 14654), paying for a Title 26 Miscellaneous Offshore Penalty, and entering the Streamlined’ Filing Compliance Procedures, she had instituted a contract with the IRS. Due to this contract, the Internal Revenue Service would stop undertaking a willful assessment because they had a contractual agreement with the taxpayer that paying the penalty resolved the case. However, the court declined this argument.
It was a tough argument because the Revenue Service has the authority to conduct the examination as explicitly stated in the certification. Hence, it would be challenging to establish that it was binding on the IRS to jettison pursuing further assessment because it entered into the program.
The Streamlined Certification Form (Form 14654) states thus: “I recognize that if the Internal Revenue Service (IRS) accepts or discovers evidence of willfulness, fraud, or criminal act, it may open an examination or investigation that could cause civil fraud penalties, FBAR penalties, information return penalties, or even referral to Criminal Investigation.”
Exaction Claim
Generally, exaction claims are complicated. The principle behind them is that the IRS illegally ‘exacts’ the funds from the taxpayer. The court disagreed in this instance that the taxpayer could have a claim for exaction in the future. Still, to pursue this claim, the taxpayer needs an administrative claim of refund via the Internal Revenue Service.
The issue is that if you make a refund claim by entering into the Streamline Procedures, the taxpayer may suddenly renege on making any administrative claim for a refund.
The Streamlined Certification Form (Form 14654) further states that “I waive all defenses against and restrictions on the examination and collection of the miscellaneous offshore penalty including any defense premised on the expiration of the duration limitations on examination or collection. I forgo the right to seek a refund or reduce the miscellaneous offshore penalty.”
Do You Have Issues with International Tax Compliance?
Take a deep breath if you did not report overseas assets, income, and accounts in the previous years because it is not as frightening as some uninformed people paint it. However, avoid submitting to the Internal Revenue Service outside the amnesty process because a quiet or silent disclosure may lead to unimaginable fines and penalties.
If you have resolved to comply with the laws, explore one of the offshore optional tax amnesty procedures stated here:
- Streamlined Domestic Offshore Procedures
- Streamlined Foreign Offshore Procedures
- Delinquent FBAR Submission Procedures
- Voluntary Disclosure Program
- Delinquent International Information Return Submission Procedures
- Reasonable Cause
Interact with an Experienced Lawyer
“Speak with a reputable lawyer if you are out of compliance before making affirmative statements or representatives to the Revenue Service. The attorney can guide you on the proper steps to take.” says Attorney John Pontius of Pontius Tax Law, PLLC.
Source:
Pontius Tax Law, PLLC was founded by John Pontius with offices in Washington, DC, Maryland, and Virginia. Mr. Pontius is a tax law attorney who represents individual and business clients with sensitive and serious tax matters before the Internal Revenue Service and state taxing authorities. His client base is local, national, and international.
