January 26, 2012
October 26, 2011
MEMORANDUM FOR DOUGLAS SHULMAN, COMMISSIONER OF
INTERNAL REVENUE SERVICE
FROM: Nina E. Olson
National Taxpayer Advocate
SUBJECT: Recommendations Regarding Taxpayer Advocate
Pursuant to Internal Revenue Code section 7803(c)(3), I am submitting
recommendations regarding Taxpayer Advocate Directive (TAD) 2011-1. Section
7803(c)(3) provides as follows:
The Commissioner shall establish procedures requiring a formal
response to all recommendations submitted to the Commissioner
by the National Taxpayer Advocate within 3 months after
submission to the Commissioner.
Accordingly, a formal response to the recommendations set forth below is due
within three months….
In summary, I recommend the IRS take the following actions:
1. Revoke the March 1 memo and disclose such revocation as required by
the Freedom of Information Act (FOIA).
2. Immediately direct all examiners to follow FAQ #35 by not requiring a
taxpayer to pay a penalty greater than what he or she would otherwise be
liable for under “existing statutes.” This direction should clarify that
examiners should apply “existing statutes” in the same manner that the
IRS applies them outside of the OVDP (e.g., IRM 4.26.16 implements
existing statutes by instructing employees to: issue warning letters in lieu
of penalties, consider reasonable cause, assert the penalty for willful
violations only if the IRS has proven willfulness, impose less than the
maximum penalty for failure to report small accounts under “mitigation
guidelines,” and apply multiple FBAR penalties only in the most egregious
If necessary, the IRS could create an expedited review procedure for processing voluntary
disclosures from taxpayers whose violations were unlikely to have been willful.
This recommendation is consistent with recent comments from external stakeholders. See,
e.g., Letter from New York State Bar Association Tax Section to Commissioner, IRS, Chief
Counsel, IRS, and Acting Assistant Secretary (Tax Policy) Department of the Treasury, 2011
Offshore Voluntary Disclosure Initiative Frequently Asked Questions and Answers, reprinted as,
NYSBA Tax Section Comments on FAQ for 2011 Offshore Voluntary Disclosure Initiative, 2011
TNT 153-13 (Aug. 9, 2011) (recommending public guidance). 8
Post any such guidance in the electronic reading room on
IRS.gov, as required by FOIA.
3. Issue a notice or similar public pronouncement that:
a. Describes and reaffirms the taxpayer-favorable procedures
provided by IRM 4.26.16;
b. Tells people what to do if they discover they have inadvertently
failed to file FBARs, reassuring them that they are most likely to
receive a warning letter in accordance the IRM if they follow the
instructions provided by the notice;
c. Reaffirms that people accepted into the OVDP will not be required
to pay more than the amount for which they would otherwise be
liable under existing statutes, as currently provided by OVDP FAQ
#35 (cross referencing the guidance issued pursuant to
recommendation #2); and
d. Commits to replacing all OVD-related frequently asked questions
(FAQs) and memos on IRS.gov with guidance published in the
Internal Revenue Bulletin that describes the OVDP, OVDI, and how
the IRS will handle voluntary disclosures outside of those programs
in the future. This guidance should incorporate comments from all
internal and external stakeholders.
4. Allow taxpayers who agreed to pay more under the OVDP than the
amount for which they believe they would be liable under existing statutes
(as implemented by the IRS outside of the OVDP, and described above)
the option to elect to have the IRS certify this claim, and offer to amend
the closing agreement(s) to reduce the offshore penalty.
5. Reinstate the International Planning and Operations Council (IPOC) or a
similar service-wide forum for addressing international taxpayer issues
and vetting international tax compliance initiatives.