TaxProf Blog informs us that National Taxpayer Advocate Nina Olson’s 2017 Annual Report to Congress has just been released. The latest report contains similar criticisms of diaspora abuse and suggestions for improvement which the IRS & Congress ignored last year and every previous year since 2012 2011. Criticisms of FATCA and mailing delays have been condensed and toned down since last year. Criticisms of passport revocation have been expanded. That stuff is more or less business as usual; see below the fold for details.
However, there’s one new section which makes this worth a separate post: discussion of penalties for not filing international information returns (Vol. 1, p. 314). Ms. Olson managed to get her hands on some interesting data and examples: in particular, she found out that the IRS collected nearly twenty-three times as much in penalties on failure to file Form 3520 in 2016 as in 2013. (I wonder how much of this came from those 48,000 “Streamlined” participants.)
| Form1 | Legal basis for penalty |
Penalty type | Net penalty after abatement | Growth in penalty revenue1 |
|
|---|---|---|---|---|---|
| 2013 | 2016 | ||||
| 5471 (Cat. 4) 8865 (Cat. 1) |
§ 6038 | Initial | $7,587,151 | $20,364,300 | 168% |
| Continuation | $3,576,416 | $35,991,336 | 906% | ||
| 5471 (Cats. 1/2/5) 8865 (Cats. 2/3/4) |
§ 6679 | Initial | $30,000 | $60,000 | 100% |
| Continuation | N/A2 | $2,671,935 | N/A | ||
| 3520 | § 6677 | Initial | $30,800,327 | $702,187,004 | 2,180% |
| Continuation | N/A2 | $6,645,580 | N/A | ||
| Total penalties (comparable categories only)3 |
$41,993,894 | $758,602,640 | 1,706% | ||
|
Adapted from Figure 2.7.1, “International Penalties Assessed and Abated in the Aggregate in FYs 2013 and 2016”. Penalties from Form 5472 are excluded. Notes: 1. Form name and penalty growth not in original; any errors in those columns are my own. |
|||||
The actual recommendations in the new section are uninspiring. Ms. Olson doesn’t comment on the growth in penalties, nor inquire as to the reasons behind it. Nor does she suggest reversing the massive hikes in statutory level of those “offshore” penalties over the past two decades, which have left members of the diaspora in fear of bankruptcy for foot-faults on paperwork about local assets (while Homelanders with similarly-situated local assets face penalties proportionate to actual tax, or even no penalties at all because no equivalent paperwork exists for them). She only asks Congress to give the IRS consistent authority to waive penalties for reasonable failures to file — right now, they can waive “continuation” penalties for some forms but not others. All well and good, except they’re barely using the penalty abatement authority they have anyway.
