My comment to an immigrant who has been stuck in OVDP for the last 2.5 years

Comment picked up from a public blog : "Do you think the IRS would bother to assess an FBAR penalty in a situation where the tax payer had no tax due and received a refund after filing taxes for that year the FBAR penalty would be on? I have a situation in 2007 when I failed to file my FBAR forms, but I had a foreign account with over 1 million dollars in it. I ticked no foreign accounts on my 1040 and I did not specifically declare the income from this account, but I paid enough tax to cover the income and in fact got a small refund for that year. My agent is gesturing that I am open to a FBAR penalty . I have said take me to court, because no judge is going to award a penalty when there was no harm done and no tax due. Do you think he would really carry out the threat and assess a penalty in this situation? And if he did, do you think as the issue moves up the ladder of the IRS, that higher ups would just drop the assessment because it would not hold up in court?In my country when there is no harm, ( ie. tax owed) there can be no foul ( penalty assessed). I find it absolutely astounding that the IRS can possibly assess a $500,000 penalty on a 1 million dollar account which was not created by money leaving the USA, but was earned while I was a citizen of a foreign country living in that country. I simply left it in my home country when I moved to the USA on a green card. The IRS was not out a penny of tax in 2007, they just want 500,000 because I failed to report the account. Do you really think a jury or judge is going to let the IRS get away with such a penalty? Is there no justice or fair play.? "

my response :


that is a good one ..."Is there no justice or fair play?"... Remember Congress passes the laws and the IRS has the mandate to execute , enforce and administer these tax laws. This is tax policy not equitable tax law - not what is fair, just, ethical or humane. IRS and common sense are oxymorons. The next problem is that public perception is against you coming from a tax haven like the Cayman Islands.
I do not know all the shades of grey in your case and where your facts and circumstances once fully flushed out are located on the bell curve of the OVDP conundrum but it seems that you were unfortunately in the wrong place (the United States of America) at the wrong time.

Remember examiners have a predisposed inclination to think you are a tax cheat when you entered OVDP especially when you have lived in a tax haven before - that is why I told you before you should have taken your chances with a QQD with IRM discretion applied which I think would have had even with a guaranteed audit because of your account size the approx. same result but with much higher odds or probabilities of a better result and without the $150K compliance cost.
The IRS has created an Orwellian monster in this OVDP program..... “Stupidity on Steroids” They obviously don’t get it, or worse, do get it, and don’t care - remember you are a non represented minority. This is the equivalent of financial water boarding for Minnows. This is just a callous attempt to raise revenue on the backs of benign actors and the fact that your lawyer has not pursued the opt out yet after 2.5 years should tell you something. 

The key sentence and consideration here is and I repeat ....."The problem is finding someone with some sense and sensibility to deal with the issue may be difficult."......
This is something your current tax lawyer should have done already a long time ago. Unlike their lower level counterparts in the audit division, IRS appeals officers are permitted and can consider what is known as “hazards of litigation” in arriving at a settlement with the taxpayer. IRS examiners, Judges, and government attorneys have extremely large case workloads and desperately want cases to be settled before trial.
If a case is not docketed (i.e a written protest was filed rather than a Tax Court petition), an appeals officer will generally not be as concerned with hazards of litigation because the case is not on a direct path to trial. It is important to note that the Tax Court is under no obligation whatsoever to redirect the case to appeals. The fact that it does so in nearly every instance is evidence of its great desire to get cases settled. But the Tax Court is not the only court in which your claim is heard. You also have the option of paying either in full or part of the IRS’s proposed assessment and then making a formal claim for refund. When the claim for refund is denied or ignored you may then bring a lawsuit in federal district court.

You need to get away from your current biased examiner and his manager because this is a dead end and find a venue outside the OVDP conundrum where IRM discretion should apply. I think you have a credible and certainly not atypical immigrant story to tell about being negligent or inadvertent and your conduct is a result of a good faith misunderstanding of the requirements of the US tax law which means a jury trial would be probably best.
I would say you have a sympathetic case certainly not egregious that a impartial jury of your peers should find you NW. I find this venue/strategy more advantageous to you to prove reasonable cause, rather than the IRS determining culpability based upon a preponderance of evidence. 

I do not know what your end game or strategy is my dear West Indian immigrant and how much your "well connected" practitioner has shared about that with you besides "you will win in the end"..... but I like to point out 2 instances where you could have involved TAS (Form 911) and asked for a TAO but stopped your tax lawyers clock :

1. received an incomplete or incorrect 906....
2. over 6 months elapsed since last correspondence with regards to 906

TAS is not the answer to or for everything and will not replace your own due diligence research or corresponding with the IRS but I like to share some names here that immigrants could use in their correspondence with them to get out of the tax bermuda reacharound triangle.
a. normal TAS agent
b. TAS - RATA - revenue agent tax analyst
c. TAS attorney advisors - Eric Lopresti and Rosty Schiller
It has been my experience - for whatever reason - but the moment I have involved TAS in cases over the last 3 years the dynamic, language, attitude and speed of IRS low and mid-level personal did change .

Bottom line : 
QD and QQD do have one significant advantage over the OVDI-P conundrum , IRS advice/protestations aside. It does not require one to spend countless LCUs in an extremely inefficient 2 - 3 year process and pay tens of thousands of dollars to a practitioner for advice and help just to get to an Opt Out point where normal IRM discretion should apply in the first place.
 http://www.irs.gov/pub/foia/ig...
The biggest change in the new rules is that IRS appeals will attempt to settle cases based on factual hazards (i.e., uncertainties as to what facts the Court will find to be true) if the case is not fully developed and the taxpayer has provided no new information or evidence to the IRS appeals officer.