The Internal Service would have given taxpayers warnings via tax notices that remind individuals to file because they have a filing obligation. If these notices are ignored by the taxpayer, the case will then be assigned to an IRS Revenue Officer. An IRS Revenue Officer is a skilled tax collector that will probably make an unannounced visit to the Taxpayer's residence. 

Although IRS Revenue Officers can be aggressive in the assessment and collection of un-filed and un-paid taxes, it is critical to file returns timely. Even if you cannot pay the tax due, it is recommended to file tax returns in a timely manner in order to prevent the assessment of the late filing penalty. Even though the IRS will assess late payment penalties and interest on the unpaid balances, the penalty rate for late payment is usually lower than the penalty rate for late filing of tax returns. 

Furthermore, once a Revenue Officer is assigned, they could prepare a substitute for return on the taxpayer's behalf. This is even more problematic because the taxes due as a result of a substitute for return are usually higher than if the taxpayer prepares their own return voluntarily because the Service will not take into account the expenses and credits that the taxpayer is legally entitled to. 

Finally, worst of all, the substitute for return balances cannot be discharged in bankruptcy because some circuits do not classify a substitute for return as a return for bankruptcy discharge purposes. 

The map is very useful in providing a big picture of how complicated our tax system truly is. The Taxpayer Advocate Service plans on updating the map to provide taxpayers with an interactive map of the IRS taxing process. 

​I have included a link to the map below. 

Taxpayers can bring suit against the United States in the Court of Federal Claims under the Tucker Act. In order to bring an action against the United States, the taxpayer will need to pay the tax, request a refund and bring suit after the refund was denied by the United States. 

In Norman v. United States, see link below, the taxpayer paid the FBAR penalty in the amount of $803,530 and filed suit, requesting a refund. 

The court held that the taxpayer is liable for 50% penalty, which is 50% of the highest account balance at the time of the violation. 

The taxpayer argued that the recent holdings in United States v. Colliot and United States v. Wadhan, two cases where the courts held that the FBAR penalties are limited to $100,000, should be applicable to the case before the court.

The court rejected the reasoning of the Colliot and Wadhan rulings and reasoned that Colliot “mischaracterizes the language of 5321(a)(5)(C), by ignoring the mandate created by the amendment in 2004.”  The court basically argued that the maximum penalty shall be increased to the greater of $100,000 or 50% of the account balance at the time of the violation. 

​This case is important in the development of the FBAR penalties because a court of nationwide jurisdiction expressly rejects the ruling in United States v. Colliot. The decision rendered in Norman does not mean that the IRS' interpretation of the applicable penalties are correct, but the IRS' can prevent a flood of litigation concerning the applicable penalty standard by addressing the regulations concerning the FBAR penalties. 

To understand the reason behind the holding, we need to examine the legislative history of the FBAR penalties and the laws that were enacted by Congress. We need to examine the code, which is the text of the law, and the regulations, which is the interpretation of the law.

Congress enacted 31 U.S.C. Section 5321 (a)(5), which stated that civil penalties of the greater of $25,000 or $100,000 could be imposed for the failure to file foreign bank account reports. 

In 2004, Congress amended section 5321 to increase the penalties that could be assessed for the failure to report foreign bank accounts. The section essentially states that the penalties assessed could be the greater of $100,000 or 50% of the account balance at the time of the violation. 

However, despite the fact that code was amended, the regulations were not amended. The old regulation was 31 C.F.R. Section 103.57, which is now Section 1010.820.

​Colliot essentially argued that although the law has been updated, the regulations were not repealed due to the fact that they were based upon the old rule and motioned for a summary judgment. The court agreed and held that because the regulations were not updated, the old rule was not repealed and thus penalties in excess of $100,000 were unlawful. The court also noted that it would not be difficult to update the regulations to reflect the changes in the amount of penalties that could be assessed under the new rule. 

This is a pretty significant holding and it will be useful for taxpayers who may be under audit and subjected to significant FBAR penalties under the new rule as amended in 2004. However, since this was decided in the 5th Circuit, the ruling will be persuasive authority for those who are not in the 5th Circuit. 

The program is expected to close on September 28, 2018. However, the IRS has not announced that it will end the streamlined filing compliance procedures and it appears that the streamlined filing will still remain open. 

The IRS has not announced why they are planning on terminating the OVDP, but I presume that the reason for terminating the program is that they have obtained foreign account information and the fact that taxpayers are not entering into the program compared to prior years. Based on what the IRS has provided, it appears that 2011 had the most number of taxpayers enter the program, with around 18,000 taxpayers entering into the program. In contrast, only around 600 taxpayers entered into OVDP in 2017.