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Revised IRS Appeals Procedures Re: FBAR Penalties

The IRS revised the Internal Revenue Manual (IRM) providing guidance and clarification regarding the administrative review of FBAR penalties by the IRS Office of Appeals. The IRM is essentially the operational manual providing guidance and procedures for the various functions carried out by the IRS. The Office of Appeals serves as the administrative dispute resolution forum for any taxpayer contesting an IRS compliance action. It has long been Appeals’ mission to “resolve tax controversies, without litigation, on a basis that is fair and impartial to both the Government and the taxpayer in a manner that will enhance voluntary compliance and public confidence in the integrity and efficiency of the Service.” Post-assessed FBAR penalties in excess of $100,000 cannot be compromised by Appeals without approval of the Department of Justice (DOJ). See 31 USC 3711(a)(2) and 31 CFR §902.1(a) and (b). Once assessed, the FBAR penalty becomes a claim of the U.S. Government. Typically, the FBAR penalty case will usually be received in Appeals pre-assessment. However, upon request, Appeals will also conduct post-assessment hearings as provided in Title 31 CFR 5.4 and 900 to consider FBAR penalty liability and collection issues. ADR rights are not available for post-assessment FBAR penalty cases. However, Fast Track Settlement (FTS) is available for pre-assessed FBAR penalties only if the 30-Day Letter (Letter 3709) has not been issued. In FTS, the IRS Appeals Officer uses mediation techniques to focus issues and lead examiner and the taxpayer to determine the outcome of the dispute. If resolution is not reached through mediation, the Appeals mediator will propose a resolution, but such proposal is not imposed on either party. If FTS is unsuccessful in reaching a resolution, a taxpayer is not precluded from requesting traditional Appeals consideration.