Abajian Law attended the annual Tax Controversy Institute on October 17, 2012. This is their 10th year attending. The institute is the premier meeting where elite tax practitioners and high ranking IRS employees from Los Angeles and DC meet to discuss top tax issues pending before the IRS.

Foreign bank account and asset reporting, compliance and current IRS efforts was the hot topic of the day. The 2012 Offshore Voluntary Disclosure Program was reviewed. The IRS reaffirmed that the 2009 OVDP and 2011 OVDI resulted in approximately 33,000 taxpayers making disclosure and paying over $5 billion in taxes, penalties and interest. The IRS also admitted now having agents in Japan, South Korea and South Africa as well as other places in search of information about U.S. taxpayers with hidden bank accounts.

FATCA was also discussed. Comments were made as to how FATCA will be a “jet engine” for gathering information on U.S. Citizens with foreign bank accounts. Earlier methods of matching amended returns with foreign banks and previous international cooperation was compared to a “horse and buggy.” Comments were also made by attendees that FATCA will force some banks in countries that are less cooperative with the United States to have to comply with FATCA if they are subsidiaries or affiliated with banks in countries that are cooperative. Banks that want to continue doing business with U.S. Taxpayers will have to disclose very specific information about those taxpayers with foreign accounts.

Modifications to circular 230 were discussed including revision that would no longer require practitioners to include a circular 230 disclaimed in email communications.

The IRS was also considering expanding the worker classification disclosure programs to allow employers to qualify even when forms 1099 were not issued.

Panelists discussed the increased use of nominee or alter ego liens by the IRS. An intense discussion ensued between the private side and the IRS as to whether adequate due process is afforded to taxpayers that are the subject of nominee or alter ego liens. The private side attorneys were adiment that many taxpayers including innocent ones have been deprived of due process and suffered irreprible harm to their livelihoods because of such liens. The private side cited specific cases where clients’ businesses underwent bankruptcy because of the lack of due process before deprivation of property. One big flaw is that the administrative reviewer of such a lien is an appeals agent who has to “overrule” IRS Counsel who has already signed off on the lien without the taxpayer’s representative getting a chance to speak to the IRS counsel in many cases. Appeals agents are rather reluctant to “overrule” an IRS Lawyer’s decision. The appeals agent will defer to procedural compliance by the IRS instead of substantive review.

A byproduct of the Obama Health Care Litigation, which went all the way to the Supreme Court, may be that some tax cases can be initiated in district court without full payment of the tax. One of the most interesting panels of the day discussed how the Tax Anti-Injunction Act codified at I.R.C. § 74212(a) may not apply to suits brought by taxpayers for penalties outside of Subchapter 68B including penalties pursuant to Sections 857(c), 5761, 6038(c), 6038A(d), 6-38B, 6038D which is the FATCA penalty, 6039G, and most importantly the FBAR penalty under Title 31 after the recent Supreme Court ruling in National Federation of Independent Businesses v. Sibelius. The relevance for tax purposes is that for years only a few cases could have made it into district court without full payment of the tax. Tax practitioners on the private side suggested that the Health Care Litigation opened a Pandora’s Box of new types of cases including FBAR penalties that can make it to district court without having to full pay and sue for a refund.

The small business/self employed groups will be implementing fast track settlement procedures shortly.

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