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Taxpayers Cannot Void Their FBAR Settlement

Taxpayers Cannot Void Their FBAR Settlement

According to Law360, A married couple lost their attempt to reverse a $511,000 OVDP settlement agreement they made with the IRS that had settled their failure to report their Swiss bank account holdings when a D.C. federal judge ruled they had entered into it voluntarily.

Robert Harrison and Julianne Sprinkle could not show that they signed their agreement under duress, the court said Thursday, dismissing the case. If they thought their case required judicial review, they should have paid the penalty and pursued the administrative process of seeking a refund, according to the court.

Harrison and Sprinkle took advantage of the Internal Revenue Service's Offshore Voluntary Disclosure Program in 2018 to resolve their failure to file Report of Foreign Bank and Financial Accounts for an unreported Swiss bank account worth up to $1.2 million, the judge said. The OVDP program involves a 27.5% penalty on the highest balance in an undeclared foreign account in exchange for lower civil penalties and possible amnesty from criminal prosecution.

The couple tried to switch to another amnesty program, Streamlined Domestic Procedures, which has a 5% penalty. but the IRS rejected their petition. The couple thus had to choose between the OVDP or going to court and risking a higher penalty. They chose the OVDP and paid $511,000 in penalties and interest in 2018. As part of their settlement, they waived the right to pursue an administrative remedy with the IRS, according to the opinion.

Two years later, the pair tried to nullify the settlement. They claimed they took the OVDP offer under duress, given their fear of a potential penalty should they go to court. 

They also argued the IRS violated the Administrative Procedure Act and due process by failing to provide guidance on the criteria used to switch to the streamlined program.

The court rejected the couple's arguments. Suing under the APA is proper only when there are no forms of adequate remedy, the court said. Harrison and Sprinkle had an opportunity to pursue their damages by paying their penalty and pursing a tax refund suit against the IRS. They did not, the court pointed out.

The government afforded the couple an opportunity for judicial due process, but they chose to settle their dispute through the OVDP, which included an agreement not to take that route, the court added.

The couple's duress claim fails as well, according to the court. The IRS did not threaten them with a particular action, and the steep penalty they might have faced in losing a court action resulted from an act of Congress, not the IRS, the ruling said.

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Read more at: Tax Times blog

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