Income Tax Partner Allen J. Littman and Income Tax Associate Michael W. Nydegger published "The IRS Approach to Retroactive Relief for VDP Taxpayers" in Tax Analysts Tax Notes Today on March 9, 2011.
The article discusses the inherent problems with the IRS's policy of denying late-election relief for all taxpayers under reg. section 301.9100 in connection with its new voluntary disclosure program.
In early 2011, the IRS announced a new special offshore voluntary disclosure initiative (2011 OVDI) for taxpayers with offshore assets, which followed a six-month offshore voluntary disclosure program that began in March 2009 (2009 OVDP). According to the article, the IRS’ suggested denial of any section 9100 relief for late elections for VDP taxpayers when the election involves assets being disclosed as part of the VDP is based on flawed analysis.
Littman and Nydegger explain that if the IRS follows through with its proposal, VDP taxpayers who have requested or anticipate requesting section 9100 relief will be denied relief, regardless of the taxpayers' facts and circumstances. Taxpayers otherwise entitled to section 9100 relief would be denied relief solely because of being in the VDP.
Because the IRS did not inform taxpayers that section 9100 relief would be denied, either in any of the information provided in connection with the 2009 OVDP or in any of the guidance released concerning the 2011 OVDI, Littman and Nydegger question whether that is good tax policy, or for that matter good government policy, as it appears to contravene both the section 9100 regulations and the IRS's representations in 2009 concerning predictability and fairness.
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