Earlier this week, I spoke to an IRS Revenue Agent who shed some light on how the decision regarding transitional treatment is made for those taxpayers seeking to transition to the Streamlined Procedures from OVDP. Under the current procedures, the agent and his or her manager make the decision regarding transitional treatment, with involvement as necessary by the technical adviser. Practically speaking, the technical adviser does nothing more than “rubber stamp” the decision made by the examiner and the examiner’s manager. In other words, he or she typically defers to the examiner and the manager.
Interestingly enough, I’ve heard stories from more than one person of the revenue agent voicing his support of the taxpayer’s nonwillful certification — claiming that he and his manager were squarely in the taxpayer’s corner and had tried valiantly to convince the technical advisor that non-willfulness exists — only to be overruled by the technical advisor, who took the position that the taxpayer’s non-willful certification was woefully inadequate. While it might be tempting to view the revenue agent as the “good guy,” be careful. He might be the very person who opposed your nonwillful certification and his claimed support of your certification might be nothing more than a feeble attempt to deflect responsibility from himself to the much maligned technical advisor.
While the process might seem straight-forward, it is not always seamless. This is where Streamlined Transition FAQ 8 comes into play. It provides some role for a central committee in those cases designated for central committee review. Unfortunately, no indication is made as to which cases are so designated. The decision of the committee is final and there is no review or appeal of the decision.
In considering what cases might be ripe for central committee review, the first that comes to mind is one where the examiner and the examiner’s manager disagree on whether to grant transitional treatment. After all, there must be a general consensus between the examiner and the examiner’s manager before transitional treatment will be granted. This assumes, of course, that the technical advisor hasn’t already come in to break the tie. Thus, if there was ever a time for committee review it would be in those cases where these individuals disagree on transitional treatment and are at an impasse. In such cases, the role of the committee would be that of a tie-breaker.
Keep in mind that you can bypass transitional treatment altogether by first opting out of OVDP, and then making a streamlined submission. In the event that you opt out and the IRS subsequently examines one or more tax years, the issue of willfulness/nonwillfulness can be explored more fully, which might result in a favorable determination. Do not forget that outside of the IRS’s voluntary disclosure program, the burden is not on you to prove nonwillfulness but on the IRS to prove willfulness. At the end of the day, however, the IRS can arbitrarily assert a willful penalty for any reason whatsoever (just like a defense attorney or prosecutor can bounce an undesirable juror from a panel for virtually any reason, by merely making a peremptory challenge). Of course, if the client holds the IRS to its burden, it must then prove willfulness in court in order for it to stick.