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Zhanna Ziering Talks to Tax Notes on the Thwarted Legal Challenge to OVDP Transition Rules

March 15, 2021, Tax Notes

Taxpayers asserting that the transition rules of the offshore voluntary disclosure program violated the Administrative Procedure Act (APA) have had their suit turned away, with the district court leaning heavily on a previous appellate decision.

The U.S. District Court for the District of Columbia granted the government’s motion to dismiss the taxpayers’ suit in Harrison v. IRS on March 11.

Alleging that they had no knowledge that they were required to report their UBS account on a foreign bank account report, Robert Harrison and Julianne Sprinkle sued under the APA, arguing that the transition rules violated the notice and comment rulemaking requirement, were arbitrary and capricious, and violated the Fifth Amendment’s due process clause. They also claimed that their signed closing agreement, in which they agreed to pay more than $500,000 in taxes, interest, and penalties and not to file a refund claim, was invalid because it was executed under duress.

. . .

The government argued successfully that Maze v. IRS, 862 F.3d 1087 (D.C. Cir. 2017), demonstrates that the D.C. Circuit rejected the contention that taxpayers would be unable to challenge the transition rules in a refund suit. In that case, the court held that the Anti-Injunction Act bars a taxpayer challenge to the OVDP transition rules.

. . .

The court similarly rejected the due process claim, finding that the IRS provided enough procedural rights to the couple. After the IRS rejected their request to transitional treatment, they were free to accept the OVDP penalties or proceed with typical exam procedures.

. . .

Zhanna Ziering of Caplin & Drysdale indicated that the result, while unfortunate for the taxpayers, was not surprising.

“It is right on the law because of the closing agreement and Maze,” Ziering said. “The amnesty program and the reduction of penalties to begin with was at the discretion of the IRS.”

Ziering added that in practice, the resolution of issues, including what goes into the penalty base, could vary depending on the IRS agent or group that the taxpayer worked with.

For the full article, please visit Tax Noteswebsite (subscription required).

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