IRS DISQUALIFIES OFFSHORE DISCLOSURE PARTICIPANTS

Washington, D.C. -- The Internal Revenue Service has notified tax attorneys around the country that their clients have been disqualified from participation in the Offshore Voluntary Disclosure Program, even after they had initially been accepted in the program.

The IRS offered the OVDP as a way to encourage taxpayers with previously undisclosed bank accounts, particularly at Swiss banks like UBS, to come forward voluntarily, pay their back taxes and avoid heavy penalties.

In some cases, the clients and their tax practitioners had filed amended returns and paid the back taxes and interest on previously undisclosed accounts at foreign banks after receiving assurances from the IRS that they had been accepted in the program.

Now some are concerned that they will face stiff penalties and even the possibility of prison sentences after coming forward voluntarily.

Many of the clients had bank accounts with Bank Leumi, according to Forbes. The Israeli bank has been under investigation by the IRS. In March, the bank said it would take a charge of $91 million to cover an investigation for its U.S. taxpayer customers for 2002 to 2010.

Bob McKenzie, a partner with the Chicago law firm Arnstein & Lehr, said he received a faxed letter about one of his clients from the IRS early last month. "The letters said that you are not eligible to be in the program," he said in an interview. "We had been admitted. We'd received an official letter admitting us six months ago, and we had been cooperating fully. And then, after the fact, now they've sent us letters saying we were mistakenly admitted into the program. And I'm not alone. It's happened to attorneys all over the country."

It will be difficult for tax advisors to tell their clients about the rescinded letters, and McKenzie believes it will lead to a lack of trust in the value of coming forward under the program.

"You can't truly trust them because they'll send you a letter later saying, 'We didn't mean it. Oh, never mind.'"

 

GAO: WEAKNESSES REMAIN IN IRS'S SECURITY CONTROLS

Washington, D.C. -- While the Internal Revenue Service has made progress in addressing weaknesses in its information security controls and improving its internal control over financial reporting, the Government Accountability Office said in a recent report that serious weaknesses remain that could affect the confidentiality, integrity and availability of financial and sensitive taxpayer data.

The report acknowledged that IRS management devoted more attention and resources in fiscal year 2012 to addressing information security controls, and resolved a significant number of the information security control deficiencies that the GAO previously reported. Among these efforts, the IRS established cross-functional working groups and tasked them with identifying and remediating specific at-risk control areas.

The IRS also improved its controls over the encryption of data transferred between accounting systems, and upgraded critical network devices on the agency's internal network system.

Nevertheless, serious weaknesses persist. For example, the IRS has not always implemented effective controls for identifying and authenticating users, such as enforcing password complexity on certain servers.

It also has not always appropriately restricted access to its mainframe environment, effectively monitored the mainframe environment, or ensured that current software patches had been installed on its own systems to protect against known vulnerabilities.

An underlying reason for these weaknesses is that IRS has not effectively implemented portions of its information security program, the GAO noted. The IRS has established a comprehensive framework for the program, and continued to make strides with various initiatives designed to improve its controls; however, certain components of the program did not always function as intended.

For example, the IRS's testing procedures over a financial reporting system that the GAO reviewed did not always determine whether required controls were operating effectively and consequently. The GAO also identified control weaknesses that had not been detected by the IRS.

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