Jay R. Nanavati Quoted In "Public Leaks Aiding In U.S. OVDP Penalty", Tax Notes

By Nathan J. Richman
Tax Notes, August 21, 2017

The Panama Papers and other sources for public leaks are currently being mined for investigatory leads by the IRS and the Justice Department. However, these documents may not be an appropriate cutoff for applying the higher penalty under the IRS's offshore voluntary disclosure program, according to some practitioners in the article authored by Nathan J. Richman. 

In a quote from the article:

Jay R. Nanavati of Kostelanetz & Fink LLP said that the list includes individuals and institutions under investigation and not just those who have been convicted or entered into a resolution such as a NPA with the government. Therefore, if the government can satisfy itself on the reliability of the information, "I don't see any good reason not to include institutions that are the subject of leaks like the Panama Papers" in the higher penalty list, he said.

"The penalty is to low in the OVDP not that you have the huge safety valve in teh steamlined program." Nanavati said, adding that if the miscellaneous penalty is increased, there may be no need to designate specific financial institutions and facilitators at all.

Nanavati, also a former prosecutor with the DOJ Tax Division, said that if the definition of willfulness for chooseing the OVDP over the streamlined filing procedures is the same as with the criminal tax cases, then there may be no need for the lower 27.5 percent rate anymore. If the taxpayer meets the criminal definition of willfulness, any complicity by a bank of facilitator would seem more likely to mitigate the taxpayer's bad behavior than to exacerbate it, he said. The distinction based on which institutions and advisers a willful taxpayer used does not make much sense when non-willful taxpers can sue the streamlined filing procedures, he added.

According to Nanvati, that line of thought applies only if the distinction between the two programs is based on the criminal definition of willfulness as "intentional violation of a known legal duty" rather than the "reckless disregard" standard that the government has been successfully applying for the higher civil foreign bank account report penalties.

Nanavati said that another potentially interesting alternative would be to designate specific financial institutions as suspect countries. "That would make just as much analytical sense as including those banks that are in leaks or those banks that are under investigation," he said. However, with Bank Leumi and HSBC India already on the higher penalty list, switching to a country approach could lead to a surprising designation on some countries or an omission of some banks, he said.

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