An IRS VDP May Help You Avoid Jail

IRS VDP May Help You Avoid Jail

With foreign (offshore) voluntary disclosure getting all the press these days, the domestic voluntary disclosure (IRS VDP Program) program may be feeling a bit left out. Still, for many individuals, trusts, estates, and entities, a domestic voluntary disclosure is a great option for disclosure of unreported domestic (and foreign) income. This is especially true when a taxpayer may be facing a special agent investigation or other criminal or quasi-criminal investigation — such as an eggshell or reverse egg-shell audit.

Who Should Make a Domestic Voluntary Disclosure to the IRS?

Each person’s facts and circumstances are different – and not everyone will require VDP as a means to getting into compliance for prior year non-filing or inaccurate filing mistakes. In general, attorneys who specialize in this area of law are Board-Certified Tax Law Specialists. They will evaluate the facts and circumstances of the applicant considering a disclosure (aka “totality of the circumstances”) and then review the options with the applicant. 

Common industries we have represented clients in include:

• • • Medical

    • Construction

    • Finance

    • Law

    • Entrepreneurs

    • Actors

    • Singers

    • Government Employees

Four (4) Examples of Domestic Voluntary Disclosure

Here are four (4) examples of common domestic voluntary and combined domestic and offshore voluntary disclosure submissions.

Domestic Voluntary Disclosure (Example 1)

Ralph runs a construction business.  He earns significant income, but some of the subcontractors pay him in cash. When times were tough — or Ralph just wanted to go out and spend some money — Ralph did not report the income to the IRS. In addition, Ralph failed to withhold employment tax on certain staff members who are employees instead of independent contractors. Finally, Ralph also embellished his expenses.

Ralph may be a good candidate for the domestic voluntary disclosure program.

Domestic Voluntary Disclosure (Example 2)

Victor is your typical entrepreneur.  Victor put his nose to the grind for 80-to-100+ hour work weeks trying to build up a small Record label.  One of Victor’s musicians hit it big, and Victor took it upon himself to spend a lot of money, without reporting it.  As his record company grows, Victor still fails to fix any of the issues, while still skimming off the top.

Victor may be a good candidate for the domestic voluntary disclosure program.

Domestic & International Business Disclosure (Example 3)

Continuing from the previous example, one of Victor’s acts is located in Costa Rica.  Victor is hanging out at a Costa Rican bar with some expats when Victor gets the idea of not reporting a majority of the income from his foreign musician, because how will the IRS know? Instead of repatriating to the U.S., he uses the money to purchase a few Costa Rican homes for rental properties — and opens a few Costa Rican bank accounts. He works with a local attorney and thinks the money is safe since he does not have signature authority over the accounts — his business partner handles money in Costa Rica through a Sociedad Anonima. Victor gets cold feet.

Victor may be a good candidate to submit for both domestic and foreign issues.

Domestic & International Business Disclosure (Example 4)

Andre works as a consultant in the United States.   He formed his own LLC and became very successful. Unfortunately, Andre is a little too smart for his own good and fails to pay income tax on some of his earnings. He had U.S. and foreign clients divert some of the domestic and foreign income, which he used to purchase rental properties overseas, to accounts overseas. He did not report the income and claimed a deduction for fringe benefits that he knew he should have included as income. Andre intentionally underreported his US earnings and then shifted them into a couple of Swiss banking “numbered accounts,” thinking he could keep the money hidden. Unfortunately, Andre got wind that there might be a whistleblower at one of his client’s companies. Moreover, it turns out that the foreign bank entered into a deferred prosecution agreement with the United States.

Victor may be a good candidate to submit for both domestic and foreign issues.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.