Can You Limit Criminal Tax Risks with IRS Voluntary Disclosure?

Can IRS Voluntary Disclosure Limit Criminal Tax Prosecution Risks?

U.S. Taxpayers who are out of compliance for failing to report foreign or domestic income and/or overseas accounts, assets, and investments have many different opportunities to safely get into compliance with the IRS. For non-willful taxpayers, there are many different opportunities such as streamlined procedures, delinquency procedures, and reasonable cause. But, for willful taxpayers (aka Taxpayers who cannot certify under penalty of perjury that they are non-willful), The only program that they may qualify for is the traditional IRS voluntary disclosure program (VDP). This program is used to report both foreign and domestic non-compliance (OVDP for offshore disclosure merged back into VDP in 2018). A key question we receive often is whether Voluntary Disclosure Limits IRS Criminal Tax Prosecution Risks.

This is a supplement to our prior article from 2021.

What Does the IRS Say?

First, the IRS provides the following information about the basis of making a voluntary disclosure:

• • • The Voluntary Disclosure Practice is a longstanding practice of IRS Criminal Investigation (CI). CI takes timely, accurate, and complete voluntary disclosures under consideration when determining whether to recommend criminal prosecution. A voluntary disclosure will not automatically guarantee immunity from prosecution; however, a voluntary disclosure may result in prosecution not being recommended.

Full Tax Compliance is Required

There is no half-stepping when it comes to making a disclosure. Rather, the IRS requires a full disclosure:

• • • A voluntary disclosure occurs when you provide a truthful, timely, and complete disclosure to CI through designated procedures. It also requires you to:

• • • • Cooperate with us in determining your correct tax liability and

      • Make good faith arrangements with us to pay – in full – the tax, interest and any applicable penalties you owe.

Voluntary Disclosure Timing is Important

When you make a voluntary disclosure, it is also very important to ensure you submit timely and before the IRS has the information (which would then defeat the purpose of granting a taxpayer amnesty)

• • • A disclosure is timely if we receive it before we have:

1. 1. 1. 1. Commenced a civil examination or criminal investigation

         2. Received information from a third party (e.g., informant, other governmental agency, John Doe summons, etc.) alerting us to your noncompliance

         3. Acquired information directly related to your specific noncompliance from a criminal enforcement action (e.g., search warrant, grand jury subpoena, etc.)

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.