Does Voluntary Disclosure Protect Against Criminal Prosecution?

Does Voluntary Disclosure Protect Against Criminal Prosecution?

Voluntary Disclosure to Protect Against Criminal Prosecution?

In the world of Voluntary Disclosure, it is well-established amongst experienced tax counsel that submitting to the IRS Voluntary Disclosure Program will almost always protect a Taxpayer against Criminal Prosecution. That is because the purpose of the program is to bring Taxpayers into compliance voluntarily without the fear of criminal enforcement. If the IRS entices Taxpayers with voluntary disclosure, only to turn around and prosecute them — the program would have failed many years ago. When considering making a voluntary disclosure, Taxpayers must be very cautious about working with any attorney who misrepresents the purpose and nature of voluntary disclosure or goads them into alternative, less-safe strategies. For example, they may recommend that Taxpayer seek to just let the statute of limitations expire — without providing any insight or explanation of the perils of pursuing this type of often-flawed strategy. To better understand Voluntary Disclosure (VDP) in matters involving offshore income, accounts, and investments, here are a few important considerations when deciding if Voluntary Disclosure is right for you.

Can you Certify Non-Willfulness?

If a Taxpayer is unable to certify non-willfulness, then a Taxpayer does not qualify for any of the other filing procedures, such as Streamlined Procedures, Delinquency Procedures, or Reasonable Cause. The longer a Taxpayer knowingly/willfully continues to stay non-compliant, the bigger risk they are taking for higher penalties — and ultimately disqualification from entrance into the program.

Will You Make a Full Voluntary Disclosure?

VDP requires the Taxpayer to make a full disclosure. This does not mean the Taxpayer is going to atone for every tax sin they have ever made since the dawn of time — rather, in relation to the submission, the Taxpayer must provide a complete disclosure about the non-compliance.

Was the Money Legally-Sourced vs. Money Laundering

If the money was obtained illegally (illegal gambling or narcotics for example), then the Taxpayer cannot use VDP. This is because the IRS will not allow a Taxpayer to clean dirty money by running it through the Voluntary Disclosure Program.

Extent of Offshore Assets for Voluntary Disclosure

At Golding & Golding, we specialize exclusively in offshore tax matters. The more offshore assets a Taxpayer has, the higher the likelihood one of the foreign financial institutions will report the Taxpayer to the US Government. If the IRS learns about the noncompliance prior to the applicant making a submission — they lose the right to submit to the program.

Civil Tax Fraud has No Statute of Limitations

In addition to Criminal Prosecution, the IRS can also pursue a civil fraud investigation and willful FBAR penalties which can far exceed the penalties issued under VDP — and can include additional years’ worth of penalties. With VDP, the Taxpayer can limit the offshore non-compliance to the six (6) years.

“Just Let the Statute of Limitations Expire Instead of Voluntary Disclosure”

This is one of those strategies that tend to sound better in the brochure and can be fraught with peril. The statute of limitations for criminal tax violations is generally 3-6 years, depending on the violation. With that said, while you may believe that your statute had expired, the IRS can easily dispute that date and take the position that they could not have known about the violation until a later date in time and thus rendering your statute of limitations expiration argument moot. In other words, the US Government can dispute when the actual fraud or crime was committed vs. when they could have been detected, and this would mean the statute of limitations may not have expired yet, leaving you vulnerable to a massive audit. In addition, the program can be terminated at any time — and the penalties tend to increase over time as well. Thus, just sitting back and letting the SOL (maybe) expire is typically a recipe for disaster for the Taxpayer.

Golding & Golding: About Our International Tax Law Firm

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

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