Voluntary Disclosure Practice Preclearance Request & Application

Voluntary Disclosure Practice Preclearance Request & Application

Voluntary Disclosure Practice Preclearance Request & Application: In late September of 2018, the Internal Revenue Service terminated OVDP. OVDP was the offshore voluntary disclosure program and was an offshoot of the traditional voluntary disclosure program. At the end of 2018, the IRS updated the voluntary disclosure program. Many of the updates dealt with the meshing of the offshore disclosure into the traditional voluntary disclosure program. In other words, while OVDP was generally used only for the offshore issues and the traditional voluntary disclosure program was used for domestic issues — now the traditional voluntary disclosure program is used for both domestic and offshore.

Voluntary Disclosure Practice Preclearance: 5 Tips

If you are considering making a preclearance request on IRS Form 14457, here are a few important tips to keep in mind.

1. Willful vs. Non-Willful

The traditional voluntary disclosure program is for people who are willful. This is different than the prior OVDP. That is because under prior OVDP, an applicant would almost always avoid an audit. When that was coupled with the fact that the taxpayer could receive a closing letter (Form 906, which is not provided under the Streamlined program), many non-willful taxpayers preferred OVDP because they knew the matter would be closed and they would not be subject to an audit — even if it meant paying a 27.5% penalty (depending on when they applied).

2. Form 14457 Part 1 is Required for Preclearance

Previously, there was no specific Preclearance letter or form. In fact, people could submit to OVDP without any Preclearance (there were pros and cons to this approach). Under the updated voluntary disclosure practice, the IRS revised Form 14457, which used to be submitted as part of the OVDP — and modified it into the new “Preclearance Request.” The Preclearance section of the Form 14457 is now mandatory.

3. Not Limited to Individuals

You do not have to be an individual in order to make an application under the traditional voluntary disclosure program. Rather, the program is open to entities, trusts, and executors of estates. Sometimes, individuals will have both an individual tax-related issue and corporate or partnership-related issue as well  — both of them can be handled under the traditional voluntary disclosure program.

4. Full Disclosure

The Internal Revenue Service requires that applicants make a “full disclosure.” In other words, you can’t just dip your feet into the voluntary disclosure pool. Even if you have accounts in countries that do not have a FATCA Agreement and the bank manager promises you that they will not report your account under any circumstance to the IRS or DOJ, those accounts need to be disclosed. The US government requires that you disclose all of your foreign accounts, assets, investments, and income.

5. Are You Under Any Criminal Investigation?

Question 9 on Form 14457 asks very specific questions about whether the applicant is under examination or investigation. What is crucial to note is that the form does not ask whether or not the applicant is under investigation by the IRS only. Rather, the form requires the applicant to disclose whether or not they are under investigation by either the Internal Revenue Service or any law enforcement authority. Therefore, if you have received notice that you are under investigation by other government agencies such as, for example, the SEC — you may not qualify for this program. In conclusion, in late 2018 the IRS updated the traditional voluntary disclosure program and now requires applicants to submit a Form 14457 as part of Preclearance. When making a submission, it is important to make a full disclosure and understand the pros and cons of the submission. It is best to speak with an experienced tax attorney prior to entering into the program.

Golding & Golding: About Our International Tax Attorney Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS disclosure & compliance and voluntary disclosure preclearance requests.

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