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Should You Amend a Tax Return or Make a Voluntary Disclosure if You Have Unreported Income?

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    Every year American taxpayers either fail to file their taxes or underreport their income. For some, this is an accident, but for others it is not. In either case, you have several options for rectifying the situation and reporting your accurate income for tax purposes. You can file amended tax returns with more accurate information, which could be viewed as a criminal admission, or make a domestic or offshore voluntary disclosure where you wish to receive a nearly guaranteed pass on criminal tax prosecution where you originally fudged the numbers. While both choices will help you fix your incorrect tax information, they come with different levels or risk and potential civil and criminal tax consequences.

    A domestic or offshore voluntary disclosure is the safer option depending on your facts and circumstances. Depending on how much money you owe because of amending your tax returns, you could be looking at serious criminal tax exposure. If, after amending, you owe $30,000 or more in back taxes, $30,000 of tax loss is akin to one year in jail under the federal sentencing guidelines. This fact makes the federal government much more likely to prosecute if the government believes you committed tax fraud with the original tax returns as they will be getting the headlines, they seek to create a deterrent effect on similarly situated taxpayers when they publicize the prosecution. However, entering into a domestic or offshore voluntary disclosure will help you avoid the risk of criminal prosecution altogether especially where your experienced and highly trained dual licensed Criminal Tax Defense Attorney and CPA ensures that you strictly comply with the terms of the program.

    If you will likely owe $30,000 or more to the federal government via amending income tax returns, you should contact our dual licensed California Tax Fraud Defense Attorneys & CPAs for guidance. We can help you straighten out your tax situation and avoid any criminal tax consequences. Call the Tax Law Offices of David W. Klasing at (800) 681-1295 for a legal consultation with our experienced team or book online Here.

    Note: As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed foreign information returns coupled with affirmative evasion of U.S. income tax on offshore income) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosurebefore the IRS has started an audit or criminal tax investigation / prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply. 

    It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney Client Privilege and Work Product Privileges that will prevent the very professional that you hire from being potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.

    Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.

    As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, KovelCPAs and EAs, our firm provides a one stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth. See our Testimonials to see what our clients have to say about us!

    Benefits of Voluntary Disclosures of Unreported Income

    The Voluntary Disclosure Practice of the IRS, found under § of the Internal Revenue Manual, allows taxpayers who may be exposed to criminal liability because of a history of cheating on their taxes to come into compliance and avoid criminal tax prosecution. Whether or not making a voluntary disclosure is the best choice will depend on several factors, including the amount of unreported money and your original intent in filing the returns that are the be amended. Our California dual licensed Tax Fraud Defense Attorneys & CPAs can help you assess your situation so you can make the best possible decision.

    It is crucial that you understand that a voluntary disclosure does not offer an absolute guarantee or protection against criminal tax prosecution and related consequences. However, if you judge the IRS by their actions and not their words, there are only a handful of documented cases where a taxpayer made a voluntary disclosure and eventually went to jail anyways. In all those cases the taxpayer was caught cheating in the process of trying to wash their hands clean with the IRS. For an example, one taxpayer that made an offshore voluntary disclosure was aware that their Swiss bank, UBS, was under criminal tax investigation so they made an offshore voluntary disclosure to voluntarily report it. However, they failed to report the other numerous offshore accounts they had elsewhere in the world. During the guaranteed audit that follows a voluntary disclosure to determine if the program terms were met the additional undisclosed accounts were discovered and this client predictably went to jail for getting caught cheating in the process of trying to get clean.

    According to the written terms of the program, a taxpayer’s voluntary disclosure is considered along with all the other facts and details of their case when determining if criminal prosecution will ultimately be recommended. Factors that are considered along with a voluntary disclosure include but are not limited to timeliness, completeness, truthfulness, and any rejections or revocation decisions. The IRS’s unilateral decision on whether you receive a pass on criminal tax prosecution or not, is not open to judicial review or appeal.

    Elements of a Voluntary Disclosure

    Making a voluntary disclosure is not as simple as it sounds. There are multiple critical steps involved in the process, and it requires a lot more than just casually informing the IRS about your history of tax filing mistakes. The process is complicated for laypeople, unfamiliar with tax law, to comprehend. Our California dual licensed Tax Fraud Defense Lawyers and CPAs have decades of combined experience and specialized training to draw on in guiding you through the process.

    A voluntary disclosure must be honest, complete, and timely. A taxpayer making a voluntary disclosure must cooperate with the IRS when determining their true tax liability, investigating any third-party professionals who may have enabled the tax fraud, submitting all required amended returns and related substantiation, and making a good faith effort to pay the resulting additional tax, penalties and interest in full. If you can only partially pay the resulting tax penalties and interest, you can still utilize the program, but you are expected to pay in full if you have the financial wherewithal to do so. You must include a collection information statement if you are unable to full pay any resulting balance stemming from the domestic or offshore voluntary disclosure.

    Voluntary disclosures must be timely. However, there is no hard deadline. Rather than making your disclosure before a specific date, you must do so before the IRS finds out about your tax mistake from someone else or has opened an audit or criminal tax investigation against you. Essentially, the IRS needs to hear about your mistake from you before they hear it from someone else or figure it out on their own. It is essential that you act quickly when making a voluntary disclosure because there is no telling when the IRS could get the information from someone else or discover the noncompliance on their own.

    Consequences of Filing Amended Tax Returns

    The potential consequences of filing mended tax returns should be considered carefully by a taxpayer before deciding to file. An amended tax return is basically filing your taxes over again, but this time with the necessary corrections to properly report all your income. The downside to amended tax returns is that, in certain circumstances, they can be construed by the IRS as a criminal admission of guilt or wrongdoing. Filing amended tax returns without making a voluntary disclosure could open you up to criminal tax prosecution.

    Amended tax returns are not a good idea for taxpayers who willfully or intentionally did not report income or otherwise failed to file their taxes. A mistake or oversight on your taxes that was not deliberate may not result in any criminal tax prosecution. However, if your mistake was an intentional act to avoid paying taxes, you may want to consider making a voluntary disclosure to avoid criminal tax penalties.

    As mentioned above, the nature of your criminal prosecution will depend on many factors, including the amount of unreported income and whether you intended to avoid paying taxes or you are only guilty of an oversight. The sooner you file an amended tax return, the better. If you wait too long, the government may question you about why you waited, and they may become overly suspicious. As soon as you realize a mistake has been made, you should contact our dual licensed California Tax Fraud Defense Attorneys & CPAs for help.

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    Willfully versus Unwilfully Underreporting Income

    When deciding between making a voluntary disclosure or merely filing amended tax returns, one key issue is whether you willfully failed to report income on the original returns. Filing your taxes can be a highly complex process, especially for people whose income comes from multiple sources or is otherwise unconventional. According to § 7203 of the Internal Revenue Code, a willful failure to file your taxes or provide information may result in criminal tax charges that include fines and possible incarceration.

    Unreported Income from Cryptocurrency

    Cryptocurrency is a digital currency involved in online trades and transactions. Records and verifications of cryptocurrency transactions are usually maintained and monitored by decentralized systems rather than a central entity. As such, cryptocurrency transactions can be difficult to track. Many taxpayers who earn income from cryptocurrency are unsure how to report that income or if they are required to report it at all.

    In November of 2016, the District Court for the Northern District of California allowed the IRS to serve a summons on a cryptocurrency exchange called Coinbase. The IRS was suspicious that of Coinbase’s 6 million customers, only 900 of them reported virtual currency transactions on their taxes.

    In March of 2021, the IRS requested similar information related to Payward Ventures, Inc, also called If you invested in cryptocurrency through Kraken and did not report this currency on your taxes, you might be in trouble.

    Filing amended tax returns to account for the previously unreported cryptocurrency gains and losses may potentially resolve your compliance issues but amended tax returns can also be used against you in subsequent criminal tax proceedings. Even if IRS correspondence flagging unreported cryptocurrency transactions seems to indicate that the IRS merely wishes for cryptocurrency traders to update their tax information by amending their returns, there is no way to ensure they will not eventually pursue criminal tax charges, outside of making a voluntary disclosure. Therefore, it behooves you to speak with our dual licensed California Tax Fraud Defense Lawyers about making a voluntary disclosure regarding any previously unreported cryptocurrency investments or transactions especially where your amended returns generate $30,000 or more of additional tax liability.

    Contact Our California Tax Fraud Defense Attorneys for Help

    If you have failed to file a tax return for one or more years or have taken a position on a tax return that could not be supported upon an IRS or state tax authority audit, eggshell audit, reverse eggshell audit, or criminal tax investigation, it is in your best interest to contact an experienced tax defense attorney to determine your best route back into federal or state tax compliance without facing criminal prosecution.

    If you failed to provide accurate information to the IRS, you may be facing tax fraud charges if you do not come into compliance through a domestic or offshore voluntary disclosure. Our experienced dual licensed California Tax Fraud Defense Lawyers and CPAs are here to help. Call the Tax Law Offices of David W. Klasing at (800) 681-1295 to arrange a consultation with our team or schedule a reduced rate initial consultation directly HERE.

    Regardless of your business or estate needs, the professionals at the Tax Law Offices of David W. Klasing are here for you. We are open for business and our team will help ensure that your business is too. Contact the Law Offices of David W. Klasing today to discuss your business with one of our professionals.

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