Analysis of the U.S. Department of Justice, Tax Division’s New Corporate Voluntary Self-Disclosure Policy

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The Income Tax Division of the Department of Justice’s (DOJ’s) new Corporate Voluntary Self-Disclosure Policy aims to promote corporate tax compliance. The policy offers incentives to companies that voluntarily disclose potential violations of federal tax laws and cooperate with the Internal Revenue Service (IRS) in resolving such issues in exchange for what practically amounts to an amnesty for the corporation but not necessarily for the wrongdoer employees, owners, and directors of the entity. Yes, a corporation, as a separate legal being can be criminally prosecuted.

Previously, only individual taxpayers could make voluntary disclosures to the IRS. Now, the voluntary disclosure policy for individuals has been essentially mirrored and applied to corporate entities. By self-reporting potential tax crimes perpetrated by the Corporation’s agents, directors or employees, your business may avoid criminal tax prosecution and get right with the federal & to some extent, with state governments.

The individual wrongdoers in your organization may not be as lucky, however. When a company becomes aware of criminal misconduct by employees or agents, it may disclose that misconduct to the Tax Division, thereby enabling the government to more quickly investigate and hold wrongdoers accountable. In determining the appropriate criminal resolution for any company, the Tax Division will appropriately credit the company’s voluntary self-disclosure based on its timeliness and the entire nature of the self-disclosure.

For help making a voluntary corporate self-disclosure to the DOJ Income Tax Division contact our experienced Dual-Licensed Tax Lawyers & CPAs at the Tax Law Offices of David W. Klasing by calling (800) 681-1295.

Overview of the Corporate Voluntary Self-Disclosure Policy

The Corporate Voluntary Self-Disclosure Policy is an initiative the U.S. Department of Justice (DOJ) set forth to promote voluntary disclosures of corporate wrongdoing. The policy incentivizes corporations to self-report potential criminal tax conduct, cooperate with the federal investigators which may consist of the IRS criminal investigation division & the subsequent federal auditors that are assigned to determine if the corporation has indeed returned to compliance and thus complied with the terms of the program, and dutifully remediated any identified violations of the Internal Revenue Code.

The policy provides several advantages to corporations that choose to voluntarily disclose their potential violations. These benefits include a presumption that the DOJ will decline prosecution against the company itself if it meets the necessary criteria. Additionally, self-disclosure may result in reduced civil penalties.

How to Participate in the Corporate Voluntary Self-Disclosure Program

Specific criteria must be met to be eligible for the benefits offered under the Corporate Voluntary Self-Disclosure Policy. Participating corporations must disclose their potential violations to the Income Tax Division of the DOJ before the government initiates an audit or criminal tax investigation. Furthermore, they must disclose misconduct that involves potential criminal liability, fully cooperate with investigators / auditors, and take timely and appropriate measures to address their issues.

We can initiate the process on your behalf by submitting a written disclosure to the Income Tax Division of the DOJ. The disclosure must be complete. In other words, it should include a detailed description of the potential criminal tax violations at issue, an identification of all relevant parties involved, and an eventual submission of any unfiled or amended tax returns.

You are encouraged to disclose any potential criminal tax violations as soon as you can. Again, your disclosure must be made before the government learns about the violations through other means. If an audit or criminal tax investigation into your corporation’s criminal tax violations has already been commenced, then you could potentially be unable to participate in the voluntary self-disclosure program.

The DOJ will evaluate any self-disclosures to determine the level of cooperation and the severity of the reported criminal tax violations. This evaluation is necessary to decide the appropriate resolution in each case. Various factors may be considered during such an evaluation, including the nature of the criminal tax violations at issue, the reporting corporation’s history of non-compliance, and the corporation’s level of cooperation.

Can Companies Avoid Penalties by Reporting Their Employees or Agents?

If you become aware that employees, directors, officers, or agents working for your company have committed tax crimes on behalf of the Corporation, you may be able to avoid prosecution of the corporation itself by reporting the wrongdoers to the Income Tax Division of the DOJ. Self-reporting such misconduct may enable the government to investigate the situation and hold wrongdoers accountable more quickly. The individual perpetrators may not avoid prosecution, but your business can.

Will Violations Reported Under the Corporate Voluntary Self-Disclosure Policy Be Confidential?

Fortunately, reported violations will remain confidential. Information disclosed through the corporate voluntary self-disclosure program will generally not be shared with other law enforcement or federal agencies without the corporation’s consent, except in rare circumstances. Furthermore, participating in the program does not require corporations to waive any rights or privileges they may be afforded.

Examples of Penalties Corporations Can Face for Tax Crimes

Corporations that commit tax crimes can be assessed harmful penalties. The consequences for a business can vary depending on the nature and severity of the crime it committed. The following are examples of potential penalties that a corporation may face:

Criminal Penalties

First, businesses convicted of tax crimes may have to pay significant fines. Corporations can be fined up to $500,000 per tax crime. In some cases, fines may be higher, especially if the crime involved a substantial amount of money or was part of a broader criminal scheme. Additionally, individuals within the corporation responsible for the misconduct, such as officers, directors, or employees, can face potential jail time and personal liability.

Civil Penalties

Civil penalties may also be assessed against corporations that commit tax crimes. These penalties may include monetary damages based on the specific violations committed. The amount of civil fraud penalties levied against a business can be substantial and may include 75% of the amount of additional tax found to have been evaded plus interest. Accordingly, civil penalties can be substantial.

Lost Benefits

Corporations that commit tax crimes can also experience a loss of certain benefits and privileges. For instance, a convicted corporation may be unable to participate in government contracts, be restricted from receiving certain government subsidies or loans, or become ineligible for specific tax incentives or exemptions.

Damage to Reputation

Finally, a corporation that commits tax crimes can experience harmful damage to its reputation. For example, negative publicity, loss of consumer trust, and damage to a corporate brand can produce devastating consequences, inhibiting a business’s relationships and future opportunities.

If Your Business Needs to Make a Voluntary Self-Disclosure to the Income Tax Division of the DOJ Our dual licensed Tax Lawyers & CPAs Can Help

For assistance participating in the corporate voluntary self-disclosure policy, get in touch with our Dual-Licensed Tax Lawyers & CPAs at the Tax Law Offices of David W. Klasing by dialing (800) 681-1295 or making an appointment online here.

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