California Attorney for IRS Voluntary Disclosure Practice
The IRS conducts many audits every year. Once you have been selected for federal or state audit, and have undisclosed foreign accounts and unreported offshore income generating assets your options to get yourself back into compliance become extremely limited, and you could end up facing severe civil and even criminal tax penalties and or criminal tax prosecution, especially if your conduct was willful concerning any noncompliance with income tax or foreign information reporting.
However, if you act to voluntarily disclose your mistakes or intentional acts of evasion before an audit or criminal tax investigation into your conduct is initiated, you will have a nearly guaranteed chance of being successfully brought back into compliance without being criminally prosecuted for tax crimes if you follow our advice to the letter.
At the Tax Law Offices of David W. Klasing, our tax attorneys have decades of experience working to help clients whose tax returns were false or misleading to correct these issues through the various voluntary disclosure programs offered by the IRS and the state of California. We will work to bring you back into tax compliance without having the harshest fines and penalties levied against you. Read below to learn how our California & IRS Voluntary Disclosure Practice Attorneys and CPAs can help you. To schedule a consultation, contact our office today at (800) 681-1295.
The IRS is using their newfound technological and manpower advantages to take more action against suspected noncompliance. This is all due to a budget increase from the Biden administration, which comes with a mandate to track down a much greater portion of the tax debt that goes unpaid every year.
With that in mind, now is as good a time as any for taxpayers to familiarize themselves with the IRS’ voluntary disclosure programs. Through applying and participating in these programs, taxpayers with tax noncompliance in their histories can potentially avoid court rooms, jail time, and the penalties associated with their past mistakes. You should never attempt to engage with these options without first having a thorough discussion of your options and the benefits of each with a seasoned Criminal Tax Defense Lawyer.
At the Tax Law Offices of David W. Klasing, we offer our clients the unique opportunity to get creative advice from Dual Licensed Tax Attorneys and CPAs. Creating a true partner in your tax preparation and handling will provide benefits for your immediate situation and your long-term goals. Call (800) 681-1295 or schedule a reduced rate initial consultation online here to learn more today.
The IRS has a program called a voluntary disclosure that comes with a nearly guaranteed pass on criminal tax prosecution if the terms of the program are strictly complied with by the taxpayer.
What Are the Various Disclosure Programs Offered by the IRS if I Filed one or more False or Misleading Return?
There are several different voluntary disclosure programs, and which one applies best to your situation will depend on the specifics of your case. You should always consult with a skilled tax lawyer like those at the Tax Law Offices of David W. Klasing before filing for voluntary disclosure.
We can advise you about which program you should enter into and whether you could open yourself up to further criminal liability by your disclosures. Remember that you typically must act to take advantage of these programs before a audit or criminal tax investigation begins, at which point you will become ineligible.
One option is a process commonly known as a quiet disclosure. This process, which is not any sort of official IRS program, involves simply amending your returns and refiling. Aside from what you owe, you will also have to pay interest and any penalties that would have been self-assessed. However, our attorneys usually recommend that you go through one of the official programs rather than this unofficial route.
Unlike the voluntary and streamlined disclosure programs, it does not prevent or necessarily even lessen the chances of the IRS imposing heavy penalties, including criminal tax penalties, if the conduct is found to have been willful. Only occasionally might we recommend this route, such as if the mistakes on your return were minor and non-willful.
In more sensitive cases, the taxpayer’s counsel will recommend a “noisy disclosure.” Examples of situations where noisy disclosure would be more appropriate might include where an unusually large amount of additional tax is due, the taxpayer is concerned about some disqualifying event, or the taxpayer wants some affirmative assurance from the IRS.
As of 2022, the current IRS requirement for a noisy disclosure would be for the taxpayer to file Form 14457, or the Voluntary Disclosure Practice Preclearance Request and Application. Form 14457 comes in two parts. The first step requires the taxpayer to supply certain predicate information about the noncompliance in Part 1, titled Preclearance Request. If the preclearance request is granted, the taxpayer completes Part II, titled Voluntary Disclosure. This portion will require considerably more detail than what the applicant would have provided in Part I, including particularly a narrative account that explains the noncompliance and a disclosure of professional advisors assisting in the noncompliance.
Delinquent International Information Reporting Submission Procedures Program
If you have dutifully reported all required foreign taxable income from your U.S. tax returns but inadvertently failed to file FBARS or other required offshore information returns, you can get back into compliance under this program without penalties if you have a valid reasonable cause the noncompliance.
Voluntary Disclosure Programs
There has been a long-standing policy within the IRS that taxpayers who come forward and voluntarily disclose false or misleading information on their previous domestic or international tax returns, and pay what they owe plus interest and fines, will be shielded from criminal liability.
In the early 2010s, the IRS began a program that eventually became known as the Offshore Voluntary Disclosure Program (OVDP). This program allowed taxpayers who failed to file the required FBAR reports in previous years, oftentimes also failing to report taxable offshore income and other required offshore information reporting, to self-disclose the information that should have been reported, in exchange for limiting the potential civil penalties they could face and essentially illuminating the risk of criminal tax prosecution. This program was an enormous success but was canceled in 2018 due to declining taxpayer participation.
However, you can now make both foreign and domestic disclosures through the IRS’s new Voluntary Disclosure Practice (VDP). This program is available for domestic and offshore willful conduct. However, it is usually considered the program of last resort among the options mentioned in this article, as the civil penalties you will be required to pay can be steep. Aside from owing taxes and interest on the past six years of tax deficiencies, you will also have to pay a civil fraud penalty of 75% on the highest tax deficiency year out of the previous 6. If you failed to file FBARS for offshore accounts, an additional penalty of 50% of the highest daily aggregate balance of the aggregate of the unreported offshore accounts throughout the six year FBAR disclosure period, or $100,000, whichever is greater, will be assessed.
Note: As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed domestic or international income tax and information returns coupled with affirmative evasion of payment) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosure before 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 voluntary disclosure.
As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, Kovel CPAs 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!
How Do I Become Tax Compliant?
Through voluntary disclosure, the federal government provides a method for taxpayers who have an unaddressed “potentially or actually criminal” tax history of noncompliance in their tax filings to regain compliance without facing criminal tax prosecution. To utilize the voluntary disclosure process, however, the taxpayer must first apply for acceptance.
Before applying, the taxpayer and their Criminal Tax Defense Attorney should consider which method of disclosure is right for them. This decision will depend mostly on the nature of the taxpayer’s noncompliance (namely, whether it was willful or not), the number of years or filings concerned, and the amount of unpaid taxes or unreported income in question.
Generally, for admission into the IRS’ Voluntary Disclosure Practice, you will have to submit your application in two parts. Both of these parts are contained within IRS Form 14457. Part I of Form 14457 is the Voluntary Disclosure Practice Preclearance Request and Application. While submitting Part I to gain preclearance into the program is a necessary step, the government’s acceptance of Part I does not necessarily mean that the taxpayer will be accepted into the Voluntary Disclosure Practice.
Part I must be either mailed or faxed to the IRS. The fax number is 844-253-5613, and the applicable mailing address is provided as follows:
IRS Criminal Investigation
Attn: Voluntary Disclosure Coordinator
2970 Market St.
Philadelphia, PA 19104
Upon receiving your completed Part I form, the IRS will either approve or deny your participation in the program. If approved, they will likely notify you through mail. After you receive approval, you have 45 days to submit Part II. There are some instances where requests extensions may be approved, but only one per case is permitted, and these are not guaranteed.
The IRS’ agents will review your submission on Part II of Form 14457 and determine if you can participate in the Voluntary Disclosure Practice. If approved to participate, the government will provide you with a Preliminary Acceptance Letter, and the agent that determines preliminary approval will forward your Form 14457 to a civil investigations department within the IRS. Once your case is assigned, an examiner will contact you.
You must cooperate with the examiner in providing documents and information. Reach out to your Criminal Tax Defense Attorney for the most current Voluntary Disclosure procedures.
A Voluntary Disclosure Can Provide a Degree of Insulation Against Criminal Penalties
A properly filed and legally sufficient Voluntary Disclosure made to the IRS can provide a taxpayer with a level of protection against criminal charges relating to his or her disclosed non-compliance. In other words, the taxpayer will not be recommended for criminal prosecution. In the interests of the efficient administration of the tax system, the IRS has long held that taxpayers who come forward voluntarily, make a full and complete disclosure, and agree to pay a penalty can avoid criminal penalties including prison. However, the type of disclosure that should be made should be dependent on the taxpayer’s risk. Warning: A voluntary disclosure should never be attempted without the guidance of experience criminal tax defense counsel and the use of a Kovel Accountant to protect the client’s constitutional rights, attorney client privilege, and the attorneys work product!
Consider that the U.S. tax system relies heavily, at least initially, on self-reporting by taxpayers (self-assessment). If the system was not initially based on self-assessment, the current levels of IRS staffing would make the tax system unworkable. In order to further encourage taxpayer compliance, even after a period of purposeful compliance failures, the IRS has held a policy conferring certain benefits on individuals who voluntarily come forward, fully disclose their past acts or omissions of non-compliance, file accurate returns for the affected years still open to criminal statue (generally 5 years), and who makes a full payment or enters into an approved payment plan. Provided that the disclosure is voluntary, complete, accurate, and legally sufficient the IRS has a policy of refraining from recommending these taxpayers for criminal prosecution.
When Can I Make a Voluntary Disclosure?
For a Voluntary Disclosure to be effective it must be timely. If the taxpayer is reasonably aware of an investigation or facts and circumstances suggesting that the government has already discovered the non-compliance that is the subject of the disclosure is not timely. Voluntary disclosures are timely when they are made:
- Prior to the start of an IRS examination or prior to IRS notification to the taxpayer of an impending audit or examination.
- Prior to a third-party whistle-blower supplying information regarding fraud or other noncompliance with the IRS.
- Prior to the IRS’ acquisition of information regarding noncompliance through other sources.
As such, time is of the essence when considering a Voluntary Disclosure. However, taxpayers should not be hasty in their decision to file for Voluntary Disclosure because there are certain circumstances, such as illegal source income, where such disclosures are ineffective. Further, taxpayers must engage in a careful analysis of their behaviors and circumstances and how they may be interpreted by an IRS examiner. Finally, taxpayers should also consider as to whether a “noisy” or “quiet” disclosure is more appropriate for their tax situation.
A voluntary disclosure is a noisy disclosure because the criminal investigation division is contacted at the outset of the process. A quiet disclosure would merely involve filing 5 years of amended returns with the client’s normal service center. The advantage of this method is that the taxpayer may escape the costs and stress of submitting to an audit that ordinarily follows a loud voluntary disclosure. The disadvantage is that a quiet disclosure could be viewed as an admission of guilt without the expected pass on criminal prosecution that follows a loud disclosure. Again, the critical decision to go loud or quiet should not be made without experienced criminal tax defense counsel.
Why Does the IRS Offer Voluntary Disclosure?
The voluntary disclosure program reflects practical and fiscal imperatives. The practical imperative is that, in tax cases, a jury will often be less likely to convict where the taxpayer has corrected the criminal conduct by voluntarily filing amended returns or delinquent original returns.
The fiscal imperative is that the government is more likely to see more unpaid taxes through voluntary disclosure than through rooting out every evader themselves. Voluntary disclosure is only practical when it functions like a “win-win” as far as the government’s revenue stream is concerned. A voluntary disclosure policy will generate significant additional revenue for the government since the IRS would not have discovered or, if discovered, would not have prosecuted most of the taxpayers who voluntarily disclose under the policy.
There are still plenty of taxpayers to prosecute who have not gotten right with the government for the government to meet its criminal tax enforcement needs, so the additional revenue generated by the voluntary disclosure policy is a “freebie” for the government. The government gives up nothing of systemic importance and gets a material amount of revenue that, but for the policy, it would never get.
The key caveat here is that the disclosure must be voluntary and must be complete. In order to avoid fact intensive queries about what precisely is motivating the taxpayer to make a disclosure, the IRS has some rules that disqualify the taxpayer based on the “timeliness” of the disclosure. The key timeliness condition is that a disclosure after a civil or criminal investigation has started is not timely.
Can You Use Voluntary Disclosure to Deal with FBAR Violations?
Voluntary disclosure is available as an option for more than just federal income tax return issues. The federal government offers the Voluntary Disclosure Practice (VDP) specifically for taxpayers who made mistakes in failing to disclose their assets held overseas through a Report of Foreign Bank and Financial Accounts (FBAR).
Penalties for failing to file an FBAR when required can be substantial, especially if the government suspects that the failure was willful. This is troubling, as many taxpayers who owe an FBAR may not realize that they have met the threshold until it is too late. Discuss whether the VDP is an avenue that you should explore with our Dual Licensed International Tax & FBAR Attorneys and CPAs.
Experienced Tax Professionals Guide You Through the Voluntary Disclosure Process
The experienced and dedicated tax attorneys and Kovel CPAs of the Tax Law Offices of David W. Klasing can help concerned taxpayers understand their options. Once we have explained the process and the potential opportunities to mitigate the situation to the taxpayer, our experienced tax attorneys can handle every step of the process. To schedule a reduced-rate consultation with an experienced tax lawyer call us at 800-681-1295 today or contact the firm online.
In most cases, where your conduct was non willful, a streamlined disclosure is going to be a better financial option for you than the VDP. However, one significant difference between the streamlined disclosure program and the VDP is that for streamline disclosure, you must sign a form indicating that your conduct was non-willful. If you falsely certify non-willfulness, you could be subject to further penalties, including criminal tax charges.
As such, those who willfully committed tax and information reporting fraud, as opposed to those who made honest mistakes, should apply for the VDP instead of a streamlined voluntary disclosure. Again, however, no decision about what program to utilize should be made without first consulting with an experienced International Tax Attorney & CPAs like those at the Tax Law Offices of David W. Klasing.
If accepted into the streamlined voluntary disclosure program, you will be required to submit a large amount of paperwork, including three years of amended personal income tax returns that report the previously omitted offshore taxable income, six years of FBARS and 3 years of any other required foreign information reporting which our skilled Tax Attorneys and CPAs can help you prepare. You will be effectively shielded from criminal prosecution if your conduct was non-willful.
Furthermore, for non-residents, you will also avoid the “offshore penalty” entirely. For U.S. tax residents, you will have to pay 5% on the highest aggregate amount in the undisclosed offshore accounts over the course of the six years required under the program measured as of December 31st. You also may be required to pay certain other fines and fees to be brought back into compliance. Overall, however, the streamlined disclosure program usually offers the least expensive path back into compliance if you are eligible where you have unreported offshore taxable income and undisclosed foreign financial accounts.
U.S. Taxpayers living outside the U.S. may not have to pay the 5% penalty discussed above if they qualify for a streamlined voluntary disclosure.
See our 2011 OVDI Q and A Library
See our FBAR Compliance and Disclosure Q and A Library
See our Foreign Audit Q and A Library
Does Voluntary Disclosure Contain any Legally Enforceable Guarantees?
The Department of Justice’s Criminal Tax Manual (or CTM) makes it clear that acceptance to the any of the federal government’s voluntary disclosure programs does not come with any additional rights for taxpayers. Practically, this means that courts cannot second-guess the IRS’ treatment of a taxpayer that applies and is accepted for voluntary disclosure beyond whether any of their already existing rights were infringed.
The IRS has a history of inadvertently treating honest taxpayers poorly. Therefore, voluntary disclosure may not be the best option for every situation, as there really isn’t a statutory guarantee that you will curry the favor of the government by doing their work for them. Never attempt to apply for voluntary disclosure without first having a thorough and exhaustive conversation about your options with a California Attorney for IRS Voluntary Disclosure Practice.
Does California Have a Voluntary Disclosure Program?
Like the IRS, the State of California’s Franchise Tax Board (FTB) and the California Department of Tax and Fee Administration (CDTFA) provide a method for noncompliant taxpayers to regain compliant status by coming forward with the details of their failure to comply with the California state tax code.
The path to voluntary disclosure to the FTB depends on whether you are an in-state or out-of-state filer.
In-State California Voluntary Disclosure Program
For in-state taxpayers, sales tax voluntary disclosure is only available for purchasers within California who are not otherwise required to hold a seller’s permit. It is only used to report and pay the balance of any sales and use taxes that the applicant owes.
To qualify for the In-State Voluntary Disclosure Program, all of the following must be true:
- You reside or are located within California, and not have previously registered with the CDTFA
- You have not previously filed an Individual Use Tax Return with the CDTFA
- You have not reported an amount for use tax on your Individual Income Tax Return filed with the Franchise Tax Board
- You are not engaged in business in this state as a retailer, as defined in Revenue and Taxation Code section 6015
- You have not been contacted by the CDTFA for failure to report the use tax imposed by section 6202of the Revenue and Taxation Code
- Your failure to pay the tax or file a return was due to reasonable cause and not as a result of negligence, intentional disregard of the law, or by an intent to evade taxes
- Your purchase is not of a vehicle, vessel or aircraft
- You submit your application voluntarily
Out-of-State California Voluntary Disclosure Program
The FTB’s Voluntary Disclosure Program provides a method of recourse for out-of-state businesses and their operators to avoid penalties for delinquent or amended filings where honest mistakes prevented their timely compliance.
The state legislature passed expansions to the Voluntary Disclosure Program in 2017 to include out-of-state trusts that have beneficiaries in California and nonresident partners from out-of-state partnerships. The new additions to the program also allow the FTB to waive late filing penalties for specified returns from S corporations and partnerships.
Applications to the FTB must be made through a submission of Form FTB 4935 via mail, couples with the supplementary documentation necessary to explain the nature of the noncompliance. You will not qualify for the program if you have already registered with the California Secretary of State, ever filed a return with the State of California, or ever received a notice to file a return in California.
When Should I Contact a Lawyer to Help with my Application for Voluntary Disclosure?
If you know or suspect that your prior state or federal tax filings may have errors or inconsistencies, or if you have missed a filing deadline, you should look to act as soon as possible. While you should never rush the process, the window for voluntarily disclosing past noncompliance only lasts as long as the federal or California government is unaware of the issues at hand.
If the federal or state government has already discovered that there are issues with your tax history or has initiated an audit or criminal tax investigation against you, any attempt to apply for the benefits of voluntary disclosure will likely be in vain. The government may also discover the noncompliance through their auditing, investigation, or prosecution of business associates, contracting parties, or financial service firms with whom you have dealt in the past.
Further, once you determine that you do indeed wish to proceed with the voluntary disclosure application process, it may take some time to assemble the requisite documentation of your financials that the IRS will want to see. This is especially true if the noncompliance continued over the course of several years.
In any case, the time to reach out to a dedicated California Attorney for IRS Voluntary Disclosure Practice is now. You do not want your opportunity to achieve a pass on criminal tax prosecution, & favorable penalty relief to expire while you are deciding who should help you or whether to address these issues at all. You deserve to be aware of every option at your disposal that could provide critical relief to you or your small business.
If You Are Interested in a Voluntary Disclosure Program to Bring You Back into Tax Compliance, Call our Skilled Tax Attorneys Today
If you get out ahead of the curve by disclosing your mistakes to the IRS before they come after you with an audit or criminal tax investigation, there is a good chance you will avoid the most severe potential penalties you could face. At the Tax Law Offices of David W. Klasing, our experienced tax attorneys can help you figure out which program gives you the best chance of being brought back into tax compliance with minimal trouble. Then we can protect your rights through the process. To schedule a consultation, call our firm today at (800) 681-1295.
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In addition to our main office in Irvine, the Tax Law Offices of David W. Klasing has unstaffed (conference room only) satellite offices in Los Angeles, San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland, Carlsbad and Sacramento. During the COVID-19 pandemic, our staff are working from home, but have full virtual meeting capability.
Will it cost me more to hire the Tax Law Offices of David W. Klasing, who’s main office and the vast majority of the firm’s staff is located in Irvine California, but an appointment only Satellite office is close to my location, as opposed to a local company? Absolutely not! See our policies that address this issue here or call us today to find out more at (800) 681-1295.
Questions and Answers about OVDP:
- What are the Eligibiliy Requirements for Streamlined Disclosure?
- What is Transitional Treatment Option to 2014 OVDI Program?
- Streamlined Program 2014 Changes Regarding Foreign Accounts
- 2014 Changes to Tax Laws for Offshore Accounts and Assets
- Changes to IRS Voluntary Disclosure from 2012 and 2014 OVDP