The Internal Revenue Service previously operated a program known as the Offshore Voluntary Disclosure Program (OVDP), which offered non compliant taxpayers mitigated civil penalties – in addition to protection from criminal prosecution – in exchange for voluntarily reporting foreign income which was previously concealed from the IRS. On September 28, 2018, the IRS permanently closed the OVDP, marking the end of an era – and leaving many to wonder what would come next. Our IRS tax attorneys now have breaking news updates on this developing situation. On November 20, 2018, the IRS issued a memo describing new procedures for all voluntary disclosures, including both offshore voluntary disclosures and domestic voluntary disclosures, after September 28, 2018, the date of the OVDP’s closing. Note that these procedures primarily affect taxpayers who are concerned about criminal liability. For others, it is likely sufficient to follow alternative procedures, such as delinquent FBAR & international information return submission procedures, or the offshore or domestic streamlined voluntary disclosure procedures. If you need to report undisclosed domestic or foreign income, you should consult with an experienced criminal tax defense attorney, who can help you choose the right strategy to reenter compliance and reduce your exposure to criminal tax prosecution.
Do not discuss potential domestic or foreign criminal tax issues with anyone other than a properly trained and experienced criminal tax defense attorney as the very tax professional you turn to for help can be forced to testify against you if the communication is not conveyed while under attorney client privilege. The common pattern of non-filed foreign information returns combined with even de minimis amounts of unreported foreign income can in an of itself create exposure for criminal tax prosecution if evidence exists (badges of fraud) that the foreign information reporting was avoided to facilitate evasion of U.S. taxes related to non-reported offshore income.
To reiterate, our readers should note that the updated voluntary disclosure procedures described below are applicable only to taxpayers with criminal exposure. Note: Only a properly trained and experienced criminal tax defense attorney can render legal advice as to the potential for criminal tax prosecution without the non-attorney engaging in the unauthorized practice of law and malpractice. The alternative procedures linked above are generally more appropriate for straight civil cases. It is also important to note that the guidelines below generally apply to offshore, domestic, and other voluntary disclosures received after the OVDP ended on September 28, 2018.
The new process begins when the taxpayer submits Form 14457 (Offshore Voluntary Disclosure Letter) to the IRS Criminal Investigation Division (IRS-CI). Note that current versions of this form are outdated, with the correct version described only as “forthcoming” in the memo. However, the IRS notes that the new version of Form 14457 “will require information related to taxpayer noncompliance, including a narrative providing the facts and circumstances, assets, entities, related parties and any professional advisors involved in the noncompliance.”
If, upon review of Form 14457, IRS-CI grants preclearance and approves the case to proceed, the taxpayer’s information will be forwarded to the IRS Large Business and International Division (LB&I), specifically the LB&I Austin unit. At this stage, the case will be transferred to the pertinent IRS civil division so that a tax audit, or “examination,” can be conducted, subject to normal auditing standards and procedures.
Critically, the IRS is applying a new “civil resolution framework,” summarized below. In addition to all disclosures received after September 28, 2018, this civil resolution framework may also be applied, “At the Service’s discretion… to non-offshore voluntary disclosures that have not been resolved but were received on or before September 28, 2018.”
If you need to make a streamlined disclosure or other voluntary disclosure, whether of U.S. or foreign income, do not take action before receiving counsel from a knowledgeable and experienced FBAR tax lawyer. Depending on the situation, there are numerous disclosure options that may be available to you – some of which are likelier to achieve better legal and financial outcomes than others.
With years of experience providing OVDP representation prior to the closure of the program, the attorneys, CPAs, and EAs at the Tax Law Office of David W. Klasing are well-equipped to provide comprehensive, on-point guidance concerning the updated disclosure rules. We represent taxpayers throughout California and around the globe. To discuss your options confidentially in a reduced-rate consultation, contact us online, or call the Tax Law Office of David W. Klasing at (800) 681-1295 today.
Also, we’ve expanded our offices! In addition to our offices in Irvine and Los Angeles, the Tax Law Offices of David W. Klasing now have offices San Bernardino, Santa Barbara, Panorama City, Oxnard, San Diego, Bakersfield, San Jose, San Francisco, Oakland and Sacramento.