The IRS’ Voluntary Disclosure Program (VDP) has undergone a significant amount of change over the past several years.
In an effort to reestablish reliability in the process, the IRS has released an updated guide that provides clarity on Form 14457, Voluntary Disclosure Practice Preclearance Request and Application. The guide provides invaluable insights into the IRS’ approach to the VDP process. In addition to benefiting taxpayers by giving them greater certainty, the release of the guide paper should benefit the IRS by avoiding some inevitable disputes over the general voluntary disclosure regime.
For more information about the new guidance and the applicability of the VDP in your particular circumstances, reach out to the Dual Licensed Tax Attorneys and CPAs at the Tax Law Offices of David W. Klasing. Schedule a reduced-rate initial case evaluation when you contact us today at (800) 681-1295 which will be fully protected under the Attorney Client Privilege doctrine.
Interviewing Process and Cooperation
Many who contemplate engaging in the voluntary disclosure program are apprehensive about possibly being called to discuss their tax filing history in person with federal tax agents. However, according to the IRS’ updated guide, this step may be unnecessary in certain situations.
The VDP requires taxpayers to make truthful, timely, and complete voluntary disclosures, in which they cooperate with the IRS, submit required returns for the relevant disclosure period, and make good faith arrangements to pay the tax, penalties, and interest determined to be due. The instructions to Form 14457 state that full cooperation includes “submitting to interviews and providing access to related party witnesses.” Many practitioners have been concerned with taxpayer interviews, but the guide paper indicates that interviews should only be expected if deemed necessary by the examiner.
Though cooperation is, in the eyes of the agency, the “bedrock” of the program, the updated guide makes clear that those applicants who provide thorough, organized records and a clear narrative for their situation may not be required to provide an interview at all.
Revocation of Acceptance to Voluntary Disclosure Program
The instructions to Form 14457 note that “in the event a taxpayer fails to fully cooperate with the civil examination, the examiner may request that the IRS’ Criminal Investigations Division(IRS-CI) revoke a taxpayer’s preliminary acceptance.”
Many applicantsexpress perfectly valid concernsabout disclosing their tax information without assurances from the IRS that their acceptance into the program will not be revoked. The updated guide outlines the steps required for revoking preliminary acceptance and emphasizes that revocation should be rare.
The guide paper states that “examiners should attempt multiple requests (at least 2 to 3) with a taxpayer before considering revocation.” The process for revocation begins with the examiner sending an initial letter providing a warning about the lack of cooperation with the taxpayer. If the taxpayer continues to be uncooperative, the examiner will send a second letter informing the taxpayer that the examiner may request that IRS-CI revoke preliminary acceptance. If the lack of cooperation continues, the examiner will send a memo to IRS-CI providing facts documenting the lack of cooperation. IRS-CI will review the request from the examiner.When the IRS Criminal Investigation revokes preliminary acceptance, IRS-CI will do so in writing to the taxpayer with notification to the examiner.
With this in mind, there should be some comfort for potential applicants that they shouldn’t be left out in the cold. However, the practical reality is that IRS agents may stray from the guidance provided improperly, so it is always best to approach these situations carefully and with the help of a seasoned dual licensedCriminal Tax Defense Lawyer& CPA.
Voluntary Disclosure for Offshore Tax Issues
In determining whether an FBAR violation was willful or non-willful, examiners have discretion under the regular FBAR examinations procedures to consider mitigation guidelines contained in the Internal Revenue Manual. This leaves open the possibility that taxpayers could meet the requirements of the mitigation threshold conditions under the VDP and potentially avoid FBAR penalties through the FBAR reasonable cause exception.
The guide paper states that under the VDP, “willful FBAR penalties will presumptively apply to all cases involving FBAR noncompliance.” The reason provided is “that for most cases FBAR penalty ‘mitigation threshold conditions’ . . . will not be met since the terms of the Voluntary Disclosure Practice require the assessment of a civil fraud penalty.”
It is unclear from the guide paper if and when the IRS would consider a request for FBAR penalty relief. The guide paper states that “if the taxpayer does not want to accept the default terms of the Voluntary Disclosure Practice (fraud penalty for one year and willful FBAR penalty), then examiners must probe any reasonable cause arguments that the taxpayer might raise against the assertion of penalties.”
Allowing taxpayers to deviate from the default willful FBAR penalty in certain circumstances would be consistent with the approach taken in the VDP with respect to the civil fraud penalty. The guide paper states that taxpayers may request “the imposition of accuracy-related penalties under I.R.C. § 6662 instead of the civil fraud penalty.” To qualify for this relief, the taxpayer must present “clear and convincing evidence to the satisfaction of the Service to overcome the presumptive application of the civil fraud penalty.”
However, since the applicability is not explicit, additional consideration of the specific taxpayer’s situation is warranted before action. Therefore, we would urge you not to attempt to utilize the VDP to obtain FBAR penalty relief without first discussing your situation with an dual licensed International Tax Defense Attorney& CPA.
Our Dual Licensed Tax Attorneys and CPAs Can Help You Use Voluntary Disclosure
To effectively apply and utilize the VDP, reach out to the Tax Law Offices of David W. Klasing today at our offices by calling (800) 681-1295 to schedule your first case evaluation for a reduced rate.
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!
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.
Questions about delinquent payroll taxes and trust fund recovery penalty
- 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
