US taxpayers who have failed to file tax returns, report taxable income or pay taxes where an obligation exist, generally already realize that they are subject to fines and penalties. Depending on the conduct and the circumstances present, the matter may even be referred for IRS criminal investigation. Many people who have failed to satisfy all of their tax obligations, or who have engaged in illegal activities such as filing false returns or income tax evasion, later regret their actions after the severity of the consequences becomes clear. That is, each failure to file a return where there was taxable income could be punished by up to a year in prison. Further mistakes while coming back into compliance can compound problems and may even lead to felony charges. In light of the potentially severe civil and criminal consequences, taxpayers who are not compliant with their tax obligations often fear that they cannot get back into the system without facing prosecution or exacerbating the issues they already face. Others are confused as to the steps and procedures that are likely to correct problems with unfiled taxes without subjecting the individual to criminal consequences.
Working with an experienced Tax Lawyer and CPA, such as David W. Klasing, can help you understand the extent of your tax compliance issues. After a meticulous review of your financial information, he can often craft a strategy that is likely to correct your problems regarding back taxes while minimizing criminal tax exposure.
A quiet disclosure, also sometimes known as a silent disclosure, is carried out when a taxpayer with unfiled taxes or unreported income files or amends their returns from previous years to correct tax problems. A disclosure is quiet because the taxpayer does not explicitly notify the Criminal Investigation Division of the Internal Revenue Service (IRS) of the deficiencies. The taxpayer then deals with tax collection issues by writing a check for the fines and penalties regarding the tax compliance issues and, in instances where such a disclosure was appropriate, is unlikely to hear anything further regarding the matter. This approach is favored in appropriate circumstances because the taxpayer pays only the additional taxes and interest that they owed. It is important to note that a quiet disclosure is distinct from a voluntary disclosure that may be made through one of the IRS’ Voluntary Disclosure Programs.
By contrast, a loud disclosure, sometimes also termed a noisy disclosure, occurs when a taxpayer explicitly calls attention to the disclosures he or she will make to the IRS. Typically this disclosure is made by arranging a meeting with representatives from the IRS’ Criminal Investigation Division.
The question then becomes, should you consider a quiet disclosure or a noisy disclosure for your particular back tax situation? Before deciding as to whether you should make a quiet or a loud disclosure, it is important to note that when unreported foreign accounts or foreign income is your back tax issue, the IRS recommends individuals utilize Offshore Voluntary Disclosure Program “OVDP”. Furthermore, a well-considered strategy cannot be developed without a meticulous review of your particular circumstances.
However, in situations where the likelihood of criminal prosecution is slim, a quiet disclosure may present a viable means of re-entry to the tax system. Conversely, when there is a real threat of criminal prosecution due to evidence of intent to mislead the IRS, or when there are extremely large amounts of unreported income, a loud disclosure is typically more appropriate. If you have already made a quiet disclosure, it is possible to convert the disclosure to a loud disclosure, provided that the disclosure is voluntary and timely. This can be accomplished by entering into the third version of the OVDP if foreign issues are implicated and a domestic voluntary disclosure if only domestic issues are implicated.
To correct your back tax problems you are going to have to make a disclosure of some kind to the IRS. Then you will have to handle the potential audit and collection issues from the back taxes and any fines or penalties. Once you have come back into compliance, the key is to maintain good compliance with the tax laws going forward. An experienced tax lawyer can guide you through the entire process.
Working with an experienced tax professional can help you understand your back tax problems and devise a legal strategy likely to minimize problems created by coming back into compliance. Tax Attorney and CPA David W. Klasing of The Tax Law Offices of David W. Klasing is dedicated to assisting US taxpayers. To schedule a reduced rate tax consultation, call our firm at 800-681-1295.