The IRS considers voluntary disclosure from the Internal Revenue Manual if ……. | CPAs and Foodman advisors

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When the IRS examines a criminal tax case, various factors are taken into account, including whether a voluntary disclosure has been made, whether there is a lawsuit, the health, age and mental state of the taxpayer, and whether a solicitation of income tax returns has taken place. In accordance with IRS practice, a voluntary disclosure will be considered along with all other investigative factors in determining whether criminal prosecution will be recommended. A voluntary disclosure does not guarantee any rights to the taxpayer. It is simply the “internal practice” of the IRS that taxpayers who voluntarily disclose are much less likely to be recommended for criminal prosecution. Taxpayers whose income comes from illegal sources are not taken into account. Voluntary disclosures are evaluated by the IRS-Criminal Investigation Unit and its attorney.

A voluntary disclosure occurs and is considered by the IRS when:

  • Communications with taxpayers are truthful, timely and complete.
  • The taxpayer shows that he is willing to cooperate with the IRS to determine his tax liability.
  • The taxpayer makes good faith arrangements with the IRS to pay in full tax, interest, and any penalties determined by the IRS as applicable.

A voluntary disclosure is timely if the IRS receives it BEFORE:

  • Initiate a civil review or criminal investigation of the Taxpayer or has notified the Taxpayer that he intends to begin such a review or investigation.
  • Receive information from a third party (informant, other government agency, or media) alerting the IRS of a specific taxpayer non-compliance.
  • The opening of a civil investigation or a criminal investigation directly related to the specific liability of the Taxpayer.
  • Obtaining information directly related to the specific tax liability of the Taxpayer from a criminal action (search warrant, summons to appear before a grand jury).

Examples of voluntary IRS disclosure

  • A letter from a lawyer who attaches a client’s amended returns that are complete and accurate (stating the legal source income omitted from the original returns), offering to pay tax, interest and penalties in full as determined accurately by the IRS.
  • A taxpayer’s disclosure of missed income facilitated by a barter exchange after the IRS announced it had initiated a civil compliance project targeting barter exchanges. The IRS has not initiated a review or investigation of the Taxpayer or notified the Taxpayer of its intention to do so. The taxpayer files complete and accurate amended returns and arranges with the IRS to pay tax, interest, and all penalties in full as precisely determined by the IRS.
  • A disclosure made by a taxpayer of missed income facilitated by a widely promoted program in which the IRS has initiated a civil compliance project and has already obtained information that could lead to a taxpayer review. The IRS has not initiated a review or investigation of the Taxpayer or notified the Taxpayer of its intention to do so. The taxpayer files complete and accurate returns and arranges with the IRS to pay in full the tax, interest, and any penalties precisely determined by the IRS.
  • A disclosure made by a person who failed to file tax returns after the person received a notice that the IRS had no record of receiving a return for a particular year and asking if the taxpayer filed a return for this year. The individual files complete and accurate returns and makes arrangements with the IRS to pay tax, interest, and penalties in full as precisely determined by the IRS.

IRS Examples of What Is NOT a Voluntary Disclosure to the IRS

  • A letter from a lawyer indicating that his client, who wishes to remain anonymous, wishes to settle his tax liability.
  • A disclosure made by a taxpayer that is the subject of a grand jury investigation.
  • A disclosure made by a taxpayer, which is not currently under review or investigation, of omitted gross revenue from a partnership, but whose partner is already under investigation for skimmed omitted income of the partnership.
  • A disclosure made by a taxpayer, which is not currently under review or investigation, of omitted implied dividends received from a company that is currently under review.
  • A disclosure made by a taxpayer after an employee contacted the IRS regarding the taxpayer’s double set of books.

Don’t be a victim of your own making

On March 13, 2018, the IRS announced the end of the Offshore Voluntary Disclosure Program (OVDP) effective September 28, 2018 (Notice IR-2018-52). The OVDP has been made available to taxpayers who have willfully failed to report foreign financial assets and pay all taxes due in respect of those assets. The program was designed to protect taxpayers from possible criminal prosecution and to provide conditions and resolution for tax obligations, penalties and taxpayer interest.

If you are a taxpayer with undeclared foreign financial assets and have not filed any foreign information returns, consult your specialist tax representative NOW as it is more urgent to come forward now.


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