The Changing State of Voluntary Disclosure

Defining the Offshore Voluntary Disclosure Program

Moving Forward Without OVDP

Criminal Investigation Procedures

Civil Processing

Development of the Taxpayer’s Case

The Framework for Civil Resolution

  • Voluntary disclosures are to use a six-year disclosure period, and all examinations will involve evaluation of the six most recent tax years.
  • If disclosures are not remedied by an agreement to pay all determined penalties and liabilities, the examiner has the ability to expand the scope of examination to involve the full extent of noncompliance and all of the penalties that apply.
  • Should a disclosure cover fewer than the six most recent tax years, the disclosure must correct noncompliance of all relevant periods.
  • With the review and consent of the IRS, taxpayers who cooperate with the IRS may be allowed to expand the given disclosure period. There are numerous reasons for which taxpayers may wish for additional years to be included in a review, including the correction of tax issues with other governments that may require additional information or correction of tax issues prior to the sale of an asset or other entity.
  • All returns for the given periods must be submitted by the taxpayer.
  • Examiners are responsible for determining taxes, interest, and penalties according to all existing procedures and tax laws. Penalties will be applied as such:
  • Except as outlined below, the civil penalties under Section 6663 for fraud or Section 6651(f) related to the fraudulent failure to file will be applied to the single tax year with the highest liability.
  • In some circumstances, these civil fraud penalties can be applied to more than one year, including all six years, should the examiner deem it necessary, like if the taxpayer doesn’t agree to pay the sums determined by the examiner in the course of the examination. These penalties can be expanded beyond six years if the examiner finds it appropriate; this is rare, but can happen in instances in which the taxpayer does not cooperate.
  • Willful FBAR penalties will follow the regulations outlined in the Internal Revenue Manual.
  • A taxpayer is permitted to request application of the accuracy-related penalties in Section 6662 rather than civil fraud penalties if the circumstances warrant. This is not likely to be accepted frequently and the taxpayer must present significant evidence as to why civil penalties should not be imposed in order to take this route.
  • While a failure to file penalty likely applies in most, if not all, cases, it is not automatically applied and is instead up to the examiner based on other penalties.
  • Other possible penalties, like those that apply to excise taxes, estate and gift tax, or employment taxes will be determined as needed.
  • An appeal with the Office of Appeals is permitted on a case by case basis, such as if the taxpayer disagrees with the conclusions found by the examiner.
  • If a taxpayer chooses not to cooperate with the civil disposition, the IRS permits examiners to request a revocation of the taxpayer’s acceptance into the voluntary disclosure program by CI. This is a possibility for those who do comply with the civil examiner’s determinations. Taxpayers are encouraged strongly to avoid this result as criminal penalties may apply if the revocation is granted.

Next Steps for Affected Taxpayers

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Michael is an attorney specializing in entertainment law and a professionally-trained actor. He is a partner in the law firm of DeBlis Law.

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Michael DeBlis

Michael DeBlis

Michael is an attorney specializing in entertainment law and a professionally-trained actor. He is a partner in the law firm of DeBlis Law.

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