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Voluntary Disclosures

The Internal Revenue Service’s (IRS) Voluntary Disclosures Program (VDP) permits taxpayers with undisclosed assets and accounts located outside the United States to come forward and disclose such assets to the U.S. government. While making a voluntary disclosure is not penalty-free, it may nevertheless be the right approach for certain taxpayers. To better understand your legal obligations regarding disclosing offshore assets, and how the IRS’s VDP may help you, consult the tax specialists at the Ben-Cohen Law Firm. With the combined professional knowledge and expertise of both a Board-Certified tax attorney and a CPA, our Los Angeles voluntary disclosure lawyers can provide you with in-depth advice regarding how a voluntary disclosure might benefit you.

Not Just For Offshore Bank Accounts

As an initial matter, it is important to understand that voluntary disclosures can apply to any variety of omissions or mistakes in taxes. Too many taxpayers mistakenly believe that the VDP pertains only to that unreported bank account in Switzerland or Israel, which is inaccurate. The Voluntary Disclosure Practice is a longstanding practice of IRS Criminal Investigation whereby CI takes timely, accurate, and complete voluntary disclosures into account in deciding whether to recommend to the Department of Justice that a taxpayer be criminally prosecuted. It enables noncompliant taxpayers to resolve their tax liabilities and minimize their chance of criminal prosecution. When a taxpayer truthfully, timely, and completely complies with all provisions of the voluntary disclosure practice, the IRS should not recommend criminal prosecution to the Department of Justice.

To utilize the VDP, the disclosure must be timely. If the IRS has already launched a criminal or civil examination, it is too late. Using the program, the taxpayer who voluntarily discloses incurs a specially reduced penalty available only under the VDP. The benefit is that the taxpayer may escape potential criminal charges for tax evasion, and also avoids the potential higher penalties that may be imposed for failing to file the Report of Foreign Bank and Financial Accounts (FBAR), Statement of Specified Foreign Financial Assets (Form 8938), and other information returns. Our voluntary disclosure lawyers can advise Los Angeles clients and others on whether this option may be right for them.

In November 2018, the IRS released an interim memo addressing the new process for domestic and offshore voluntary disclosure practices. The memo stated the IRS examiner may assess a civil fraud penalty of 75% of the underpayment under IRC Section 6663 and a willful FBAR penalty of 50% of the maximum value of the foreign financial asset, among others. Due to the potential significant penalties that may be assessed, it is important to consult a tax attorney regarding your options. Our voluntary disclosure lawyers can advise Los Angeles clients and others on whether this option may be right for them.

Other Options Besides Voluntary Disclosure

In 2014, the IRS announced a “streamlined” program for U.S. taxpayers residing in the U.S. and abroad who have not complied with U.S. reporting obligations. The Streamlined Foreign Offshore Procedures and Streamlined Domestic Offshore Procedures are available to taxpayers whose failures were non-willful. Applying for the streamlined program can be risky, though, as an applicant that the IRS excludes from the streamlined program is also forbidden from participating in the VDP.

Both the streamlined program and the VDP represent what are known as “noisy disclosures,” meaning the taxpayer openly and explicitly approaches the IRS and notifies the agency of the deficiency issue. Another option is what is called a “quiet disclosure,” whereby a taxpayer simply files the delinquent reports (such as FBAR or Form 8938) along with amended or original tax returns for the appropriate years and payment for the taxes owed. A voluntary disclosure attorney at our Los Angeles firm can explain this option further to you. The “quiet disclosure” hopes that the IRS simply accepts the submissions with no further action, thereby avoiding the imposition of penalties. The downside is that the IRS could instead choose to audit the taxpayer’s tax returns, and may use the information provided in the amended returns in a subsequent criminal investigation of the taxpayer.

If you have unreported income from any source including foreign accounts or assets, you have options. Contact the tax attorneys at the Ben-Cohen Law Firm. Our Los Angeles voluntary disclosure attorneys can help provide you with the advice and assistance needed to optimize your outcomes.

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