Our law firm represents clients all over the country and many times we’re asked to step in when tax fraud or tax evasion is an issue. Fortunately, the IRS has a program in place for clients who ‘come clean’ before the IRS can criminally prosecute. The program is called THE VOLUNTARY DISCLOSURE PRACTICE and it is not for everybody and not every client qualifies. However, when the client qualifies for the program they can avoid criminal charges and get a fresh start with the IRS.
This program is for taxpayers who have ‘willfully’ failed to comply with tax or tax-related obligations and is the official means to resolve willful non-compliance and limit exposure to criminal prosecution. The Voluntary Disclosure Practice has a long history at the IRS and is part of the function of the Criminal Investigation (“CI”) team. Taxpayers who participate in the Voluntary Disclosure Practice intend to seek protection from potential criminal prosecution. While a voluntary disclosure will not automatically guarantee immunity from prosecution, it’s the only option to correct willful non-compliance (i.e. tax fraud) and receive assurances from the IRS that prosecution will not be pursued.
What is a Voluntary Disclosure:
Voluntary disclosure occurs when you provide a truthful, timely, and complete disclosure to CI through designated procedures. It also requires the taxpayer to:
Cooperate with the IRS in determining your correct tax liability and
Make good faith arrangements with the IRS to pay - in full - the tax, interest and any applicable penalties you owe.
A disclosure is timely if the IRS receives the disclosure before the IRS has:
1. Commenced a civil examination or criminal investigation
2. Received information from a third party (e.g., informant, other governmental agency, John Doe summons, etc.) alerting the IRS to your noncompliance
3. Acquired information directly related to the taxpayer’s specific noncompliance from a criminal enforcement action (e.g., search warrant, grand jury subpoena, etc.)
How to Disclose:
There is a two-part process to request to participate in the Voluntary Disclosure Practice. To apply for the Voluntary Disclosure Practice, you must first complete Part 1 of the FORM 14457 (attached) and request preclearance to the program. This initial disclosure determines the taxpayers eligibility to participate in the program but does not guarantee acceptance. Acceptance is based on truthfulness and whether the information disclosed was timely. Second, once the taxpayer has received the pre-clearance confirmation, Part II of the same form must be submitted. If both Part I and Part II are approved then the CI Team will refer the matter to the civil section of the IRS and withdraw the file from the criminal team.
What To Expect:
An examiner will contact the taxpayer once pre-clearance has been confirmed and the taxpayer will then participate in an audit of the past 6 years. If the time frame for the non-compliance does not go back as far as 6 years, the examiner has the authority to shorten the audit to fewer than 6 years. Once the examination is completed, the examiner will determine the amount of additional tax owed as well as penalties and interest. Most common for the Voluntary Disclosure Practice are Section 6663 or 6651(f) penalties which equal 75% of the portion of the underpayment attributable to the fraud. However, the examiner does have the authority to re-characterize those penalties under Section 6662 which would reduce the penalties to 20% of the underpayment. As with most audits, the penalties and interest assessed against the taxpayer will be based on a number of factors including degree of fraud, willingness to cooperate, truthfulness and discretion of the examiner.
Call Us Today
If you are facing potential criminal issues due to non-payment of tax or because of not reporting income from your business you can avoid serious charges by acting first.
Call our office today at 480 330-5003 and we’ll discuss all of your options in a free and confidential case review.