Can You Limit Criminal Tax Risks with IRS Voluntary Disclosure?

Can IRS Voluntary Disclosure Limit Criminal Tax Prosecution Risks?

In the world of IRS Voluntary Disclosure, it is well-established that the VDP ‘Program’ is a good option for U.S. Taxpayers who may have committed a criminal tax violation, because the programs can minimize the risk of the IRS/DOJ pursuing a Criminal Prosecution against the Taxpayer.  The purpose of the IRS Voluntary Disclosure Program is to bring Taxpayers into compliance voluntarily without the fear of criminal enforcement. And, if the IRS were to entice Taxpayers into making a voluntary disclosure, only to turn around and prosecute them — the program would have failed many years ago.  To better understand that Voluntary Disclosure (VDP) in matters involving offshore income, accounts, investments and income, we wanted to provide a brief summary of some of the more important considerations when deciding if Voluntary Disclosure is right for you — and to best try and avoid unethical fear-mongering strategies from less-experienced counsel.

*Golding & Golding previously published the How Voluntary Disclosur can Minimize Criminal Tax Exposure article back in 2021 and has since updated and expanded the list.

Non-Willfulness vs Willfulness

If a Taxpayer is unable to certify non-willfulness, then a Taxpayer does not qualify for any of the non-willful offshore disclosure procedures, such as Streamlined Procedures; Delinquency Procedures or Reasonable Cause. Moreover, the longer a Taxpayer knowingly/willfully continues stay non-compliant — the bigger risk they are taking for higher penalties — and disqualification from entrance into the program if they are audited prior to submitting their preclearance letter.

Taxpayers Must Make a Full Voluntary Disclosure?

The IRS Voluntary Disclosure Program requires the Taxpayer to make a full disclosure. This does require the Taxpayer is going to atone for every tax sin they have ever made in their lifetime — but in relation to the submission, the Taxpayer must provide a complete disclosure about the non-compliance.

Legally Sourced Money vs. Money Laundering

If the money was obtained illegally (illegal gambling or narcotics for example), then the Taxpayer cannot use VDP. This is because the IRS will not allow a Taxpayer to clean dirty money by running it through the voluntary disclosure program.

Extent of Offshore Assets for Voluntary Disclosure

In general, the more offshore assets a Taxpayer has, the higher the likelihood one of the foreign financial institutions will report the Taxpayer to the U.S. Government. If the IRS learns about the noncompliance prior to the applicant making a submission — they lose the right to submit to the program.

Civil Tax Fraud has No Statute of Limitations

In addition to criminal prosecution, the IRS can also pursue a civil fraud investigation and willful FBAR penalties which can exceed the penalties issued under VDP. With IRS Voluntary Disclosure, the IRS limits limit the offshore non-compliance to the 6-years.

Late Filing Penalties May Be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs. Prior Year Non-Compliance

Once a Taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, Taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.