Feb 22 2010

Voluntary Disclosure and Other Questions

The U.S. tax law enforcement agency Internal Revenue Service or IRS initiated the Voluntary Disclosure Practice to enable noncompliant taxpayers to resolve their tax liabilities and reduce chances for criminal prosecution. The IRS has used this practice in decisions on whether or not to recommend a case to the Department of Justice for criminal trial. This has been particularly effective in cases of offshore tax issues. Nonetheless, an individual may still want to know the chief whats and whys of this particular effort by the said government bureau.

What Is the Primary Aim of the Program

The high degree of noncompliance related to foreign or offshore accounts and foreign entities has led the IRS to take more forceful action in getting greater compliance with tax laws and in closing the tax gap, becoming especially evident in a time of recession. The program also allows the IRS to gather from taxpayers making voluntary disclosures more information and thus, further their understanding, about how foreign accounts and entities are promoted to avoid or evade tax.

Before, the IRS had little arsenal to deal with offshore accounts, and it is definitely hoped that information gained from interviews will enable the bureau to develop additional strategies to inhibit promoters and facilitators of offshore systems from making new clients. Under the program, taxpayers are required to pay six years’ worth of back taxes on income associated with their foreign assets, interest, and a 5%-20% Highest Value Penalty.

Who Should Consider a Voluntary Disclosure

The general risks of tax evasions and other violations are mainly civil penalties and criminal charges. Civil penalties can amount to substantial fines and criminal prosecution can lead to much more severe consequences. For taxpayers who have failed to file tax returns and other information timely and/or honestly, a deliberate admission of such lapses is the best way to go. A voluntary disclosure also opens the best opportunity to calculate fairly accurately the total costs of all offshore tax issues. There is always a chance of being found out by the IRS, and when that happens, tax violators are most likely to face hefty fines and increased likelihood of criminal prosecution.

Additional legal advice on voluntary offshore disclosure: Tax attorneys Thorn Law Group.  Assisting clients in Washington, D.C.