When Can (and Should) Taxpayers Take Advantage of the IRS’ Voluntary Disclosure Practice?

For U.S. taxpayers who are concerned about their filing or payment history, the Internal Revenue Service’s (IRS) Voluntary Disclosure Practice provides a potential way to resolve past deficiencies without facing criminal liability. However, utilizing the Voluntary Disclosure Practice can be extremely risky if not handled carefully; and, as a result, individuals who are thinking about self-disclosing federal tax law violations should consult with a Washington DC IRS voluntary disclosure lawyer before they submit anything to the IRS.

Understanding the IRS’ Voluntary Disclosure Practice

In order to understand the risks associated with the IRS’s Voluntary Disclosure Practice, it is first necessary to understand the Voluntary Disclosure Practice itself. Voluntary Disclosure Practice is, “a longstanding practice of IRS Criminal Investigation (CI),” that provides protection against criminal prosecution in some cases. However, as IRS CI makes clear:

“A voluntary disclosure will not automatically guarantee immunity from prosecution[. Instead], a voluntary disclosure may result in prosecution not being recommended.”

There are two aspects of this statement that are extremely important. First, voluntary disclosure might protect you against federal prosecution for tax crimes, but this protection is not guaranteed. Second, while voluntary disclosure can provide protection against criminal prosecution, it does not provide protection against civil liability. In fact, as IRS CI explains, when participating in the Voluntary Disclosure Practice, it is necessary to:

• Cooperate with IRS CI in determining your federal tax liability; and,
• Make “good faith arrangements” to pay what you own in a timely manner—including tax, interest and penalties.

As a result, in order to take advantage of the IRS’ Voluntary Disclosure Practice, you need to be at risk for prosecution for a federal tax crime, and you need to be prepared to satisfy your outstanding liability to the IRS.

When Considering a Voluntary Disclosure, Timing is Important

Timing is a critically important aspect of the IRS’s Voluntary Disclosure Practice as well. While taxpayers need to be careful about voluntarily disclosing information to IRS CI, they must also be careful about waiting too long and losing the ability to receive the benefits of voluntary disclosure. IRS CI will only consider a self-disclosure as voluntary if it is received before:

• IRS CI initiates a civil examination or criminal investigation;
• IRS CI receives information about the violation from a third party; or,
• IRS CI receives information about the violation through other criminal enforcement activity.

If any of these occur before you voluntarily disclose information to IRS CI, then you will not be eligible for a recommendation against prosecution, and the federal government will be able to use the information that you disclosed against you in its prosecution. An experienced criminal tax attorney can help you decide whether to voluntarily disclose information to IRS CI; and, if you are concerned that you may be at risk, we encourage you to contact us promptly.

Speak with a Washington DC IRS Voluntary Disclosure Lawyer at Thorn Law Group

Thorn Law Group is a Washington DC tax law firm that represents individual and corporate taxpayers in civil and criminal enforcement matters. If you need advice regarding the IRS’s Voluntary Disclosure Practice or an investigation involving IRS CI, call Washington DC IRS voluntary disclosure lawyer Kevin E. Thorn, Managing Partner at Thorn Law Group, at 202-349-4033, email ket@thornlawgroup.com or contact us online for a confidential consultation.