The legal duty of taxpayers to fully comply with federal tax laws is the foundation of “Voluntary compliance” in the American tax system. Most taxpayers, in fact, voluntarily comply with this duty, however, there are always some that fail. The IRS has an impressive arsenal of tools in the form of civil and criminal sanctions to impose on taxpayers who fail to comply, which may result in imprisonment, fines, and penalties.
The Voluntary Disclosure Practice is a compliance option for taxpayers who have committed tax-related crimes and have criminal exposure due to a willful violation of the law. Taxpayers who participate in the Voluntary Disclosure Practice intend to seek protection from potential criminal prosecution. The IRS Criminal Investigation (CI) uses the Voluntary Disclosure Practice as a practice of taking timely, accurate, and complete voluntary disclosures under consideration when determining whether to recommend criminal prosecution.
For taxpayers who have willfully failed to comply with any tax-related obligations, submitting a voluntary disclosure may be a mechanism to resolve non-compliance and minimize vulnerability to criminal prosecution. While a voluntary disclosure does not guarantee immunity from prosecution, it may result in no recommendation of prosecution.
A voluntary disclosure occurs requires taxpayers to provide a truthful, timely, and complete disclosure to CI meeting designated procedural requirements. A voluntary disclosure also requires taxpayers to cooperate with the IRS in determining their correct tax liability, as well as arranging payments in good faith to pay the tax, interest and any applicable penalties in full.
It is crucial to note that for the IRS to consider a disclosure timely, it must receive it before it has commenced any civil examination or criminal investigation or acquired information directly related to specific noncompliance from a criminal enforcement action (e.g., search warrant, grand jury subpoena, etc.). Also, a disclosure will not be considered timely if a third party (e.g., informant, other governmental agency, John Doe summons, etc.) has alerted the IRS to the noncompliance.
If a taxpayer’s violation of federal tax law was not willful, other options including correcting past mistakes by filing amended or past due returns should be considered. An experienced tax professional may help solve these types of tax repayment problems easily and expeditiously.
The Voluntary Disclosure Practice does not apply to taxpayers with illegal sources of income. Income from activities determined to be legal under state law but illegal under federal laws, such as a cannabis-related business in California, would be considered illegal source income for purposes of the Voluntary Disclosure Practice.
To participate in the Voluntary Disclosure Practice, call The Gartzman Law Firm at (770) 939-7710.