How Voluntary Disclosure Can Minimize Criminal Tax Exposure

Will Voluntary Disclosure Protect Against IRS Criminal Prosecution

Does Voluntary Disclosure to Protect Against Criminal Prosecution?

In the world of voluntary Disclosure, it is well-established amongst experienced tax counsel that submitting to the IRS Voluntary Disclosure Program will almost always protect a Taxpayer against Criminal Prosecution. That is because the purpose of the program is to bring Taxpayers into compliance voluntarily without the fear of criminal enforcement. If the IRS entices Taxpayers with voluntary disclosure, only to turn around and prosecute them — the program would have failed many years ago. When considering making a voluntary disclosure — Taxpayers must be very cautious about working with any attorney who misrepresents the purpose and nature of voluntary disclosure — or goads them into alternative, less-safe strategies. For example, they may recommend that Taxpayer seek to just let the statute of limitations expire — without providing any insight or explanation of the perils of pursuing this type of often-flawed strategy.  To better understand that Voluntary Disclosure (VDP) in matters involving offshore income, accounts, investments and income, here are a few 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.

Non-Willfulness vs Willfulness

If a Taxpayer is unable to certify non-willfulness, then a Taxpayer does not qualify for any of the other filing procedures, such as Streamlined Procedures; Delinquency Procedures or Reasonable Cause. 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.

Are you Able to Make a Full Voluntary Disclosure?

VDP requires the Taxpayer to make a full disclosure. This does not mean the Taxpayer is going to atone for every tax sin they have ever made — rather, 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

At Golding & Golding, we specialize exclusively in offshore tax matters. The more offshore assets a Taxpayer has, the higher the likelihood one of the foreign financial institutions will report the Taxpayer to the US 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 far exceed the penalties issued under VDP — and can include additional years’ worth of penalties. With VDP, the Taxpayer can limit the offshore non-compliance to the 6-years.

Just Let the Statute of Limitations Expire Instead of Voluntary Disclosure

This is one of those strategies that tends to sound better in the brochure and primarily employed by less-experienced international tax counsel. The US Government has many tricks up its sleeve and when the fraud or crime could have been detected may lean in favor of the IRS. In addition, the program can be terminated at any time — and the penalties tend to increase over time as well. Thus, just sitting back and letting the SOL (maybe) expire is typically a receipt for disaster for the Taxpayer.

Golding & Golding: About Our International Tax Law Firm

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

Contact our firm today for assistance.