All taxpayers have a legal obligation to report their earnings at tax time every year. Some may try to hide their income to avoid a high tax bill, but this can lead to monetary penalties and even criminal charges.
The IRS has introduced a new Voluntary Disclosure and Compliance Program. This allows eligible taxpayers who owe back taxes that they haven’t filed returns for to avoid penalty. They can do so by telling the department what they owed, paying the taxes and entering into an agreement to pay all future taxes.
This article will provide information on how the IRS voluntary Disclosure Program works to provide taxpayers with possible tax amnesty and protection from penalties and criminal investigation.
The IRS Disclosure Program involves accepting timely, accurate and complete voluntary disclosures to determine whether further legal action should be taken. It does not guarantee immunity from persecution, but it may be helpful in reducing the likelihood of persecution.
Taxpayers who cooperate with the IRS Disclosure Program must reveal all information needed to help the IRS determine their tax liability. They must also make a good faith arrangement to pay everything they owe, including interest and penalties, in a timely manner.
The disclosure they send will be considered timely if the following applies:
· If it was received before a criminal investigation was completed.
· If it was received before the IRS received word of noncompliance through a third party.
· If it was received before the IRS received word of noncompliance through a search warrant, subpoena or another type of criminal enforcement action.
The Offshore Voluntary Disclosure Program is similar to the IRS Disclosure Program, but it is designed specifically for taxpayers who failed to report foreign assets. It may provide tax amnesty, protect taxpayers from criminal liability and allow them to work out a plan with the IRS for paying for what they owe.
It should be noted the updated regulations of the Offshore Voluntary Disclosure Program states that taxpayers must have applied by September 28, 2018 to become eligible. The IRS is no longer accepting applications for the program.
A taxpayer’s foreign assets should be reported on an FBAR (Foreign Bank Account Report). The report should reveal any earnings placed in a financial account located outside of the United States including stocks, mutual funds and life insurance. If you have foreign assets and have not included an FBAR in your tax returns, you may need to consult the IRS.
The IRS Voluntary Disclosure program reduces the likelihood of prosecution, but it does not eliminate it. Therefore, it’s a good idea to have a good attorney on your side. The right attorney will provide guidance on how to communicate with the IRS and they will be there if a criminal investigation takes place.