Domestic Tax Amnesty & the IRS
Domestic Tax Amnesty IRS Voluntary Disclosure: The Domestic Tax Amnesty IRS Voluntary Disclosure are U.S. Income Federal Amnesty procedures. These procedures have recently been updated.
Several years ago, the IRS has developed Domestic Tax Amnesty programs to assist with U.S. income compliance requirements.
The U.S. income version of the program can help avoid tax fraud and evasion and criminal investigations for domestic income.
Common industries that benefit from amnesty include:
- Small Business
- Musicians and Actors
- Investment Managers
- Financial Planners
While the IRS has placed great emphasis on international disclosures, it is important to note that they are just as willing to penalize, investigate, indict and prosecute you for failing to report U.S. or Domestic income as well.
How to Qualify and Apply to Domestic Amnesty
While many of the cases we handle are foreign & international voluntary disclosure cases, many of our cases also combine both domestic and foreign cases — or are domestic based voluntary disclosure cases.
Domestic Tax Amnesty to the IRS is Now More Fluid
One of the benefits of the New Domestic Tax Amnesty & Voluntary Disclosure program is that the IRS has provided a bit more substance and structure to the domestic voluntary disclosure practice — as well as enhancing the instructions for Domestic and Foreign submissions.
In other words, if you have both unreported domestic income and unreported foreign income – you can complete the entire submission under one program.
We are going to use this article to detail the “Domestic portion” of the voluntary disclosure program, as well as provide some examples — to give you a better idea of whether the program is right for you.
We will Break Domestic Voluntary Disclosure Down into 4 Parts
- Common Domestic Voluntary Disclosure Terms
- How to Submit to the Program
- Examples Domestic Voluntary Disclosure
- Finding Reputable and Experienced Counsel
Common Terms & Definitions
Here are some common questions and phrases:
Domestic Tax Amnesty
Domestic Tax Amnesty is a general phrase that refers to all the different versions of the voluntary disclosure programs that the Internal Revenue Service makes available for U.S. income.
The domestic voluntary disclosure program refers to domestic amnesty (there are also multiple international or foreign versions of the program). Unlike the foreign versions of the program, the domestic voluntary disclosure is generally one large program, that encompasses all different types of domestic income.
In other words, there are no sub-programs for the Domestic submission as there are for the Foreign Submissions (Streamlined Programs).
What Types of U.S. Tax issues are Covered?
All different types of taxes penalties can be submitted with domestic voluntary disclosure, including: Income Tax, Sales Tax, Estate Tax, Business Tax — and various other types of U.S. based tax issues.
What Does Domestic Voluntary Disclosure Mean?
When it involves the Internal Revenue Service (IRS), domestic voluntary disclosure refers to the voluntary disclosure or reporting of income associated with U.S. sourced income or money. This is different than foreign or international voluntary disclosure, which refers to foreign money.
IRS Criminal-Investigation Voluntary Disclosure Program
IRS Criminal Investigation Voluntary Disclosure Program is a long-winded way of referring to the domestic voluntary disclosure program.
It is not a criminal admission or submission. You are not acknowledging criminal liability or submitting a plea deal by entering the program.
The disclosure is intended to avoid any criminal prosecution.
IRS Voluntary Disclosure Memo
There are two primary IRS voluntary disclosure memos people refer to these days:
There is a now infamous memo from about 10 years ago which focuses on which standard of proof the IRS should use when enforcing certain penalties.
Most likely though, if someone is referring to the IRS Domestic Voluntary Disclosure Memo, they are referring to the new updated IRS voluntary disclosure procedures, which are contained in a 11.20.2018 memo.
Domestic Tax Amnesty IRS
As you can imagine, domestic voluntary disclosure can have many meanings and connotations, depending on the context.
Several states have their own domestic voluntary disclosure program as well, so when you see the phrase domestic voluntary disclosure and “IRS,” then you know it is referring to Internal Revenue Service’s voluntary disclosure program.
Domestic Tax Amnesty IRM
Domestic Voluntary Disclosure IRM refers to the Internal Revenue Manual, where you can find mountains of information involving all different types of IRS procedures.
There are various sections which detail domestic voluntary disclosure practices, but it is important to refer to the November 20, 2018 memo regarding the updates to the program (until it is further updated).
Domestic Tax Amnesty Form
The Domestic Voluntary Disclosure form, refers to form 14457.
This is a form that an applicant uses when the applicant wants to submit to either the domestic voluntary disclosure program or foreign program — by requesting preclearance.
In prior years, there was no specific domestic voluntary disclosure program pre-clearance letter available, but now it is available (3/19).
Domestic Tax Amnesty Penalty
The domestic voluntary disclosure penalty ranges, depending on each person’s facts and circumstances.
With that said, the general proposition is that the IRS will seek to enforce fraud related penalties for domestic voluntary disclosure income and other related penalties.
Meanwhile, other penalties that would otherwise seem automatic such as failure-to-file and failure-to-pay, may be abated.
Domestic Tax Amnesty Program
Domestic Voluntary Disclosure Program is just another way to refer to the traditional domestic voluntary disclosure program.
Domestic Tax Amnesty Practices
Domestic Voluntary Disclosure Practices is just another way to refer to the traditional domestic voluntary disclosure program.
When was Domestic Tax Amnesty Introduced?
The Domestic Voluntary Disclosure Program has been around in one form or another — for more than 50 years.
While other programs have come and gone, the Internal Revenue Service has always seemingly provided some sort of procedure for people who wanted to try to get into compliance, and get right with the Internal Revenue Service — before any sort of criminal action is initiated.
IRS of Release the New Domestic Tax Amnesty?
The memo detailing the updated domestic voluntary disclosure program procedures and practices was released on November 28, 2018.The memoranda was dated November 20, 2018.
How to Make a Domestic Tax Amnesty?
We will go into more detail below about how to initiate a Domestic Voluntary Disclosure but generally you submit a preclearance form letter, which is identified as IRS form 14457.
This form was not always used for preclearance, so it is important that when you make this submission you are using with the most recent version of the form. At the time of this article, the most recent Version of the form is March 2019.
How to Submit
The application commences with a preclearance letter.
The Pre-Clearance letter is not overly detailed, but it will require you to submit some data to the Internal Revenue Service breaking down the source of income, the type of income, and other related issues. After submission (and acceptance) the next phases will vary based on each person facts and circumstances.
We have prepared a separate article summarizing how to breakdown the preclearance form 14457.
Four (4) Examples Domestic Voluntary Disclosure
In Tax (and life) our team has found the best way to learn and digest highly complex information is through examples.
Therefore, we will provide you four (4) examples of common domestic voluntary and combined domestic and offshore voluntary disclosure submissions.
Domestic Tax Amnesty (Example 1)
Ralph runs a construction business. He earns significant income, but some of the subcontractors pay him in cash. When times were tough – or Ralph just wanted to go out and spend some money — Ralph did not report the income to the IRS.
In addition, Ralph failed to withhold employment tax on certain staff members who are employees instead of independent contractors.
Finally, Ralph also embellished his expenses.
Ralph may be a good candidate for the domestic voluntary disclosure program
Domestic Tax Amnesty (Example 2)
Victor is your typical entrepreneur.
Victor grinded it out in 80-to-100+ hour work weeks trying to build up a small record label.
One of Victor’s musicians hit it big, and Victor took it upon himself to spend a lot of money, without reporting it.
As his record company grows, Victor still fails to fix any of the issues, while still skimming off the top.
Victor may be a good candidate for the domestic voluntary disclosure program
Domestic Tax Amnesty & Offshore Business Disclosure (Example 3)
Continuing from the previous example, one of Victor’s acts is located in Costa Rica. Victor is hanging out at a Costa Rican bar with some expats when Victor gets the idea of not reporting a majority of the income from his foreign musician.
Instead of repatriating to the U.S., he uses the money to purchase a few Costa Rican homes for rental properties — and opens a few Costa Rican bank accounts.
He works with a local attorney and thinks the money is safe since he does not have signature authority over the accounts — his business partner handles money in Costa Rica through a Sociedad Anonima.
Victor gets cold feet.
Victor may be a good candidate to submit for both domestic and foreign issues.
Domestic Tax Amnesty & Offshore Business Disclosure (Example 4)
Andre works as a consultant in United States.
He formed his own LLC, and became very successful. Unfortunately, Andre is a little too smart for his own good, and failed to pay income tax on some of the earnings.
He had U.S. and foreign clients divert some of the domestic and foreign income, which he used to purchase rental properties overseas, to accounts overseas. Andre did not report the income, and claimed deduction for fringe benefits that he knew he should have included as income.
Andre intentionally underreported his US earnings, and then shifted them into a couple of Swiss banking “numbered accounts,” thinking he could keep the money hidden.
Unfortunately, Andre got wind that there might be a whistleblower at one of his client’s companies.
Moreover, it turns out that the foreign bank edited to a deferred prosecution agreement the United States.
Victor may be a good candidate to submit for both domestic and foreign issues.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20 years of experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Golding & Golding Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Offshore Counsel
Generally, experienced attorneys in this field will have all the following credentials/experience:
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
Interested in Learning More about Golding & Golding?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
Golding & Golding specializes in FBAR and FATCA. Contact our firm today for assistance with getting compliant.