Updated Voluntary Disclosure Program FAQ Questions & Answers (2019)
The following is a list of Frequently Asked Questions we receive on issues involving IRS Voluntary Disclosure:
Is Voluntary Disclosure to the IRS, Safe?
This is probably one of the most common (and important) questions we receive from clients on a daily basis. The simple answer is yes, it is very safe…as long as you use competent and experienced counsel, and the submission is done properly.
How Do I Know if I will Be Accepted?
While there are no guarantees that you will be accepted, the IRS recently updated its procedures, and this includes a Preclearance Letter format as it was used under traditional OVDP.
Generally Preclearance (at least under OVDP) took 30-45 days. Under the revised procedures, preclearance will be submitted on a form provided by the IRS.
What Type of Attorney Should I Hire?
IRS Voluntary Disclosure is a specialized area of law. An IRS Voluntary Disclosure is a complex undertaking. It requires the coordination of several moving parts, including strategy development, Tax Preparation, Legal Analysis, Negotiation and more.
You should hire a Tax Attorney who has the following credentials:
- ~20 Years of Private Practice experience representing his/her own clients
- Experienced in Criminal and Civil Tax Litigation
- Experienced representing clients in Eggshell and Reverse Eggshell Audits.
- Advanced Tax Degree (LL.M.)
- Preferably a Board-Certified Tax Law Specialist
Can I Just Use a CPA?
While technically, you can use a CPA — we do not advise that you do so and it is not because we are Attorneys. It is because there is no attorney-client privilege with a CPA. And, because there is an element of willfulness with Voluntary Disclosure, it is important to use an Attorney in order to maintain the confidentiality privilege.
My Attorney Uses a CPA with a Kovel Letter, Am I Protected?
Despite what people would like to think, a Kovel Letter is not a magic wand. It does not bestow the Attorney-Client privilege to non-Attorney Accountants, CPAs, etc. except in limited situations in which the Attorney requires an Accountant in order to provide legal advice to a client.
If your Attorney is referring you to a CPA under a Kovel Letter, please be sure to have the Attorney explain the procedures and protections to you. If the CPA is “in-house” be sure they are an Employee and not an “Independent Contractor” of the firm. Otherwise, the information you provide may not be privileged.
What is a Preclearance Letter?
A Preclearance Letter allows an applicant to first submit a “request: to the IRS for submission into the voluntary disclosure program — before submitting all of his/her information to the IRS.
*If a person is rejected, they still have methods for getting into compliance.
Am I Guaranteed Amnesty from Prosecution?
While a person is not “guaranteed” amnesty from prosecution, it is the IRS’ pattern and practice to reject criminal prosecution of individuals or other applicants who make a “full” and “truthful” disclosure.
How Many Years of Taxes/FBARs Do I Need to Submit?
Under the revised rules, a person submits 6 years of amended/original tax returns. This includes informational returns such as 3520, 3520-A, 5471, 5472, 8865 and 8938 (amongst others).
*You may be able to submit additional years under specific circumstances, such as to establish basis or other reasons.
How Much is the Voluntary Disclosure Penalty?
Under the revised procedures, there is not exact penalty equation as there was under OVDP, but the IRS refers to certain IRM (Internal Revenue Manual) enforcement procedures for review. Typically, this would mean a 50% FBAR penalty (or $100,000 per year), whichever is GREATER.
*The IRS has leeway to reduce (or even increase) the penalties.
What are the Different Penalties?
Currently, there is a 3-4 tier penalty structure:
– Taxes Due: The Penalty is generally going to be a 75% Tax Fraud Penalty against the single year with the most amount of Tax Due.
– FBAR Penalty: The Penalties is generally going to be a 50% penalty on the maximum balance or $100,000 per year penalty – whichever penalty comes out higher
– Information Return Penalty: Varies based on facts and circumstances and may be waived.
– Other Penalties: Varies based on facts and circumstances and may be waived
Is there an Opt-Out Procedure?
Under the revised procedures, it is unclear if there is a specific “Opt-Out” procedure, but there is an appeal process available if you disagree with the penalty. In other words, if you disagree with the penalty, you will have a chance to dispute or appeal it.
What if I am in OVDP, can I Still Opt-Opt?
If you submitted to, and were accepted to OVDP prior to the close date (9.28.18), the IRS will still allow an Opt-Out.
The IRS has not indicated they will dis- allow an opt-out. Just because OVDP has ended does not mean that the Opt-Out is no longer available or that you lose your right to opt-out.
What if I Disagree with the Penalty?
If you disagree with the penalty, you may have the opportunity to dispute or appeal the penalty, with the understanding that while the penalty may be lowered, it may also be increased.
What if I Submit, But Then Do Not Want to Complete the Submission?
If you begin the submission process, but no longer want to go forward, you have to be careful. That is because some of your information is already “out there.” If you do not submit a “complete and truthful” submission, it may result in higher fines, penalties or even worse.
How Do I Know if the IRS Already has my Information?
Unfortunately, there is no way to know for sure if the IRS already has your information, but even if they do and you are rejected – you have options for compliance, which are usually better than getting caught being out of compliance.
Golding & Golding, A PLC
We have successfully represented clients in more than 1,000 streamlined and voluntary disclosure submissions nationwide and in over 70-different countries.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.
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Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.