Voluntary Disclosure Preclearance & the IRS

Voluntary Disclosure Preclearance & the IRS

Voluntary Disclosure Preclearance

Voluntary Disclosure Preclearance: The Voluntary Disclosure Preclearance Letter is now an IRS requirement under the updated IRS Voluntary Disclosure Practice. Under the previous version of the program (OVDP), preclearance was not mandatory. Fast-forward to 2020, and now the IRS preclearance letter is mandatory.

Moreover, the Internal Revenue Service has developed a pre-printed form (revised Form 14457) to submit the letter.

Under the prior OVDP, form 14457 was also used as part of the submission – but it was not used as a mandatory pre-clearance letter.

While the VDP process is more complex than the streamlined procedures, many taxpayers simply do not qualify for the streamlined or delinquency procedures.

And, with the IRS enforcement of foreign accounts compliance at an all-time high, VDP is a good option for taxpayers.

What is IRS Voluntary Disclosure Preclearance?

The IRS Voluntary Disclosure Preclearance process is relatively straightforward.

The IRS requires only basic information about the offshore accounts in the preclearance letter.

The form asks for personal information used to identify the taxpayer, such as social security number, address, and passport information — along with the list of accounts and assets.

How Long Does it Take for the IRS Respond?

Under the new procedures, the IRS is (usually) taking several months to respond. This has many benefits to the Taxpayer, including allowing the Taxpayer time to financially prepare for the submission.  

Is the New Updated Voluntary Disclosure Program Good for Taxpayers?

Yes, the voluntary disclosure program is a great option of taxpayers who were willful, and do not qualify to go streamlined. While the penalties may be higher in some regard, they may also be negotiated (not applicable in prior OVDP, absent an opt-out). Moreover, international information return penalties may be waived, and overall the taxpayer may fare far better than they would have under prior OVDP.

Don’t’ Be Misled by Inexperienced Counsel

IRS Voluntary Disclosure is a specialty area of law, and should be handled by a Board-Certified Tax Law Specialist.

Each year, we inherit cases from clients who first went to less-experienced counsel, who oversold and underperformed. Typically, these attorneys are general tax practitioners, with some experience handling entry-level streamlined cases.

They are not dually-licensed in Tax (EA or CPA) and Law — and (unfortunately) will oftentimes place the unsuspecting taxpayer into a worse position than when the taxpayer first started the process.

These attorneys tend to deter taxpayers from entering voluntary disclosure, even if the taxpayer was willful. Rather, they manipulate them into submitting to the Streamlined Program – even when they know the taxpayer was willful – which can have a far-reaching impact on the client’s finances and freedom.

Speak with Experienced Tax and Legal Counsel

When a person is willful, they become ineligible to apply for the Streamlined Program. To complicate matters further, willfulness in offshore civil matters does not require knowledge (willful blindness) or intent (reckless disregard).

You only get one bite of the apple.

Golding & Golding: About our International Tax Law Firm

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

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