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The Internal Revenue Service’s (IRS) Voluntary Disclosure Practice and its Streamlined Filing Compliance Procedures provide ways for individual and corporate taxpayers to mitigate their liability for failing to timely disclose offshore accounts as required by law. However, while the IRS’ Voluntary Disclosure Practice and Streamlined Filing Compliance Procedures offer significant benefits when utilized effectively, there are certain risks associated with voluntary disclosure as well. As a result, U.S. taxpayers must be extremely careful to avoid mistakes that could potentially lead to unnecessary penalties, and they must rely on the advice of counsel when disclosing their offshore accounts to the IRS.

Here, New Jersey offshore tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, discusses five common misconceptions about the IRS’ Voluntary Disclosure Practice and Streamlined Filing Compliance Procedures, and provides some insights into what taxpayers need to know before they voluntarily disclose their offshore accounts to the IRS:

1. Voluntary Disclosure is Not a “Get Out of Jail Free” Card

Voluntarily disclosing your offshore accounts to the IRS does not provide full protection against liability for taxes, interest, and penalties. Instead, if you have not willfully failed to disclose your offshore accounts, then utilizing the IRS’ Streamlined Filing Compliance Procedures can mitigate the amount that you owe while also providing protection against the risk of criminal prosecution for willful noncompliance. If you have willfully violated the law and are seeking to avoid prosecution, the IRS’ Voluntary Disclosure Practice may offer an option for minimizing the consequences of your mistake.

2. The Streamlined Filing Compliance Procedures Only Provide Protection for Non-Willful Failures to Disclose

The IRS does not take noncompliance lightly. This is particularly true when there is evidence to suggest that a taxpayer’s noncompliance was willful. If you have willfully failed to disclose your offshore accounts to the IRS, then not only are you not eligible to utilize the IRS’ Streamlined Filing Compliance Procedures but attempting to utilize the Streamlined Filing Compliance Procedures could potentially trigger an audit or investigation and lead to criminal prosecution for federal tax fraud.

3. There are Specific Requirements for Submitting a Voluntary Disclosure to the IRS

Whether you are seeking to utilize the IRS’ Streamlined Filing Compliance Procedures or its Voluntary Disclosure Practice, there are specific requirements with which you must comply. If you do not submit your voluntary disclosure properly, it could be ineffective, and it could trigger scrutiny into your federal filings (or lack thereof).

4. It Is Often Necessary to Negotiate with the IRS After Submitting a Voluntary Disclosure

When you submit the requisite forms in order to voluntarily disclose your offshore accounts, this is not the end of the process. In many cases, it will be necessary to engage directly with the IRS and negotiate for a favorable outcome. If you submit a filing under the Streamlined Filing Compliance Procedures and the IRS determines that your failure to disclose was willful, then you will need to overcome these allegations in order to avoid facing criminal charges.

5. You Need to Work with an Experienced Offshore Tax Attorney When Submitting a Voluntary Disclosure

Due to the complexities and risks involved, if you believe that you need to submit a voluntary disclosure to the IRS, it is important to work with an experienced offshore tax attorney. If you have questions and would like to speak with an attorney, we encourage you to contact us for a confidential consultation.

Request a Confidential Consultation at Thorn Law Group

For more information about voluntary disclosure compliance and the potential risks involved in making a voluntary disclosure to the IRS, contact Thorn Law Group. To speak with New Jersey offshore tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group in confidence, call 201-355-8202, email ket@thornlawgroup.com or request an appointment online today.