The New IRS Voluntary Disclosure Program (Offshore): 2024 OVDP

IRS Voluntary Disclosure Program Updated Practice

When a US Taxpayer is out of compliance with the Internal Revenue Service, they have different tax amnesty options available to voluntarily disclose their unreported money — and get into compliance. The IRS Voluntary Disclosure Program is a Federal Government program that provides Taxpayers an opportunity to disclose previously unreported offshore income, assets, investments, and accounts to the Internal Revenue Service — and resolve their foreign and US tax matters.  The Internal Revenue Service’s Voluntary Disclosure Practice (VDP) has been a continuing practice of the IRS Criminal Investigation (CI) unit for many years. The goal of the Voluntary Disclosure Program is to facilitate Offshore and Domestic Tax compliance for Taxpayers who do not qualify as non-willful. By making a timely and complete submission to the (New) Voluntary Disclosure Program, the IRS will evaluate the Taxpayer’s facts and circumstances, determine which penalties should apply, and complete the process with a closing letter (Form 906).

What are the Benefits to the Taxpayer?

In exchange, the US Government will usually refrain from pursuing criminal prosecution and special agent investigations against the Taxpayer(s) — and while it does not guarantee “immunity,” Taxpayers often avoid any criminal prosecution for the prior year’s noncompliance.  The updated procedures are a great deal for non-compliant Taxpayers. The New IRS Voluntary Disclosure procedures were updated in 2019, at the close of OVDP. The IRS Voluntary Disclosure Program (VDP) allows U.S. Taxpayers to safely get into compliance and regain their peace of mind about tax filings. In recent years, the IRS has taken an aggressive position regarding foreign accounts compliance. FBAR penalties can be substantially worse if a person is under FBAR Audit instead of voluntarily disclosing under the program. The goal of IRS Voluntary Disclosure is to avoid a criminal tax investigation. If a person can qualify as non-willful, they may qualify for streamlined filing compliance as well. The tax and legal team at Golding & Golding has successfully handled offshore disclosure matters for clients located all over the world.

IRS Voluntary Disclosure Program Basics

The IRS Voluntary Program can be a great benefit to taxpayers who may be considered “willful” by the IRS — or are simply uncomfortable with certifying under penalty of perjury that they are non-willful. In some cases, VDP will still be a preferred method to the Streamlined Procedures for non-willful taxpayers. The main requirement is that the money cannot be from Illegal Sources. 

New IRS Voluntary Disclosure Program Procedures

Under the new voluntary disclosure program, the Internal Revenue Service combined Offshore Voluntary Disclosure with Domestic Voluntary Disclosure into one program. The penalty structures have also been revised.

Offshore Accounts, Assets & Income

The IRS has developed several Offshore Voluntary Disclosure tax amnesty compliance programs to allow Taxpayers to report and disclose unreported offshore accounts and income.

U.S. Income Reporting

This article focuses on Offshore Voluntary Disclosure. If you are seeking to learn about the U.S., Non-Offshore Voluntary Disclosure Practice for U.S. Income, we have a separate article detailing the Domestic Voluntary Disclosure.

We want to help you bring understanding and clarity to this often confused (and highly specialized) area of tax law.

Why Must the Money Be from Legal Sources?

The reason the money must be from legal sources is simple: If the money was from illegal sources, then by entering the IRS Voluntary Disclosure, you would be “cleaning dirty money,” and the IRS would be serving as the launderer…

Want to use the IRS to Launder Foreign Money, think again.

When is Criminal Prosecution Recommended?

If the IRS catches you committing a tax crime, chances are they will investigate. The IRS is not selective when it comes to enforcement. Movie Stars, Musicians, Moguls, and Politicians are all fair game when it comes to IRS criminal prosecutions. The general rule is that if you are out of IRS compliance for more than two (2) years, your civil violation(s) could turn criminal.

Moreover, situations that will greatly heighten your chances of getting caught, include:

• • • A scorned spouse;

    • Angry or vindictive Business Partner;

    • Third-Party who just doesn’t like you;

    • Someone who overheard something about what you did and wants to “blow the whistle”

    • Someone who is already in trouble and uses information he or she has against you to leverage a better deal

How the Updated IRS Voluntary Disclosure Program Works

The IRS is cracking down on all forms of Tax Fraud and Tax Evasion. While the IRS’ recent focus has been directed toward Offshore Disclosure (OVDP and the Streamlined Program) involving Foreign Money, Assets, and Income – U.S. Tax Crime is still a major enforcement priority. Whether you are a U.S. Resident or business with unreported Income, or a Foreign Resident (U.S. Person) with unreported Business Income, Assets, or Earnings — it is important to remain in tax U.S. tax compliance.

How does IRS Voluntary Disclosure Help?

As provided by the IRS:

• • • “It is currently the practice of the IRS that a voluntary disclosure will be considered along with all other factors in the investigation in determining whether criminal prosecution will be recommended.

    • This voluntary disclosure practice creates no substantive or procedural rights for taxpayers as it is simply a matter of internal IRS practice, provided solely for guidance to IRS personnel. Taxpayers cannot rely on the fact that other similarly situated taxpayers may not have been recommended for criminal prosecution.”

You Must Make a Full Voluntary Disclosure

Generally, once you make a full disclosure and pay all the necessary taxes, fines, penalties, and interest, the IRS is less inclined to investigate or prosecute you.

Why?

The IRS has limited resources. In other words, the IRS simply does not have the time or money to enforce tax crimes against each and every person who may have made a mistake – or worse – in prior tax years.

No Guarantee of Immunity from Prosecution

A voluntary disclosure will not automatically guarantee immunity from prosecution; however, a voluntary disclosure may result in prosecution not being recommended. This practice does not apply to taxpayers with illegal source income.

Truthful and Timely

A voluntary disclosure occurs when the communication is truthful, timely, and complete, and when:

• • • A taxpayer shows a willingness to cooperate (and does in fact cooperate) with the IRS in determining tax liability

    • The taxpayer makes good faith arrangements with the IRS to pay in full, the tax, interest, and any penalties.

What is at Risk if You Do Not Disclose Under IRS Voluntary Disclosure?

If you do not enter the IRS Voluntary Disclosure Program, and you get caught, the IRS may pursue an Eggshell Audit, Reverse Eggshell Audit, IRS Special Agent Investigation, and/or Criminal Prosecution by either the Internal Revenue Service or the Department of Justice (depending on the extent and nature of the crimes).

• • • The IRS has a nearly 100% conviction rate on tax fraud and evasion cases.

    • In recent years, the courts have extended jail sentences for financial crimes and coined the term “Financial Murder.”

    • The U.S Government is Using FATCA To Prosecute U.S. Citizens and Non-U.S. Citizens

The Dilemma – Should I Voluntarily Disclose or Not?

There are three decisions to make for a person who has committed a tax crime:

Do Nothing

Every tax professional has the duty and responsibility to tell taxpayers who are out of compliance and/or not properly filing their taxes that they should go back and make sure their taxes are correct. But, it is up to the taxpayer to decide to voluntarily disclose; the tax attorney cannot force the taxpayer to go back and amend their tax returns – or report the person to the IRS.

*If the IRS believes it can prove that the taxpayer committed civil fraud, there is generally no time limit as to how far back the IRS can go.

Amend Prior Returns (Quiet Disclosure)

If Taxpayers file amended returns without entering the program, they are putting themselves at risk. The problem with this strategy is that if they are detected and it turns out that the person is prosecuted, the taxpayer would probably be in a worse position than if they had come forward under the voluntary disclosure program; paid the taxes, fines, and penalties, and resolved the matter.

Voluntary Disclosure

For willful taxpayers, oftentimes the IRS Voluntary Disclosure Progam is the best option for safely getting into compliance.

IRS Voluntary Disclosure Program Steps

The first phase of making a voluntary disclosure is to submit Part I of IRS Form 14457. Once the taxpayer is accepted, then the applicant submits phase 2 of the 14457 form. Before making a voluntary disclosure, it is important to take note of the following:

The Submission Must be Timely

For an IRS Voluntary Disclosure submission to be timely, it must be:

Not Under Personal IRS Examination

The IRS has initiated a civil examination or criminal investigation of the taxpayer or has notified the taxpayer that it intends to commence such an examination or investigation.

The IRS Does Not Have Your Information Yet

In other words, the submission must be made before the IRS has received information from a third party (e.g., an informant, other governmental agency, or the media) alerting the IRS to the specific taxpayer’s noncompliance.

No Directly Related IRS Examination

The IRS has initiated a civil examination or criminal investigation that is directly related to the specific liability of the taxpayer.

No Criminal Action Initiated

The IRS has acquired information directly related to the specific liability of the taxpayer from a criminal enforcement action (e.g., search warrant, grand jury subpoena).

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

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

Contact our firm today for assistance.