IRS Criminal Investigation Update: The “New” Voluntary Disclosure Practice

In September 2018, the Internal Revenue Service (IRS) closed its Offshore Voluntary Disclosure Program (OVDP), which had, in various forms and at various times since 2009, provided a mechanism for taxpayers with undisclosed foreign accounts to come clean and avoid criminal liability.  While this was a noteworthy development and made the news given how hard the IRS had pushed in the recent past for compliance in this area, the reality is that IRS has long maintained a voluntary disclosure practice outside of its OVDP.  Indeed, after closing the latest OVDP, the IRS released an updated memorandum outlining its current voluntary disclosure practice in November 2018, making clear that it will apply to all taxpayers seeking to make a voluntary disclosure, “whether domestic, offshore, or other” violations form the basis for the disclosure.

As the updated memorandum describes, the compliance practice involves making a preclearance submission to IRS Criminal Investigation (IRS-CI), and upon IRS-CI’s acceptance, a more complete disclosure including narrative detail explaining “the facts and circumstances, assets, entities, related parties and any professional advisors involved in the noncompliance.”  Taxpayers make the preclearance submission and post-clearance disclosure on newly revised (as of March 2019) Form 14457.  Eligibility for the compliance practice remains as set forth in Internal Revenue Manual section

So why might all of this matter now?  The Chief of IRS-CI, Don Fort, and the new IRS Commissioner, Chuck Rettig, have recently emphasized the importance of enforcement and their plans for hiring more agents.  This will certainly take time to accomplish, but in the meantime a taxpayer who simply hopes the IRS is not going to find the issues may do well, as taxpayers have in the past, to come forward and come clean.  In addition, the IRS’s push for offshore account/income compliance is not gone.  While the official OVDP has expired, taxpayers should understand that there remains an avenue to come forward to the IRS and seek a non-criminal resolution of matters related to offshore accounts.  In fact, as Fort recently stated, as many as 25% of recent voluntary disclosures related to offshore issues.

In short, although the OVDP is a thing of the past, given the recent emphasis by the IRS on its general voluntary disclosure practice and its promise to increase enforcement, there may be no time like the present to come into compliance.

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