On November 20, 2018, IRS issued a memo on its new voluntary disclosure program ("Voluntary Disclosure Program" or "Program"), following the offshore voluntary disclosure program's termination on September 28, 2018. The Voluntary Disclosure Program provides taxpayers with a process for voluntarily disclosing tax noncompliance for both domestic and offshore assets to avoid potential criminal liability and prosecution. IRS has discretion to apply the Voluntary Disclosure Program's procedures to all domestic voluntary disclosures received on or before September 28, 2018. Taxpayers have long been able to disclose voluntarily their tax noncompliance to IRS, either pursuant to IRS's long-standing practice of allowing voluntary disclosure, under IRM 9.5.11.9, or using the streamlined compliance procedures. However, the Voluntary Disclosure Program is arguably better for taxpayers, in that it provides precise procedures and guarantees that participant taxpayers will not be criminally prosecuted. Under the prior practice, voluntary disclosure was only a factor taken into consideration when determining whether to prosecute criminally.

The Voluntary Disclosure Program is effective for all voluntary disclosures received after September 28, 2018. To participate, taxpayers first request preclearance from IRS Criminal Investigation Division ("IRS-CI") by submitting Form 14457. IRS CI determines if taxpayers are eligible to make a voluntary disclosure, based on IRM 9.5.11.9 which generally provides that illegal income is not eligible. Once precleared, taxpayers then submit to IRS CI all required voluntary disclosure documents, again using Form 14457. These required documents include a narrative providing the facts and circumstances, assets, entities, related parties and any professional advisors involved in noncompliance. Once preliminarily accepted, IRS CI notifies taxpayers and forwards the submission to IRS Large Business and International Division's Austin, Texas unit ("LB&I") for review by a civil examiner. While under review, no additional documents will be requested. The taxpayer may make payment to IRS LB&I prior to case assignment. Once penalties are assessed, taxpayers may appeal to IRS's Office of Appeals. The Office of Appeals has wide discretion, and can increase penalties.

Generally, the Voluntary Disclosure Program requires disclosure of taxpayers' six most recent tax years, by amending returns and paying the outstanding tax liability. Taxpayers with noncompliance involving fewer than six most recent tax years must correct noncompliance for all noncompliant years. The examiner can expand the scope of examination to the full duration of the noncompliance, even if more than six years.

Generally, IRS will assess a civil fraud penalty for the tax year with the highest liability, and may assess a civil fraud penalty for all years within the scope of the disclosure. IRS may also assert willful FBAR penalties for offshore assets and failure to file penalties. Penalties relating to specific taxes such as excise, employment, and estate and gift, will be asserted in coordination with appropriate subject matter experts. During an appeal, taxpayers may request imposition of accuracy-related penalties instead of civil fraud penalties, and imposition of non-willful FBAR penalties instead of willful penalties.

It remains to be seen how effective the Voluntary Disclosure Program will be. The Program imposes a burden on taxpayers by requiring the correction returns for six years. The Program allows participants to avoid criminal prosecution, while allowing IRS to impose substantial penalties, including by increasing the penalties during an appeal. Alternatively, taxpayers looking to bring assets into compliance may choose to do so through voluntary disclosure or by using IRS's streamlined compliance procedures.

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