What is the Process for Submitting a Voluntary Disclosure to the IRS?

While willful tax law violations can expose U.S. taxpayers to criminal penalties, taxpayers may be able to avoid criminal prosecution by submitting a voluntary disclosure to the Internal Revenue Service (IRS). However, submitting a voluntary disclosure is a complex, multi-step process, and strict eligibility requirements apply. As a result, an informed and strategic approach is critical, and this starts with engaging experienced tax counsel. Learn more from Virginia tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group:

5 Key Steps in the Voluntary Disclosure Process

For taxpayers who have committed willful violations of the Internal Revenue Code (IRC), the Bank Secrecy Act (BSA), and the Foreign Account Tax Compliance Act (FATCA), submitting a voluntary disclosure can help them come into compliance without triggering an audit or investigation. While submitting a voluntary disclosure, “[does] not automatically guarantee immunity from prosecution . . . [it] may result in prosecution not being recommended.”

That said, successful voluntary disclosures generally result in taxpayers coming into compliance with their federal tax obligations without facing federal charges. In broad terms, submitting a successful voluntary disclosure involves:

1. Obtaining “Preclearance” from IRS CI

The first step in the process is seeking “preclearance” from IRS Criminal Investigation (IRS CI). This involves completing and submitting Part I of IRS Form 14457 (Voluntary Disclosure Practice Preclearance Request and Application). As IRS CI explains, once it receives a preclearance request, it will “determine if [the taxpayer is] pre-cleared to enter the practice.” As IRS CI also makes clear, “[p]reclearance determines [the taxpayer’s] eligibility for the practice but does not guarantee preliminary acceptance into the practice.”

2. Submitting a Voluntary Disclosure Application

After receiving preclearance, the next step is submitting a Voluntary Disclosure Application. This is Part II of IRS Form 14457. IRS CI reviews taxpayers’ Voluntary Disclosure Applications as well, and if it approves a taxpayer to participate in the voluntary disclosure program, it will issue a Preliminary Acceptance Letter and forward the case to a civil examiner.

3. Submitting Requested Documents and Information

Once IRS CI forwards a taxpayer’s case to a civil examiner, the taxpayer “must cooperate with the examiner in providing requested documents and information.” This is part of participating taxpayers’ broader obligations to “[t]imely submit all required documentation . . . [and c]ooperate with the IRS in determining [their] correct tax liability.”

4. Working with the IRS to Determine the Taxpayer’s Liability

Working with the IRS to determine a taxpayer’s correct tax liability can be a complex process on its own. Crucially, while taxpayers must cooperate with the IRS in good faith, they have the right to ensure that they do not overpay—and this is one of several key areas where experienced legal representation is essential.

5. Paying the Taxpayer’s Outstanding Liability in Full

Finally, at the end of the voluntary disclosure process, taxpayers must be prepared to pay their outstanding liability in full. If necessary, participating taxpayers can seek to enter into a full-pay settlement agreement with the IRS.

Discuss Your Legal Options with Virginia Tax Attorney Kevin E. Thorn

If you need more information about the voluntary disclosure process or the alternatives available to you, we invite you to get in touch. To discuss your legal options with Virginia tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 703-752-3752 or request an appointment online today.