Coming Into Compliance: Should You Submit a Streamlined Filing or Voluntary Disclosure?

For Massachusetts residents and businesses that are behind on their federal tax obligations, proactively coming into compliance can help them avoid a high-stakes audit or investigation. In many cases, this will involve submitting either a streamlined filing or a voluntary disclosure. However, these are very different options that are available in very different scenarios, so informed decision-making is crucial. Learn more from Boston tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group:

IRS Streamlined Filings vs. IRS CI Voluntary Disclosures

While there are several critical differences between streamlined filings and voluntary disclosures, a threshold consideration for taxpayers who need to come into compliance is whether the violation at issue was willful. If the violation was willful, this can pose risks for criminal prosecution, and submitting a voluntary disclosure will most likely be the best path forward. Conversely, if the violation was not willful, submitting a voluntary disclosure is not an option, and the taxpayer will need to file a streamlined return or come forward through other means.

When is a tax law violation considered “willful”? As IRS Criminal Investigation (IRS CI) explains:

“Willfulness is not simply making a mistake. It is the intentional, purposeful, deliberate act to hide income or assets and therefore evade filing requirements or payment of tax. . . . [The voluntary disclosure] program is not for you if you simply made a math error or other mistake on your tax filings.”

Since submitting a voluntary disclosure involves admitting to a willful violation of federal law, an informed and cautious approach is critical. Before coming forward, taxpayers should consult with experienced tax counsel who can evaluate their eligibility and, as warranted, proactively engage with the IRS CI on their behalf.

What about submitting a streamlined filing?

Submitting a streamlined filing is an option for taxpayers who need to resolve non-willful violations of the federal foreign financial asset disclosure requirements. These requirements apply to U.S. taxpayers who have qualifying offshore bank accounts and other qualifying foreign holdings. Non-willful violations of these requirements can expose taxpayers to substantial civil penalties, and, as these penalties can continue to accrue on a rolling basis, seeking a proactive resolution with the IRS can minimize the costs of taxpayers’ inadvertent mistakes.

As the IRS’ streamlined compliance procedures are available exclusively to taxpayers who need to resolve foreign financial asset disclosure violations, those who need to resolve other non-willful violations will need to come forward through other means. Since certain options are off the table once the IRS opens an audit or investigation, taxpayers in Massachusetts with concerns about their compliance record should consult with an experienced Boston tax attorney as soon as possible.

Request a Call with Boston Tax Attorney Kevin E. Thorn

If you would like to speak with Boston tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, we invite you to get in touch. Mr. Thorn represents Massachusetts residents and businesses in all federal tax compliance matters. To schedule an appointment, call us at 617-692-2989 or tell us how we can reach you online today.