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Everything You Need to Know About IRS Voluntary Disclosure

Boston IRS Voluntary Disclosure Lawyer

What is the IRS Offshore Voluntary Disclosure Program?

The 2012 IRS Offshore Voluntary Disclosure Program is a federal amnesty program designed to encourage individual taxpayers and businesses to voluntarily report previously undisclosed offshore accounts and assets.  The U.S. Internal Revenue Service offered taxpayers similar amnesty programs in 2009 and 2011 and due to the high interest in these earlier programs, the IRS elected to reopen its Offshore Voluntary Disclosure Program on January 9, 2012.   

Taxpayers, who have failed to disclose certain foreign accounts and assets, may be able to reduce their financial penalties and avoid possible criminal prosecution by voluntarily coming forward and making a complete and proper disclosure to the IRS.  The eligibility requirements and procedures associated with IRS Voluntary Disclosure Program are difficult to understand and taxpayers considering this program should thoroughly discuss their individual situation with an experienced Boston IRS voluntary disclosure lawyer before they take steps to participate in this IRS amnesty program.  

What Steps are Involved in Making an IRS Offshore Voluntary Disclosure?

Several steps are involved in making a voluntary disclosure under the IRS program and, in most cases, it takes nearly two years to complete the program.  The process is complex and numerous procedural and reporting requirements must be met.   

Taxpayers in the Boston region, who are contemplating participation in this program, should seek the guidance and advice of a Boston IRS voluntary disclosure attorney as they attempt to make a voluntary disclosure and come into compliance with U.S. tax laws and regulations.  The primary steps associated with the program are outlined below:

  • Pre-Clearance:  When a taxpayer wishes to participate in the IRS Offshore Voluntary Disclosure Program, a Boston IRS voluntary disclosure lawyer at Thorn Law Group will begin the process by submitting a pre-clearance request to the IRS Criminal Investigation Division. It is important to note that this request does not serve as a guarantee that the taxpayer will be accepted into the IRS program. The IRS will review the request and notify the taxpayer whether they are eligible to make a disclosure. If so, they would do this by submitting an offshore voluntary disclosure letter to the IRS.
  • Offshore Voluntary Disclosure Letter:  When a taxpayer receives a pre-clearance notification from the IRS, the taxpayer must prepare and submit an offshore voluntary disclosure letter and associated attachments to the IRS.  Upon the receipt of such a disclosure letter, the IRS will carefully review the information in the letter and all attached documents in order to make a determination as to whether the voluntary disclosure made by the taxpayer will be accepted or declined on a preliminary basis.
  • Full Voluntary Disclosure Submission:  Once the taxpayer has been preliminarily accepted into the voluntary disclosure program, the taxpayer will need to make a “full voluntary disclosure submission” to the IRS.  The submission requirements associated with the program are very detailed and can be challenging to navigate.  Taxpayers should consult with a Boston IRS voluntary disclosure attorney to make certain they are providing the complete and accurate information the IRS requires in order to be accepted into the program.

    Additionally, a skilled tax lawyer can help taxpayers respond to IRS examiner requests for additional information and documents throughout the process.  Once a submission is complete, an IRS civil examiner will certify the voluntary disclosure for accuracy and completeness and verify the amount of the taxes, interest, and civil penalties owed by the taxpayer.

  • Closing Agreement:  After the IRS has verified the back taxes, interest and penalties due, the taxpayer will need to execute a closing agreement with the IRS setting forth the taxpayer’s responsibilities and obligations under the program.  Taxpayers should carefully review all terms and conditions set forth in the closing agreement with a Boston IRS voluntary disclosure lawyer before signing the agreement.

Why Should I be concerned about Foreign Mutual Funds?

Under the IRS Offshore Voluntary Disclosure Program there are special considerations associated with disclosures involving Passive Foreign Investment Company (PFIC) issues.  PFICs include foreign mutual funds and the failure to properly disclose and pay taxes on such investments can subject taxpayers to additional penalties involving highly complex calculations.   

Taxpayers holding investments in PFICs should consult with an experienced Boston IRS voluntary disclosure attorney at Thorn Law Group to determine how to best proceed in bringing their undisclosed foreign mutual fund accounts into compliance with U.S. law.

To learn more about how a Massachusetts IRS voluntary disclosure lawyer can assist you with a voluntary disclosure or another tax related matter, contact Kevin E. Thorn, Managing Partner of Thorn Law Group at (617) 692-2989.

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