How IRS’ VDP May Help Avoid a Lengthy Jail Sentence, 5 Facts

How IRS’ VDP May Help Avoid a Lengthy Jail Sentence, 5 Facts

5 Things to Know About IRS’ VDP Process 

There are many international taxpayers across the globe who have a U.S. tax and reporting requirement and are delinquent on those filings. While the Internal Revenue Service has developed many different amnesty programs to assist taxpayers with safely getting into compliance when they are non-willful (Streamlined Procedures and Delinquency Procedures), willful taxpayers are very limited in their options to get into compliance voluntarily. The main program that willful taxpayers may use is the traditional voluntary disclosure program — otherwise known as ‘VDP.’ This program has been around for several years and while there used to be an international offshoot of the program (OVDP), that program was terminated back in 2018 so any willful submission to the IRS through the voluntary disclosure program is now made through the traditional VDP– whether it is domestic or foreign. The new version of the program is much harsher and more strict than versions in the past, but let’s look at how a successful VDP submission may help you avoid a jail sentence.

Three Important Requirements for VDP

Before making a voluntary disclosure, the taxpayer must consider these three key facts to ensure that they are accepted into the program and may complete the program.

Beating the IRS to the Punch

The first thing to remember is that taxpayers have to reach out to the IRS to make their preclearance submission before they have been contacted by the Internal Revenue Service. Once the taxpayer is already under audit or examination or even investigation — they are typically not eligible to submit to IRS’ VDP.

Full Disclosure

Another important aspect of using the VDP to help avoid a jail sentence is that taxpayers must make a full disclosure. In other words, even if taxpayers have secret assets overseas that they believe the IRS could never find because possibly the United States has not entered into a tax treaty with that foreign country or the foreign financial institution has no intention of reporting to the IRS, the taxpayer is still required to make a full disclosure. If the IRS learns later that the taxpayer did not make a full disclosure, they may be disqualified from the program.

They Have to Cooperate and Complete the Process

By entering into the voluntary disclosure program, taxpayers agree to cooperate in the process and complete this submission from beginning to end. Depending on which IRS agent the taxpayer is working with, the process can be relatively straightforward or may become unnecessarily more complicated. Especially in the newer version of the program, agents may dive deep into the original returns beyond the focus of this submission to ensure that the underlying tax returns are accurate this is why the taxpayer must concede early in the process that there will be cooperation until the matter closes.

How Does it Help Avoid a Jail Sentence?

While the Internal Revenue Service does not guarantee that a taxpayer will not be further recommended for prosecution where we have never had a single taxpayer referred for criminal prosecution out of the many VDP submissions we have made over the years. Thus, from our experience, the IRS sticks to its word as long as the taxpayer cooperates in the process.

VDP is a Civil Matter

Submitting to the voluntary disclosure program is a civil process and not a criminal process. In other words, by beating the IRS to the punch and being accepted into the program, the taxpayer can use this civil resolution to avoid a referral for criminal prosecution. As a result, the taxpayer will sign a 906 closing letter and the matter will be resolved.

The Matter is Not Referred for Prosecution

By avoiding a criminal referral, the taxpayer no longer has to worry about the matter being referred for criminal prosecution — since the IRS closes out the matter in conjunction with issuing the 906 letter. While the monetary fines can be high, it is typically a whole lot better than getting 5-to-10 years in prison. Even though taxpayers who violate federal tax law end up in federal prison — which is not as bad as state prisons have been having most white-collar criminals would prefer paying a fine than being incarcerated.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.