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IRS issues new voluntary disclosure practices that may raise penalties

On November 29, 2018, the IRS released a memorandum that addressed the process for all voluntary disclosures following the end of the Offshore Voluntary Disclosure Program (OVDP) on September 28, 2018. The new rules, effective for all disclosures after September 28, 2018, up the penalties for non-compliance.

Under the new rules, taxpayers are required to request preclearance to kick off the process and an initial submission must be made to the IRS Criminal Investigation office (Form 14457). The form requires applicants to provide a narrative statement with the facts and circumstances of their assets, entities, related parties, and any professional advisors, and is necessary for the taxpayer to be preliminarily accepted into the new program.

An IRS field agent then takes over the disclosure process, document submission, payments and penalties, following a formal examination process for analyzing disclosures. The length of the disclosure period is now six-years, reduced from the previous requirements of 8 years.

The new program allows IRS field agents more discretion to assert penalties. Non-cooperative taxpayers can see penalties extend beyond the six-year disclosure period; this is a gray area where effective negotiations might reduce penalties. In addition, field agents have the discretion to add penalties associated with the failure to file FBAR/information returns under existing penalty guidelines. Taxpayers that disagree with assigned penalties can appeal to the IRS’s Office of Appeals.

Contact your TaxOps advisor for guidance on this and other amnesty programs available to delinquent taxpayers.

Source: Memorandum for Updated Voluntary Disclosure Practice

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Judy Vorndran can be reached at jvorndran@taxops.com or 720.227.0093. Follow Judy on LinkedIn.

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